Saving Detroit

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DETROIT is running on empty. General Motors and Ford announced on November 7th that they had burnt their way through a total of nearly $15 billion of their precious spare cash in the third quarter. GM is on course to run out of money early next year; Ford a little later. Chrysler, 80% owned by Cerberus Capital, a private-equity firm, is less open about its suffering. But most people think it is already roadkill.

Across American industry, politics and labour, rarely have so many been so united: Detroit needs saving. The carmakers think they need $50 billion of taxpayers’ support to see them through. At a time when the government is throwing more than $1 trillion at the financial system, isn’t that only fair? Indeed, if it saves millions of jobs isn’t it a bargain? You never know, the state’s investment might even turn a profit.

Bailing out Detroit would be a bad use of public money. It would be bad in principle, because it would be an open invitation to companies everywhere to apply for aid to survive the recession. Banks qualify for help because the entire economy depends upon their services. They are vulnerable to sudden collapses in confidence that can spread to other banks that are perfectly solvent. A good car company does not face the same threat. And although Detroit employs a network of suppliers, which would suffer if production shuts down, nothing would sap a recovery and job-creating enterprise like locking up badly used resources in poorly performing companies.

Read the full article at THE ECONOMIST

Date published: Nov 13, 2008

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