Wednesday, June 3, 2009

Capitalism without Capitalists, Part II

General Motors has now filed for bankruptcy and when it re-emerges from bankruptcy a majority of the stock of the company will be owned by the United States Government. I don’t know if this is good or bad, but at least it’s different and worth thinking about for a moment.

First, it’s important to understand that this isn’t socialism—the company won’t be owned by its workers (although a trust for the healthcare for UAW workers will be the second largest shareholder). This is state capitalism. GM will still be operated as a for-profit company with the goal of making money for its shareholders. It’s just that the shareholders will be the United States taxpayers.

Listening to the comments from the pundocracy, I’ve been most struck by the fact that the biggest concern seems to be that the government may do something as the owner of GM. Now, the government may turn out to be a bad owner and a bad capitalist (I don’t think that would surprise anybody), but what is the alternative?

Up until now GM has been run only by its executives without any input from its owners. I imagine that’s because GM is owned by thousands of different entities, many of them mutual funds that themselves have thousands of owners. None of these entities or people owned enough of GM’s stock to influence its behavior, and most of them probable don’t know any more than you or I about running an automobile company.

Back in 2006, Kirk Kerkorian, the billionaire investor, actually accumulated 9.9% of GM’s stock and forced GM to put a board member of his choosing, Jerome York, on its board. He came up with some innovative ideas to try to put GM back on the right track, presented them to the Board of Directors and was promptly ignored. Shortly after he left the Board of Directors and Kerkorian sold all of his GM his stock before the end of 2006.

Many of the ideas put forth by Kerkorian—selling Hummer and Saturn, closing plants, cutting back on the number of brands and dealers—are just what GM is doing in bankruptcy. In 2006, when the economy was strong, it would have been much easier to turn GM around, then it is now, but GM wasn’t willing to listen.

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