Flying Pink Unicorns

I was recently asked to comment on an op ed piece by David Brooks. Here's the piece:

http://www.nytimes.com/2009/06/02/opinion/02brooks.html?_r=1&ref=opinion

For those who don't know, Brooks is a conservative that sometimes uses his brain, making him a rare bird indeed on the conservative side. He's really a moderate conservative, a northeastern "conservative" of the kind that dominated the GOP once upon a time, when it was by and large to the left of the democrats. He became fairly critical of Bush towards the end of the second term, disillusioned with what happened when the GOP ruled the roost.

Anyway, here are my thoughts.

Brooks' piece is thought provoking, but I think he's wrong in a few key respects.

First, let's start where he's RIGHT. GM's biggest problem, at the end of the day, has been that its corporate culture could not accurately allow reality to seep into the key decision makers' in-box. Roger & Me was 1989 for heaven's sake. GM's been mismanaged for Olympiads!

Second, and much more worryingly, Brooks is surely right that, "the Obama plan won't revolutionize GM's corporate culture." However, the realistic risk of oblivion might. And that's where Brooks is wrong. He says there won't be any more outside investors. Baloney. Banks/investment funds will be CLAMORING to invest in GM (owned by Obama and thus unlikely to go truly bust as Brooks himself argues) if they show any signs of life. Perhaps even if they don't. Brooks is making the always fatal error of projecting the recent past into the near future. Credit markets will be loosened, money will look for a home, and if GM climbs out of intensive care, money will find it.

Brooks is importantly right that Obama's plan DOES entrench the ancien regime, which is terrible. The internal resistance in the administration to actually get in the car business and RUN IT for a few years is monumental. Look, I don't like the idea of a government running a car company much either. Put the factories in the district of powerful chairman, kowtow to the unions, block imports, ease rules, etc. But GMs management has been SO bad for SO long that its really hard for me to believe that Uncle Sam could do too much worse. Where I do think Brooks is somewhat wrong is that it "would be politically suicidal for the Democrats, or whoever is in power, to pull the plug on the company -- now or ever." He's not WRONG here, for sure, but he forgets a somewhat likely scenario. GM shrinks, does not boost market share, shrinks further, eats up more money, shrinks further, etc. GM may not so much die as fade away, at least in North America. In fact, that's probably the most likely scenario. Now this is godawful because it WOULD mean that dems throw good money after bad (and rightly get roasted by the Southern/Western dominated GOP for doing so) but it would over a period of say 12 years mean the end of the company, at least its North American Operations. It is true that GM will have to beat to Obama's drummer. Given that its focus for decades has been on anything but innovation and building small cars that people want, as opposed to big trucks that warm the planet and drive up the price of oil, changing its focus to pleasing its new masters in Washington will be much less harmful than Brooks thinks it will. Its easy to be reflexively against government owning the commanding heights. It isn't totally wrongheaded. But GM is a bit of a special case b/c its management has been SO bad for SO LONG. To conclude, Brooks piece, although worthwhile, is, in main part, at war with itself.

1) GM's corporate culture is totally dysfunctional (totally true);

2) GM will now have to please new masters (totally true, and more than just Obama-- Congress too);

3) Therefore, things will get worse and more good money will be thrown in after bad (I submit false-- GM was so bad that pleasing DC should be an IMPROVEMENT.

Lastly, Brooks throws in a FASCINATING analogy to the Iraq war, without bringing himself to quite say that that's what he's analogizing to: "The end result is that G.M. will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. We’ve seen this before, albeit in different context: An overconfident government throws itself into a dysfunctional culture it doesn’t really understand. The result is quagmire. The costs escalate. There is no exit strategy."

There are two possible exit strategies if things go wrong at GM:

First, bite the political bullet and let it go bust. Who knows, Obama might grow a set and do just that if the company just implodes. But let's stipulate that he/his successors won't.

Two, stand idly by as GM vainly struggles to right itself, and slowly fades away. Expensive, surely, to the extent any more money is put it. But the public is fed up with the bailouts, big time, and there may not be repeated bits at the apple. In any event, this would impose the market discipline that Brooks and the GOP so love, as oblivion nears. Then pleasing Obama/Congress would take a back seat to survival. After all, if DC isn't coughing up any more money, why kill yourself to please them. This exit strategy would be the "do nothing and watch them fade away" strategy. This is the strategy I predict Obama will take.