Public fear that the recession might morph into a depression, the possible implosion of the nation’s banking system, and revulsion at multimillion-dollar golden goodbyes to executives who presided over the collapse of their companies have provided Barack Obama with an opportunity to move the dividing line between the public and private sectors.
In truth, that line has always shifted: in favor of expanding the private sector in the 1920s, allowing more government in the 1930s and ’40s and again in the 1960s, moving toward less government growth in Ronald Reagan’s 1980s.
Earlier movements of the dividing line in the direction of government generally involved expansions of the regulatory and welfare states, with no direct takeovers of private-sector enterprises.
This president’s are different. Obama is now chief executive officer of General Motors and Chrysler, has a large enough financial finger in bankers’ pies to be able to dictate compensation, has taken de facto control of the energy sector and is about to initiate what is in effect a government takeover of private-sector health care companies. The combined effect of these moves will have a profound effect on the productivity and growth of the American economy.
Start with autos. The president says he will exercise the government’s shareholder rights in GM only in “the most fundamental corporate decisions,” an elastic phrase if ever there was one. Obama is hoping to sell off 10 percent of the 60 percent of the company the government now owns sometime in the next year or two, with other initial public offerings to follow as quickly as market conditions permit — if they ever do.
But Obama will appoint the majority of directors, and it is unlikely that any will favor producing the sort of large sport utility vehicle used to drive the president’s daughters safely to and from school. He has already acceded to the unions’ blatantly protectionist demand that GM abandon plans to import small cars from its Chinese plants, and instead incur the higher cost of retooling a U.S. factory for that purpose.
Meanwhile, Congress is demanding a say in the location of any reopened or new plants, and that GM modify its plan to terminate thousands of car dealerships around the country.
In short, politics will have an important voice in the affairs of GM, and therefore in the allocation of a significant chunk of the nation’s capital and labor resources. As perhaps a 60 percent shareholder should.
So, too, with the financial sector. A government that poured billions into the nation’s banks can reasonably claim that such openhandedness justifies a bit of tightfistedness when it comes to executive compensation, and a say in the selection of executives. Government power inevitably follows taxpayer money.
The energy sector is another in which government is moving the line between the public and private sectors. Until now the roles were distinct: Government laid down regulations, private-sector players made investment decisions consistent with those rules.
Now, the government is doing more than that: It is directly investing taxpayer money in the technologies it deems likely to contribute to the greening of the nation’s energy system.
Finally, consider the president’s plans for the health care sector. It is one thing to develop programs that subsidize the poor, or privacy rules to guide the private sector. It is quite another for the government to go into the business of providing insurance, with the almost certain effect of driving private-sector insurers from the field.
These moves to push the line between the private and public sectors should be judged on the basis of the costs and benefits associated with this enlargement of the role of government.
A rough-and-ready reckoning would have to include the billions spent saving GM from the verdict of the market, and the inefficiencies associated with protectionism and union participation in management.
It would have to take account of the increased cost of generating electricity from more costly and less reliable sources. It would have to include the benefits of the reduction of systemic risk by limiting the leverage banks will be permitted to take on.
And it should enter into the calculation the benefits that might accrue from reducing U.S. emissions of greenhouse gases, if any there be.
Only by doing such careful analysis can we begin to know whether the costs this administration is imposing on the economic system are a price worth paying for the benefits Obama claims for pushing the public/private-sector boundary in his direction. This is arithmetic, not ideology.
Examiner Columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies
