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Lincoln Institute


The End of JFK Idealism?

by Frank Ryan
 

"Ask not what your country can do for you……."

In his inauguration, President Kennedy invoked our patriotism and sense of honor to serve our Nation rather than to serve ourselves. In 2008, the auto industry lost the opportunity to lead our Nation to prosperity, while it tried to save itself at the expense of others. Greed, unrestrained self-interest, and arrogance ruled the day for the auto industry.

Congress debated. Executives gave in by driving to a hearing. The UAW made minor concessions. What a month it has been in the automobile industry. The end result will be a bailout of an industry that has failed to keep up, has failed to meet the needs of the consumer, has failed its own suppliers and, most importantly, has deceived it employees into believing that bailouts will solve their collective woes.

Congress pretended to chastise executives for flying on private jets. They demanded to know about executive pay and played to the public as part of the plan to convince the American people that the Congress was looking out for us. I would have loved to been at the hearings and asked Congress to stop taking junkets, to stop their own special treatment, and to demand that they take no pay until social security is solvent. Unfortunately, we as a nation have stopped asking one another to be accountable for our own decisions.

The auto executives must have had some horrible advice or have been so isolated to fail to realize the impact of flying in private jets to a hearing. It is unfortunate that the executives do not understand that it is precisely this entitlement mentality that is causing our negative reactions to their pleas for help. All anyone asks is that the Big 3 and its employees sacrifice as much to save their industry as you want the average American to sacrifice by providing the $34 Billion they are demanding.

The bailout mentality is such a flawed thought process. Government should provide the rule of law by providing the basic framework as to how we deal with one another in commerce. Government bailouts and investments are direct interventions in markets and clearly uncalled for. Such intervention is counterproductive in the long run.

One merely needs to look at the Government Sponsored Enterprises of Fannie Mae and Freddie Mac to see the negative results of government intervening in markets that they do not understand nor are equipped to manage.

A government bailout of the auto industry will be a disaster of untold consequences. The horrible injustices of the Big 3's flawed business model are apparent to anyone who has been a supplier to the Big 3. The Big 3 used their market power to demand concessions for their supplier base with the net result of bankrupting many suppliers to the industry. Jobs were outsourced to Mexico and then to China. Where was the auto industry cry for help when the supplier base was decimated? Where was the UAW when the employees of their suppliers were giving wage concessions, canceling health insurance benefits, and outsourcing their jobs? Their silence speaks volumes about their purity of the cries for help for the beleaguered industry today.

It is so sad that it takes a potential bankruptcy of GM for the UAW to finally agree to "consider" giving up the job bank program which allows idle workers to draw nearly full pay. The UAW also agreed to "delay" certain multi-billion payments to a retiree health care plan. Did the UAW not recognize that an average hourly payroll cost of $74 is not sustainable in a world market where consumers are not willing to pay the cost? The bailout is tantamount to asking someone who makes $12 per hour to subsidize someone making $74 per hour. How absurd!

The fear mongering of the claims of three million lost jobs due to a bankruptcy of one of the big 3 is misplaced as well. A bankruptcy provides protection to a company while it attempts to reorganize and become competitive again. The real losers in a bankruptcy are usually the current shareholders, you and me, but that is how markets are supposed to work.

When the company reorganizes it is given time, under court supervision, to become more competitive and to regain its footing in the markets it once ruled. The court supervision is precisely the rule of law that governs commerce. It is not a bailout but instead requires all parties to logically and realistically look at ways to solve very complex problems.

The very fabric of our society is under assault with more bailouts. Until all of us and Congress recognize that personal accountability, personal responsibility, and dealing with ones own problems first are the best solution, we will be doomed to mediocrity. Protecting an industry in a contrived way is cruel to workers and society in the long run.

Apparently the auto industry did not listen to President Kennedy's plea - "Ask not what your country can do for you - ask what you can do for your country" Real leadership and self sacrifice are needed now more than ever.

Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics and management for the AICPA. He is on the boards of numerous publicly traded companies as well as not for profit charitable organizations. He can be reached at FRYAN1951@aol.com.


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