Bailout – Who’s next?

So, you know by now that a little ‘Obamania’ has also infected Crane and Matten. But why not enjoy the honeymoon while it lasts. It might be over sooner than later. Among the many daunting tasks the new administration will have to face – the economy, Iraq, Afghanistan, Guantanamo, foreign relations – one of the most difficult animals for Obama to tame reared its ugly head last week: the American auto industry.

Now it makes perfect sense that at a time when Washington is handing out blank cheques to troubled banks, Detroit’s CEOs thought it worth a try to get next in line. And in fact their companies are in dire straits. Poor quality, fierce competition from the Far East and Europe, bad environmental performance of their products, high healthcare costs – these are just some of the issues which have led to the current situation. None of which is really new and good management could have addressed these problems years, if not decades ago.

But the appearance of the CEO’s of the big three on Capitol Hill last week points at a bigger issue Obama will have to face. It is good to see this in a broader context and to pull Stan Luger’s brilliant analysis of ‘Corporate Power, American Democracy, and the Automobile Industry’ from the shelf again. The book analyses the influence on political decision making by the US car industry over most of the 20th century. It puts the recent efforts of the industry in the context of longstanding direct political intervention, lobbying and coalition building.

Last week’s events then point to one of Obama’s biggest challenges, to deliver on bringing ‘change’ to Washington. And for a democrate President, this is no easy task. After all, car companies still are massive employers. Michael Moore’s ‘Roger and Me’ showed years ago what happens to towns in America’s industrial heartland when car companies close shop. In that sense then Obama’s success will in some way depend closely on creating jobs – which in fact is one of his big promises.

Here is the tricky bit: the political power of business in modern democracies is more than just lobbying or other ways of direct influence. In his book (p. 25) Luger quotes the sociologist Claus Offe on this point:

‘The entire relationship between capital and the state is built not upon what capital can do politically via its association […] but upon what capital can refuse to do in terms of investment.’

So every politician needs business to thrive and to invest in order to secure jobs and tax revenue. To deal then with this crucial contribution of business from the political end is a much more complex job for Obama than it seems.

In this sense, with the bailout of the banking industry and potentially others we might witness a watershed in contemporary capitalism: a return of the government as a key player in business. The last three decades have seen the exact opposite with most governments privatizing large parts of the public service delivery and divesting from their business interests. In some ways the bailouts then might even have this one positive effect: corporations apparently have such an importance for the wellbeing of a society that the government has to ‘rescue’ them in a situation where their survival is threatened. Acknowledging this, and granting the government a controlling stake in these companies might actually reverse one important trend of the last years. Rather than accepting a growing influence of business on politics we might actually see the reverse: that we as citizens, represented by democratic governments, regain control of a corporate world which for too long has put shareholder’s and manager’s interests ahead of many legitimate interests of wider society.

Now that sounds a bit like a utopia. And the perspective of more governmental influence on corporations will make most hard nosed business people cringe – isn’t that what socialism was about? Not quite – but anyway: it is essentially what banks and automakers in the US and elsewhere are currently asking for!