GM and Chrysler Bailouts

Posted on Posted in Manufacturing, U.S. Politics

We are happy to welcome the astute mind of Jim Libbey to the contributors of CP Currents with his inaugural post below:

When GM released its We All Fall Down video over Thanksgiving weekend 2010, a political discussion began on the Web site www.politicalwire.com, which had posted the video upon its release. I wrote and posted the comment below in support of the GM and Chrysler Federal bailout funds in response to a previous comment from another person, Bladerunner, who had posted his or her disagreement with those bailout funds. I can’t speak for all liberals, but here’s why I supported the GM and Chrysler Federal bailout funds.

I grew up in Pittsburgh, PA, and watched from close and from afar (after I had moved to MD in the late 1980s) as the healthy economy that America experienced from mid-1983 thru mid-2001, save for the mild recession of late 1990 thru early 1992, bypassed much of the Pittsburgh metropolitan area, which only really began to recover in the late 1990s, only after the rest of the U.S. economy had been roaring for some time. There are myriad reasons for the slow economy in Pittsburgh throughout an era that saw so many other areas of the country experiencing robust growth, but the demise of the large-scale steel industry was by far the most vital of those reasons. The end of much of the American-manufactured car industry in the Midwest would most likely have devastated many communities in much the same manner that the Pittsburgh metropolitan area and several other steel-centered communities were devastated in the recent past. History provides a guide here.

The U.S. car- and truck-building industry is relatively unique in America in that much of it is still centered in the Midwestern States, although a bit less nowadays than 20 to 30 years ago. The associated parts industry is also generally located in those same Midwestern States. As a result, the various small- and medium-sized industries and skilled laborers who support these large car and parts factories, such as machinists, tool-and-dye makers, and machine repair folks, as well as the small factories and shops in which they work, tend to also be centered in those same States. (By the way, most of the folks working in these small factories and shops are not unionized, unlike those in the car and parts factories.)

The U.S. steel industry, through the 1980s and early 1990s, was set up in much the same fashion as the car industry, except that most of its factories and related industries, small factories, and shops were generally located in PA, OH, northern IN, and northern IL. When the Reagan Administration refused to help the steel industry with temporary protection policies from Japan and South Korea, which were illegally dumping cheap steel sold below profit levels on the U.S. market; when it refused to help the industry with the same sort of monetary help that the Carter Administration had provided to Chrysler in 1979-1980; and when U.S. Steel decided to sink $3 billion of the money it had set aside to modernize certain factories into Marathon Oil, the die was cast. Those three decisions represented the death knell for an industry that provided good jobs with good pay for hundreds of thousands of folks in those four States and in a few other areas.

Now there’s no doubt that the U.S. steel industry was going to shrink. By the early 1980s, there were too many U.S. steel factories chasing too few buyers, facing tough competition from other countries, and running too many plants that had not been properly refurbished technologically. That said, a plan that temporarily protected the U.S. steel industry from the illegal dumping being perpetrated by Japan and South Korea and that provided monetary help to the steel industry to refurbish its most promising factories, even as other factories were shuttered that were unneeded or were too expensive to refurbish, would have allowed the industry to shrink in a fashion that would have been easier on certain communities while keeping more large factories open that ended up shuttered in the 1980s or early 1990s.

It’s no accident that the three steel factories and one coke plant still open in the Pittsburgh metropolitan area today were plants that U.S. Steel refurbished with its own money during the late 1960s and early 1970s along with help from a long-time low-interest loan program that the Reagan Administration shut down.

By the way, help for an American industry was not unprecedented under the Reagan Administration, as they protected Harley-Davidson from unfettered free trade for 5 years in the 1980s, allowing that company in particular and the U.S. motorcycle manufacturing industry in general, to turn itself around, become strong enough to face that Japanese competition, and become a manufacturing success story to this day.

Due to the potential widespread economic devastation that the demise of GM and Chrysler would have meant for many Midwestern communities, I believe the taxpayer loans were worth the gamble. So far, my side is winning the gamble, but the final story has yet to be written.

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