I’ve mentioned here before that I thought the problems of General Motors were very much like those of Chinese state-owned enterprises in the early 1990′s. Basically much of the problem is that you have this overhang of health and welfare commitments that prevents the companies from being profitable and also makes it impossible to shut down easily without having lots of political impact.
Three other points:
1) giant corporations don’t behave in the way that free market ideologues think they ought to behave. The theory was that private corporations ought to be better managed than state owned ones because if they weren’t shareholders would revolt and install new management. This is often true in smaller corporations, but for large industrial corporations, shareholders are totally powerless because they are not organized enough to actually be able to overthrow management. There are lots of similarities between shareholders in large corporations and voters in one party states.
Markets are able to provide some discipline in that badly run corporations run out of money. However again this applies largely only to small and mid-size corporations. Having a large corporation run out of money and fail is so disruptive that it’s not something you want to have routinely happen. Also, if you have thirty corporations, and one of them fails, then you still have a market. If you have three, and one fails, then you don’t.
2) People are greedy and stupid. CEO’s of American corporations will try to make as much money as they can, just like CEO’s of Chinese corporations. The thing that you have to be careful about is to set incentives so that in being greedy bastards, the management are actually acting in something resembling the public good. Much easier said than done, and probably completely impossible if you don’t have any effective oversight.
3) It’s going to be interesting to see what happens with General Motors over the next year and the next decade. One thing that everyone says is that the changes right now are just temporary and when things get back to normal, we’ll go back to doing what we were doing. The thing about this is that this reminds me a lot about what people said in China around 1978 when markets were first introduced. They were originally supposed to be a small corrective to central planning, but history has shown that things often take on a momentum of their own, and it will be interesting to see the surprises that people have in store.