Sunday, May 23, 2010

Notes on a previous bailout

I am reading a Seth Borgos's chapter on industrial policy in the US (published in 'Managing Modern Capitalism: Industrial Renewal and Workplace Democracy in the United States and Western Europe' a book edited by Hancock and colleagues in 1991) and on page 75 I found this interesting observation with regard to the 1980 bailout of Chrysler:

Chrysler Corporation embodied the ills of American manufacturing as defined by the new corporativists: short term profit taking, inattention to quality, lack of innnovation, warfare between labor and management. Thus, the effort to rescue Chrisler from bankruptcy in 1979-1980 offered an ideal opportunity to articulate a national industrial policy. But the deabate was framed in a much more expdient fashion; bailout advocates [...] argued simply that the impact of a Chrysler failure would devastate their local economies. On those narrow terms, they collected just enough votes in Congress to win. some innovative features in the Chrysler legislation, including an employee.

In times of wholesale bailouts, it's interesting to note that (1) 30 years ago similar things were happening, (2) some of the reasons why firms need bailout are the same, and (3) that bailouts tend not to lead to policy reform.

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