OK, so, GM is a nationalized automaker. I know, I know: nationalization is for third world dictators. But there it is. Thanks to outgoing president George Bush, the feds used $50 billion from the Troubled Asset Relief Fund to bail out General Motors, in exchange for majority ownership. So no matter what W’s political successor says about his administration’s “hands off” non-management of Government Motors, he who owns the gold makes the rules. And when it comes to running a federal-funded organization, Uncle Sam plays by different rules than, say, any private enterprise extent. The bottom line is that there is no bottom line. Amtrak, the U.S. Postal Service, Medicaid—they’re all run at a tremendous, ongoing loss. Which means there’s zero sense of accountability. Which means they will never, ever be able to fully and fairly compete with privately held corporations. Why should GM by any different? Answer: it isn’t.
The truth of GM’s status was revealed the moment the then-head of the Presidential Task Force on Automobiles, Steve Rattner, fired failed GM CEO Rick Wagoner. If anyone on planet earth deserved summary dismissal, Wagoner was it. But as so often happens in life, an important principle was sacrificed on the altar of pragmatism or “political reality.” Yes, Wagoner needed to go. But the feds had no business running GM. Period. And even if you can get past that—which you shouldn’t—it’s not a good idea for elected officials and their appointed minions to decide who should be the head of a commercial enterprise. That’s like asking a serial killer to raise an an abandoned baby; no matter how good the intentions of all concerned, it’s going to end badly.
Yesterday, the aforementioned Mr. Rattner gave us a glimpse into GM prior to the automaker’s nationalization. For those of us who’d been following GM’s descent into bankruptcy, Rattner’s descriptions of executive incompetence and arrogance came as no surprise. Powerpoint mania and an elevator straight from the penthouse to the parking lot? Who knew? The real story here: the timing of Rattner’s so-called revelations. They arrived in the mainstream media the day before the staff of the federal government’s unelected “Pay Czar” let it be known that Kenneth J. Feinberg was going to cut the pay packets for GM’s top 25 earners, by some fifty percent. Connect the dots: crap managers, cut compensation. Fair enough?
Not, not at all. The problem is that the pay cuts only make sense if you accept the idea that it’s OK for the federal government to run a car company. Yes, I’m repeating myself. But it bears repeating: private enterprise and government represent fundamentally incompatible ideologies. The former requires financial accountability. The latter political. In the former case, a company must attract, retain and manage people capable of selling goods or services for more than it costs to produce them. In the latter case, politicians must convince people to vote for them. Put another way, politicians promise. Companies deliver. Or, in GM’s case, not.
Reducing executive compensation at GM will score political points, allowing Obama’s army to claim that its sticking it to the fat cats (that helped fund both his presidential campaign and the democratic party but don’t get me started). But limiting pay to $500k per suit per year (plus “shares” in a future entirely theoretical IPO) will do nothing for GM’s ability to repay its government “investment.” Or prevent further federal payments. Or forestall Chapter 7. Indeed, it will hasten the end of the end.
Limiting pay guarantees that GM will continue doing the same thing that’s brought it to this parlous state of affairs in the first place: hire from within. Make no mistake: GM “boasts” the mother of all inbred corporate cultures. The fact that it’s still led by lifer Fritz Henderson tells you all you need to know on that score. And speaking of scoring . . . Given the ongoing chaos at RenCen and the inviolable rules of supply and demand, GM can’t attract top turnaround talent from outside its shallow genetic pool unless it pays top dollar. In fact, GM would have to pay ABOVE the odds to hire anyone capable of keeping the artist formerly known as the world’s largest automaker from total self-immolation.
But that won’t happen. Can’t happen. Because commercial prudence and political acceptability are two different things. Which is why companies are not run as democracies and governments are not based on the profit motive (obviously). The wider point is also well worth making. The Pay Czar’s interference in GM’s management sets a dangerous if not entirely unexpected precedent. Although Feinberg’s pay and compensation mandates only apply to companies who’ve suckled on the federal teat, who “get what they deserve,” his rulings are a warning shot across the bow of executive suites across the country: a public proclamation of how much money is “enough” for the management class.
Thanks to America’s movement towards Bailout Nation, class warfare is breaking-out all over. In that sense, GM’s failure can’t come soon enough. Yes, I said it: I want GM to fail. I didn’t start from this perspective. I didn’t want to have this perspective. But I’m a proud American. This country was founded on the belief that government is the single greatest threat to an individual’s life, liberty and pursuit of happiness. The sooner GM’s “temporary” takeover collapses, the sooner we will realize that the Nanny State is not for us. It is, in fact, against us.