- The Washington Times - Tuesday, June 2, 2009

The Obama administration’s bankruptcy bailout of General Motors Corp. Monday is the latest in a series of unprecedented government takeovers of private companies that some critics fear could lead to the Europeanization of the U.S. economy.

The White House’s latest move follows a string of similarly dramatic actions that have seen the government assume ownership stakes or control of at least half a dozen other companies, firing CEOs, reshaping boards of directors - and in the case of GM and Chrysler - restructuring the companies and giving a major stake to their unions.

“You’ve got government bureaucrats who are making decisions about what kind of car models are going to be produced, which plants are to be closed and how many dealerships to eliminate. You have in effect central planning of this industry. Karl Marx must be smiling today,” said Phil Kerpen, policy director of Americans for Prosperity, a free-market think tank. “We’ve never seen this level of government control of the economy in peace time history.”

Noting that European governments “now own large stakes in their financial institutions and own or subsidize car companies, airlines, aircraft manufacturer Airbus and other firms,” the Heritage Foundation’s chief economist J.D. Foster said: “We are moving in that direction in at least three dimensions - the government ownership of major companies, the magnitude in government spending and taxation, and the level of debt.

“When the Europeans get into the business of owning companies and managing them, it tends to intentionally be an indefinite situation, but what President Obama has done is that he says these investments are intended to be temporary,” Mr. Foster said. That, he and others suggest, remains to be seen.

Europe’s economy, while stronger in the past decade until the global recession took hold, has had to struggle with bouts of higher unemployment since the 1970s when joblessness increased and kept rising in the 1980s and into the 1990s - with unemployment in France, Germany, Spain and Italy hitting around 10 percent - as a result of much higher tax levels to pay for its large welfare state economies.

Economic studies have long shown that Europe’s higher tax burden, its large unionized work force, government licensing regulations and a slower rate of new business formation than in the U.S. have contributed to its employment lethargy.

Europeans who have lost their jobs were unemployed for longer durations than in the U.S. because of the scarcity of job opportunities, studies showed.

At a White House briefing Monday, Mr. Obama said he had no choice but to intervene, putting the government in the “unwelcome position” of having a financial stake in the auto companies.

The administration’s plan calls for pumping an additional $30 billion in bankruptcy financing into GM in exchange for a 60 percent equity stake in the financially shattered auto giant.

The Treasury Department underscored Mr. Obama’s pledge with a statement of its own, saying it “does not anticipate providing any additional assistance to GM beyond this commitment.”

Yet even some the administration’s biggest defenders expressed doubts Monday there would be no further bailouts for the company.

“But is the Obama administration really planning to cut off GM’s intravenous drip of federal billions, when the $50 billion doesn’t put the company back on its feet? It doesn’t look that way,” said liberal activist Markos Moulitsas Zuniga in his Daily Kos blog.

Still, other defenders of the administration’s economic policies said Mr. Obama means what he says when he drew the line on pouring more money into GM and possibly other companies on the government’s bailout list.

“I do not think this will be a permanent state of affairs, but we are in the middle of a crisis. This is not business as usual. The administration’s stated intent is not to hold on to these companies forever,” said Heather Boushey, senior economist at the Center for American Progress, a liberal Democratic think tank.

Nevertheless, the government’s large stake in some of the most troubled companies in the U.S. economy is unprecedented, including 80 percent of the global insurance giant AIG and home mortgage goliaths Fannie Mae and Freddie Mac, and 35 percent of GMAC, and critics fear they will be complicated by political considerations.

“I am quite concerned about the large government stakes in U.S. firms. Unwinding these stakes and avoiding temptation toward political interference will be difficult. In the case of the auto industry, more troubling is the bullying treatment of creditors,” said R. Glenn Hubbard, former chairman of the White House Council of Economic Advisers and now dean of Columbia Business School.

• Donald Lambro can be reached at dlambro@washingtontimes.com.old.

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