“Of all our institutions, business is the only one that society will let disappear,” Peter Drucker wrote in 1968 in The Age of Discontinuity. You might say that was then.
Today, many of our biggest corporations, including banks and automakers, survive thanks only to government intervention.
This week, in a milestone of recovery at one of these automakers, General Motors said it plans to buy back $5.5 billion worth of stock currently held by the U.S. Treasury, which has indicated that it will completely unwind its position in the company over the next year or so. This first step puts GM on a path to regain its full independence and shed the “Government Motors” label.
In short, some Americans support all the bailouts; some Americans oppose all the bailouts; some Americans oppose the bailouts of the automakers but not the banks; and some Americans oppose the bailouts of the banks but not the automakers.
Into which camp would Drucker have fallen?
Notably, he lived during a time of increasing state involvement in the economy (not just in the United States but around the world), and he well knew that when any major business is in trouble, outside forces might intervene to save it. One notable case was that of steelmaker Krupps in Germany, where generous worker benefits put in place by Alfried Krupp had eventually crippled the company.
“Krupp provided his workers with housing, schooling, health care, training, small loans at low interest and so on,” Drucker recounted in Management: Tasks, Responsibilities, Practices. But it was unsustainable: “The family was ousted from management by the German government and the banks as their price of rescuing the business.”
Drucker also saw Alfred Sloan of GM lend rival Ford a helping hand in the 1940s precisely because a government-led bailout was otherwise inevitable. “When Henry Ford II took control and began to turn around his company by raiding GM for managers, Sloan went all out to support him,” Drucker recalled in Adventures of a Bystander. “The country could not let Ford go under; and the alternative to Ford’s recovery as a private business was a government takeover that could only harm GM. Helping Ford’s rescue was thus ‘professional’ responsibility.” And, of course, Drucker also witnessed the bailout of Chrysler in the U.S. in the late 1970s.
However resigned Drucker may have been to bailouts in practice, though, there is no doubt that he fiercely opposed them in principle. Indeed, Drucker thought it a virtue that private business could vanish if it was ineffective—unlike government, which just keeps going and going no matter what. “We want privately owned business precisely because we want institutions that can go bankrupt and can disappear,” Drucker declared. “If we want a really strong an effective government, therefore, we should want businesses that are not owned by government.”
Do you consider the bailout of GM to have been a policy success? Why or why not?