In our current business system, it is not the President’s job to “face down” the UAW.

That responsibility belongs to management. (Peter Drucker, we miss you.)

For decades, Detroit’s management and union leadership have failed to recognize the deteriorating competitive dynamics of their businesses. Government, with pliable energy efficiency regulation based on meaningless fleet standards, has been an unwitting accomplice.

(Just so you know, I got off the UAW bus in 1974, when the union actively opposed our proposal to impose a vehicle excise tax based on fuel economy. At the time, I was legislative assistant two US Representative Charles Vanik, a senior member of the Ways and Means Committee. Along with management and a strong congressional ally, Representative Dingell of Michigan, the union opposed our proposal and pushed for obtuse regulation that could be — and was — more easily manipulated.)

What intrigues me in the current crisis is how quickly the Bush Administration has been squeezed into a corner. For over two decades, Republicans have pushed ideology as policy. Their proposals have been simple, compelling, and largely wrong.

It turns out there’s no such thing as a “free” market. Markets require competent government regulation or they cannot operate. This “government as enemy” rhetoric blinds us to the more complex realities we face.

Now, it turns out, Republicans and the Bush administration are confronting multiple “too big to fail” bankruptcies. Their response has been to launch the most aggressive industrial policy we have seen in our lifetime.

Long-term, this ad hoc approach to industrial policy can have disastrous consequences for our country.

The challenge for the Obama administration lies in restoring the appropriate role of government in a market economy. For its part, the UAW will adapt, or it will continue to die on its own.

http://www.brookings.edu/~/media/Files/rc/papers/2008/1212_automakers_wial/automakers_wial.pdf

It will be interesting to see whether Obama has the stomach to face down the UAW–which is after all the only beneficiary of the bailout–or not. The shareholders of the Big 3 have already lost their equity; debtors are likely to get cents on the dollar. It’s only the UAW that believes it can maintain its existing contract.

I agree with you about the importance of contracts.

But isn’t that what the Senate and White House trying to do with the auto bail-out? Abrogating contracts through a political process?

(And the irony, of course, is that these industrial policy proposals were coming from a conservative Republican Senator and the Bush White House.)

Let’s hope 2009 is a prosperous year for NE Ohio and Happy New Year to all of you!