Rodney K. Smith: Auto bailout highlights differences between Mitt Romney, President Obama
There is a significant difference between President Obama and Gov. Mitt Romney on the issue of the auto bailout. That difference is reflective of Obama's background as a community organizer and Romney's background in business.
As a community organizer, Obama focused on the union workers and salvaging their contracts and pensions, while keeping the industry alive. Understandably, Obama was concerned with the workers, particularly those in the United Auto Workers (UAW).
The Obama Administration understood, and successfully asserted, that union workers were already making some sacrifices. Union members were giving up cost-of-living increases. They also agreed to a no-strike rule.
In exchange for these sacrifices, their pensions were left largely intact. Additionally, union workers were protected against the pay cuts that would have brought their salaries more into line with nonunion factories in the United States and foreign car makers. Nonunion workers, who were the first to lose their jobs, bondholders, distributors and taxpayers paid for these benefits.
Without question, union workers presently owe much to the efforts of the Obama Administration. The work of a community organizer turned president helped salvage their pensions and their pay, while keeping the auto industry afloat and even profitable, with government support.
It is not surprising, therefore, that UAW President Bob King, speaking at the Democratic National Convention, extolled the virtues of the federal auto bailout. At virtually every stop in Ohio, Obama's theme has been that Osama bin Laden is dead and General Motors is alive.
Such efforts in support of organized labor and government involvement in industry are the hallmark of the work of an effective community organizer. Obama's skills in that capacity were more than evident in his efforts to bailout the automotive industry and its union workers.
With his business background, Romney would have taken a different approach to the problem. As one familiar with salvaging failing or poorly managed businesses, Romney preferred a managed bankruptcy, without direct federal money, although he supports loan guarantees from Washington. He understands that this strategy has worked in other sectors of the economy, including the airline industry.
Romney maintains that the bailout was poor business. For Romney, Obama's community organizing effort was little more than a payback to labor unions, paid for by lower paid non-union workers, creditors, distributors and the taxpayer who assumed billions of dollars in debt.
Romney has consistently asserted that he would not let the auto industry, which is a part of his family's identity, fail. Rather, in a businesslike manner, he would have insisted on significant belt-tightening and sacrifice on the part of all participants, including union workers. The government's role would have been to provide dollars, in the form of loans as capital to keep the industry alive as it was being restructured.
It is unclear which approach is better. Obama can rightfully tout a victory of sorts for union workers and the automobile industry. But, the verdict on his approach is still out.
With the competitive burden of higher than average salaries and benefits to union workers and looming lawsuits by creditors, who argue unfairness in the bankruptcy process, and distributors, who argue that the government has taken their property, it is unclear whether GM and Chrysler will be able to remain profitable and pay off the massive debt owed to the taxpayer.
The answer to this unsettling question will not be known until after Nov. 6.
Romney, on the other hand, is left to argue what might have been. Based on his experience, he asserts with confidence that the automotive industry would be more profitable and the taxpayers would be in a stronger position if they would have gone through a structured bankruptcy with government capital in the form of a loan. He looks at the current unemployment rate of about 12 percent in the automotive industry and argues that employment in the industry would be higher today under his approach, because the industry would have a more competitive workforce and organization.
The debate over the automotive industry, therefore, is an illuminating example of the differences between the candidates. The electorate must choose between a community organizer, who believes in organized labor and government intervention in the interest of fairness, and a businessman, who believes that individuals and businesses are the better sources of economic prosperity and jobs.
The differences with regard to the bailout are significant and tell us much about the candidates and the direction they each will take our nation if elected.
Rodney K. Smith is a Distinguished Professor of Law at Thomas Jefferson School of Law in San Diego.
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