The Morality of Business: The General Motors Bailout

Everywhere you go in the United States, you are likely going to see a lot of cars.  Whenever we go somewhere beyond walking distance, we simply grab the keys and drive off.  Cars play an important role in American lives, being our primary mode of transportation.  With the economy coming out of a recession, people are buying new cars again at all time highs.  According to the New York Daily News, 15.6 million vehicles were sold in the United States in 2013, eight percent more than the previous year (NY Daily News).  Needless to say, the auto industry is doing well and the economy is certainly improving.

President Barack Obama

In 2008, the very recession that we are recovering from began.  With the housing market crashing, banks filing for bankruptcy, and the economy falling apart, thousands of people stopped spending money in fear of losing their jobs.  In 2009, as a result of the crashing economy, General Motors filed for bankruptcy and was on the verge of collapsing entirely.  In order to avoid having to liquidate the entire corporation and lay off thousands of employees, President Obama issued a $49.5 billion bailout (Higgins).  The U.S. government ended up having ownership of GM, leading to a lot of scrutiny over Obama’s decision to use tax payer money to bailout one of the nations biggest employers (Higgins).

On December 9, 2013, the U.S. Treasury Department sold the last of its shares in what was referred to as ‘Government Motors’ (Higgins).  The sale of these shares resulted in a loss of about $10.5 billion on the government’s initial investment of $49.5 billion (Higgins).  Understandably, many citizens have been outraged over this loss.  However, this tremendous loss may not have been a bad thing.  According to a study by the Center of Automotive Research, the automotive bailouts in 2009 have saved over 2.6 million jobs in the United States (Higgins).  The bailout also prevented a loss of $105 billion in transfer payments and taxes collected by the U.S. government.  Additionally, about 600,000 retirees would have lost their pensions entirely.

Niccolo Machiavelli

Despite all of the statistics, many believe that Obama’s decision was unjust and not moral, for he was spending tax payers’ money on private corporations.  With morality coming into question, this got me thinking about a reading I had in my political science class.  In my lectures on October 2 and October 7 of 2014, we discussed the topic of “dirty hands.”  According to my lectures, the dirty hands problem consists of “doing something ethically problematic to do something ethically praiseworthy.”  Using ideas from The Prince by Machiavelli and Politics as a Vocation by Max Weber, a leader should be willing to do something unethical in order to get positive consequences.  This would be a leader who follows ‘Ethics of Responsibility’, while a leader with ‘Ethics of Conviction’ would do what is moral, but not think about what the consequences may be in the future.  Ideally, a leader should be future oriented and be willing to make himself look bad in the interest of future outcomes.  A good leader should make decisions that, in the long run, result in the best interest of society.

When looking at Weber’s and Machiavelli’s depictions of a good leader, President Obama seems to fit their definition.  Obama may have done something unethical by spending upwards of $50 billion of tax payer money to bailout GM, but in the end, it was the best thing to do.  In practicing ‘Ethics of Responsibility’, Obama potentially saved over 2.6 million jobs.

Detroit skyline from the partially frozen Detroit River.

It is now 2014, over five years since the initial bailout and almost a year since the government sold off that last of its shares in GM.  Living in the Detroit area, I can only imagine what would have happened if the automotive bailout hadn’t occurred.  Over half of my relatives work for the auto industry in some way, whether it be directly for the big three or for suppliers.  The Metro Detroit area has over 5.3 million people with a workforce of about 2.6 million according to the 2010 census (Wikipedia).  With the Detroit economy relying heavily on the auto industry, the effects of General Motors going down would have been devastating.  Not only would GM employees lose their jobs, but everyone associated with those people.  All of GM’s suppliers would have gone down, who often supply to Chrysler and Ford as well.  The entire auto industry would have gone under.  All of these unemployed workers would no longer be paying their taxes, buying goods, paying for insurance, going out to eat, and so on.  There would be such as drop in the circulation of money that the entire Metro Detroit economy would have collapsed.  I would have seen three uncles, two aunts, and tens of friends’ parents lose their jobs.  Drops in taxes would lead to insufficient funds to pay for police and fire departments and consequently, my step dad getting laid off.  General Motors going under undoubtedly would have meant more than just its employees losing jobs.  It would have led to a complete collapse of southeastern Michigan’s economy and the loss of millions of other jobs around the world.

Cadillac Elmiraj Concept

With a new CEO, a fresh lineup, and growing profits, General Motors is booming again, reclaiming its position among the top auto makers in the world (Higgins).  Cadillac is moving to New York in order to establish itself as a premium luxury auto maker, leaving lots of room for GMC, Chevrolet, and Buick to expand (Rosevear).  Despite the concern over President Obama’s decision to bailout GM, he certainly displayed ‘Ethics of Responsibility’, recognizing the potential effects of GM going under.  In the video below, they further explain the results of Obama’s decision and how the government essentially profited from the investment, despite the $10.5 billion loss.  All in all, the Michigan economy and all of the employees associated with General Motors are now better off.  As President Obama has stated, “Today, the bet has paid off.”  “The American auto industry is back” (Higgins).

One thought on “The Morality of Business: The General Motors Bailout

  1. I really enjoyed your refreshing perspective on the Automotive industry bailout. As you so eloquently present, this has caused a lot of controversy and backlash for President Obama. It’s interesting that you used Machiavellian ideals to elucidate Obama’s dilemma. Often, Obama gets vilified for his controversial actions but the result of them is often forgotten or not looked into.
    I think it would have been interesting if you would have incorporated the the GM recall of defective auto parts. This example emphasizes that in a capitalist society we must not be so enamored with the idea of a free market. The same way “big government” came to the rescue with $49.5 billion, we should also enforce regulations and a different culture amongst corporations, in which the bottom line is achieved in a moral way.

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