A Philosopher's Blog

Utilitarianism & Bailing Out the Big Three

Posted in Business, Ethics, Politics by Michael LaBossiere on November 18, 2008

As the world economy continues to stagger about, the American government is considering whether to bail out the big three American automakers (Ford, GM and Chrysler). Like many business, they are running low on cash and are apparently in danger of bankruptcy or outright failure. While this is of great economic and political concern, this discussion also raises philosophic concerns as well.

From a moral standpoint, the question is whether the state should help out the Big Three on moral grounds. As usual, the easiest way to argue for this is to use a utilitarian approach. Making the case is simple enough: estimate the harms done to Americans (or the world if you want to expand the scope of the relevant beings) by not helping out the Big Three and the benefits that will come from helping them out. 

The best estimate at this point are that 2 million Americans depend on the Big Three for their health insurance and that 1.4 to 1.7 million jobs would be lost if they failed. While the Big Three make vehicles, they also buy parts, purchase advertising and so on and these tie the companies into the overall American economy.  If this figures are accurate, then many people would be harmed if these companies failed. Assuming that the proposed $25 billion (US) bailout would prevent them from failing, then serious harms would presumably be avoided. If the harms prevented are worth at least $25 billion, then a bailout would seem to be the right thing to do.

Of course, there are also other factors to consider. Laying aside the practical concerns about whether the bailout would save the day or not (after all, the Big Three could still fail even with all that extra cash), there is also the obvious concern that the money could be better spent elsewhere. In utilitarian terms, the question is whether there are other ways to use the money that would create greater utility than bailing out the Big Three. In terms of pure numbers, if spending $25 billion elsewhere could help more people, then that is what should probably be done instead. Of course, political spending tends to be decided more by lobbying power than by what would add the most to the general good.

Another concern is to look beyond the more immediate consequences to the long term consequences. After all, the harms generated by bailing out the Big Three must also be considered. One consequence well worth considering is that such a bailout will encourage large companies to engage in more risky behavior. After all, their leadership might reason, if they are “too big or too important to fail”, then Uncle Sam will be there with a bag of cash if they start failing. As such, that anticipated rescue cash will become part of their planning, thus leading them to take more risks. But, even the United States cannot keep dumping taxpayer money into failing companies and this could lead to yet another economic disaster (or a continuation of the existing one).

Moving away from utilitarian concerns, there is also the other moral question: do the Big Three have a moral right to such a bailout? After all, many experts have argued that they are in such dire straits because of leadership failings and poor decision making. If this is true, then it would seem they have no right to expect cash from the state. After all, while the state is supposed to protect the citizens from enemies, the state does not seem to have an obligation to protect citizens from their own bad choices. After all, if I started a business trying to sell books many people did not want to read, then I should hardly expect a check from Uncle Sam when my business fails.

3 Responses

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  1. kernunos said, on November 19, 2008 at 12:22 pm

    There should have been no bailouts at all. Tax payers have to pay for this. The money is not magically summoned from the big hairy backside of government. You also nailed it right on the money when you mentioned leadership failures. GM just a month prior was talking about buying Chrysler and now they are talking about bankruptcy! How well do these leaders know their own companies? People always talk about Toyota when there is success mentioned in the auto industry. People think Toyota just sells more cars than everyone else. Well, they do but not much more. The key is their labor force which gets paid an average of 48.00 per hour as opposed to the Big Threes’ labor force making an average of 70.00 per hour. There is no doubt in my mind that the Big Three are being dragged down by their cumbersom labor unions. Bailouts, as with the airline industry keep placing a bandaid on the problem. If education were privatized the NEA would fall on it’s ass too. Add labor unions to private industry, as long as the business is not an exclusive such as local telco companies(competition would make it true in this case too), and the business is doomed to eventually fail.

  2. magus71 said, on November 19, 2008 at 6:15 pm

    unions destroyed the mill industry in Maine… Alas no bailout.

  3. Michael LaBossiere said, on November 20, 2008 at 1:27 pm

    Unions can cause problems, but they also have their virtues.

    Although it will be a bit simplistic, the following analysis might be useful. On the business side, the goal is to maximize the exploitation of the workers. The ideal is, of course, having an unpaid labor force with no benefits. On the employee side, the ideal is massive pay and benefits with minimal (or no) work. Both sides, naturally, enough strive towards their ideals.

    Since a business is already (in theory) an organized entity, it is natural for the employees to form an organization of their own-a union.

    In the ideal, both the business and the employees would reach the proper middle ground: the employees receiving just compensation and the business making a decent profit. In reality, the pendulum tends to swing one way or another.

    In the case of the Big Three, the unions were able to win significant concessions during good times (for the union). However, what the unions achieved (high pay and benefits) is hurting the companies. Combining that with bad management and other economic factors has spelled serious trouble.

    But, to take unions as the sole agents of destruction is a mistake.

    I think unions are a good idea for the same reason that I think states are a good idea-people need to join forces to keep other people from harming and exploiting them.

    Placing the entire blame on unions is mere scapegoating. Yes, unions can damage industries. But, there are many other factors in play that must be addressed.

    But, do not take this as me blindly endorsing all unions and union activities. Some unions have been incredibly corrupt and very much involved in crime and dirty politics. But this is not unique to unions. Any organized group that has money and power faces these problems.

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