21st Century Welfare Queens

Ken Blackwell
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Posted: Nov 19, 2008 12:01 AM
21st Century Welfare Queens

This week Congress meets to consider giving away another $25 billion of taxpayers’ money to dysfunctional corporations. With a renewed sense of urgency, others are forming a line at the Capitol seeking to take money out of the wallets of America’s working families to further support dysfunctional ways. This line now includes cities and even a state, all of which are far more politically significant than handout-seeking corporations. All of this is building a culture of dependency that is rapidly expanding the scope of the federal government, ruining competitive markets, and creating a massive debt that will burden our children and even our grandchildren. This must end now.

The Big 3 automakers—General Motors, Ford and Chrysler—are asking Congress to give them $25 billion of taxpayer money. These companies recently had $25 billion earmarked to them by the federal government to pay for retooling and redesigning to make more advanced and more marketable products such as hybrid vehicles. Yet now they want more, making them 21st-century welfare queens.

The Big 3’s woes are largely self-created. For years now their management has been criticized as ineffective. But two numbers tell the story of the primary cause of their insolvency: 73 and 48. The average hourly cost of an hourly wage worker for the Big 3 cost $73 per hour, while the average cost at Toyota and other foreign automakers with production facilities here on American soil is $48 per hour.

What accounts for this disparity? It’s the massive healthcare and pension costs and other benefits that the workers at the Big 3 get through their union-negotiated contracts. These contracts, primarily secured through the United Auto Workers, have created massive obligations. Consequently, the Big 3 either offer a product that is equal in quality and features to their foreign counterparts, but several thousand dollars more expensive per car, or they offer a product for the same price but with fewer features.

There’s no way to escape the plain truth. The costs unions have written into their contracts with the Big 3 must be passed along to consumers. As this either increases prices or decreases value, the Big 3 lose sales to foreign competitors, and so revenues for the Big 3 have dropped. As revenues drop it becomes even more difficult to pay these union-created obligations, so the situation worsens.

Congress must refuse this bailout. Without a bailout, they will be forced into Chapter 11 reorganization. The Big 3 would be given the freedom to renegotiate their labor contracts and their contracts with dealers, giving them the opportunity to put together a business plan that can make them competitive and profitable. It would not destroy the auto companies or put their workers on the streets; it would simply force them to fix their mess.

Transferring tax dollars to them will only worsen the situation. They will burn through that money in a matter of months, and we’ll face this maddening situation again in 2009. Unless American taxpayers are willing to subsidize the Big 3 forever, this cannot continue.

Do you want the same people who ran the Hurricane Katrina response to run the companies from which you buy your cars? The Mad Hatter from Alice in Wonderland sat at a long, white dining table and made an absolute mess of the place where he was sitting. Then, instead of cleaning it up, he just moved to the next seat at the table and made a mess there as well. That’s how the federal government works. Having made a mess of the housing and financial sectors, it’s now willing to move to the automotive sector, and who knows what else.

And the corporate welfare won’t stop with the Big 3. The rationale for bailing them out is that they are important to the U.S. economy. Well, many companies can make that claim; there are many industries essential to the American economy. Are we going to bail them all out?

Not only that, but there are players bigger than the Big 3 now lining up for a handout. The big cities of Philadelphia, Detroit and Phoenix are requesting billions of dollars each, and others will follow. And the state of California is now tens of billions of dollars in the hole. Having taxed everyone in the state to the hilt, the Golden State is now looking for federal tax dollars to fill their coffers. Others will follow.

As a former mayor of Cincinnati, and the former Treasurer of Ohio, let me assure you that cities and states can wield far more power than any corporation or union. The mayors and governors who run them have enormous influence, and presidents standing for reelection and members of Congress seek the favor of such individuals. Each of the three cities named above are in swing states, and California is a massive source of campaign cash for both parties.

I was always taught when growing up that when you reward bad behavior all you get is more bad behavior. From the mortgage meltdown to the automaker debacle to cities and states going under, it’s all bad behavior. It should not be rewarded.

The problem here is that our culture of debt—both personal and corporate—has created a culture of dependency. Everyone is calling out to our central government to give them money. And horrors of horrors, many are willing to let the federal government take ownership stakes in these entities and have a hand in their management.

That is the road to socialism.

The first step to ending the culture of dependency is to tell these corporations, cities and states they need to start taking responsibility for their actions by dealing with the consequences they have created for themselves.

If not, then we could accumulate a national debt that even our grandchildren will never pay off.