Potemkin accountability

By deciding who should or should not be CEO at government-funded companies, President Obama has made himself the nation’s CEO-in-chief. As Mike Allen and Jim VandeHei reported in the Politico:

Obama’s move to oust the CEO of GM and put Detroit on notice that he is prepared to let icons of American industry fail if they refuse to bend to his will was a calculated attempt to send a message, said an official often consulted by the administration. And that message was unmistakable: In any business-government partnership, Obama himself expects to play the dominant role.

“He’s realizing, ‘Hey, the economy’s mine now, and I better do it my way,’” said the official. “So the administration is collaring people and letting them know who’s in charge. The days of saying, ‘It’s not our economy’ have come to an end.”

An Obama administration official said the president’s hard-nosed approach will continue. “We’re not going to reward failure,” the official said. “We’re in an economic crisis, which takes shared responsibility and shared sacrifice. The only way that we will recover is if everybody puts a little skin in the game.”

Parts of this sound appealing. I’ve been arguing for more accountability in Detroit for months. As Roger Simon of the Politico concluded, “In a startling departure, the Obama administration has decided that the price of failure in America should be failure.”

However, it’s clearly a bad idea for the President of the United States to think the US economy can be centrally run from the White House. As Allen and Vandhei reported:

Said David Boaz of the Cato Institute in The Arena: “Rick Wagoner may be a bad CEO, or he may be a victim of difficult conditions facing the legacy auto industry. In either case, board members and investors are the right people to make that decision. I don’t know who should run GM, and neither does President Obama.”

Just for the sake of argument, I’ll assume that this was a temporary exception to this rule, made in extraordinary circumstances, and that the Obama administration has no intention of expanding the reach of government to tell private firms how they should pick their leaders.

Even so, there are many signs that this is a symbolic stroke rather than a careful analysis of the best course for GM? It reeks of Potemkin accountability: impressive on the outside, and nothing on the inside.

Was firing Rick Wagner best for GM? WSJ op-ed columnist Paul Ingrassia (whose industry understanding I respect tremendously) argued that it was time for Wagner to go because he was too wedded to the old way of doing things, and that an outsider is needed. Still, I had some reservations that exactly mirrored those of Stanford Prof. Bob Sutton, an expert on corporate culture:

I wasn't surprised to read that Rick Wagoner had been canned as part of the deal to get more bailout money from Washington. Scapegoating is a useful temporary measure for pleasing external critics. But it is often a symbolic act that is done in lieu of any substantive changes. As I have written before, and in detail, I believe that a core problem with GM is their broken culture -- see the first post (which has more hits than anything I ever posted) and the follow-ups here and here, plus the comments are very telling.

I wonder, have people at GM changed their behavior in meetings -- are the new top dogs still doing all the talking? Are they doing anything to actually get in touch with the experience of owning a GM car? Or are they still acting like all that really matters is the GM pecking order, regardless of the quality of the ideas, the cars, and the experience of owning a GM car? That's the real question. Clearly, under Wagoner's leadership, there was an inability (certainly on his part) to grasp and implement the need for a cultural change …

But as the old saying goes, the definition of insanity is doing the same thing over and over again, while hoping that something different happens. This isn't a bad description of how GM has been ran for years.

But here’s my main problem. Since Democrats have controlled both the executive and legislative branches, there has been a big show of accountability for business executives, whether it be the auto industry salaries ($1/year), AIG bonuses, or now Rick Wagoner’s job.

As Holman Jenkins notes this morning, there is little evidence that the White House and Congress want to extend that accountability throughout the auto industry:

President Obama rightly says "sacrifices" must be made if GM is to emerge as a viable company. But there's one sacrifice he won't make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.

Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner's replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a "quick and surgical" bankruptcy. It's a bluff. The same administration that inserted itself into GM's corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a "prepackaged" filing runs too much risk of a judge imposing more "sacrifice" on the UAW than the administration is prepared to tolerate.

GM bondholders understand this: They've been intransigent precisely because they calculate the UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge.

The GM bailout has become a political operation run out of the White House. It will stay that way. Talk of UAW layoffs already disguises the fact that UAW workers are actually offered generous buyouts and early retirement -- they aren't just sent away with a last paycheck.

So if it comes to losing UAW votes, I agree with Jenkins that there’s no sign that any tough measures will be taken. Thus far, Obama has indicated that he is like his congressional allies: talk tough when the video cameras are rolling, but no follow through if it means any sacrifices. (Cf. Nancy Pelosi’s failure to implement her promise to “drain the swamp” of corruption.)

Thus far, there has been no accountability for any political failure in the economic collapse. If there is no price for the congressional protectors that enabled Fannie and Freddie’s frauds that took out several investment banks, there certainly will be no accountability for enabling the UAW to stymie any hope of a Detroit turnaround.

This truly would be a depressing outcome: a ruling caste that demands results from the private sector but not for itself. It seems like the perfect way to wreck the economy permanently. Let’s hope that the voters are smart enough to hold the politicians accountable and (perhaps) they’ll feel threatened enough to do the right thing.