MADNESS IN DETROIT

MADNESS IN DETROIT… The big news today is that the Obama administration is taking a heavier and more direct role in the restructuring of the auto industry–including demanding the resignation of GM chairman and CEO Rick Wagoner. The markets may not like this more hands-on approach by government, and it’s not hard to understand the concern. But as Phillip Longman of the New America Foundation explains in the new issue of the Washington Monthly, there is a bright shining example from not so long ago of government bureaucrats engineering the revival of an industry easily as troubled as today’s automakers and, if anything, more central to the economy.

In 1976 Washington took over Penn Central and five other bankrupt railroads and folded them into a government-sponsored entity, Conrail. New management was recruited, federal dollars pumped in, major structural reforms instituted. A decade later, a thriving Conrail was sold off in what was, at the time, the largest IPO in U.S. history. A fluke? Hardly. During World War I, Woodrow Wilson put the entire railroad industry under government control, and later placed it back in private hands in much better shape than when he got it.

While the parallels with yesterday’s railroads and today’s auto industry are not exact, they are close enough to provide many useful lessons. The most important is this: as the automakers return to Washington for a second round of assistance, the greatest danger may well be not that government will intervene too much, but that it won’t intervene enough.

Read Longman’s article, “Washington’s Turnaround Artists,” here.

Paul Glastris

Paul Glastris is the editor in chief of the Washington Monthly.