In the current New Yorker, James Surowiecki writes:
The bailout of the auto industry, after all, was as unpopular as the bailout of the banks, even though it was much tougher on the companies (G.M. and Chrysler went bankrupt; shareholders were wiped out, and C.E.O.s pushed out), and even though the biggest beneficiaries of the deal were ordinary autoworkers. You might have expected a deal that helped workers keep their jobs to play well in a country spooked by ballooning unemployment. Yet most voters hated it.
Yes, rewarding failure doesn’t play well. The voters were right. The same money that was used to give a few giant companies a second (or third) chance could have been used to give many thousands of very small companies a first chance. It could have been used to help many thousands of people start new small businesses (often one-person businesses) or keep their new small business afloat. All those small businesses would have provided plenty of jobs. and they would have had a far more promising future, far more room for growth, than the Big Three, being both far more diverse and having not already failed. The many thousands of people who wanted to start small businesses were unable to get together and make themselves visible, so the failure of government to help them went unnoticed. Their diversity was economic strength but political weakness.
It’ isn’t surprising things happened as they did — the Big Three (not to mention Wall Street) were bailed out, small businesses were ignored — but it is an indication of how poorly our economy is managed in the most basic ways. I’m not even an economist and I understand this simple point. Bernanke and Summers do not.
It’s easy for me to understand because the same thing happens in science. Government support of research is a good idea, but the money is misspent, in the same way. Grant support goes to a few large projects — generally to people who have already failed (to do anything useful) — rather than to a large number of small projects that haven’t yet failed. The way to support innovation is to place many small bets not a few big ones. That’s one thing I learned from self-experimentation, which allowed me to place many small bets.
There are a billion small businesses in india, and 100 million in Nigeria. What products are small businesses going to create that could compensate for the destruction of our industrial base?
Vic, I don’t think that propping up the Big Three for a few years or even ten years going to save American manufacturing. All manufacturing is much larger than those three companies. The book In Praise of Hard Industries lamented the loss of American manufacturing expertise long before GM went bankrupt. As for small businesses, all sorts of businesses that are now big (such as Google) were both small and hard to imagine 10 years ago. There’s a reason that people move to Silicon Valley to start businesses rather than to India or Nigeria: the prospects for those new businesses are better here. If you mean that large businesses are the sign of a rich country, you’re obviously right — but I’m sure that those large businesses were once small. The rich country is rich because it provided an environment that allowed small companies to flourish.