The Big Three Bailout Is 21st-Century America’s Sputnik
The world changed suddenly and dramatically for Americans in October 1957, when the headlines screamed about the Soviet Unions successful launch of Sputnik I, the worlds first man-made satellite. That change became even more real for Americans a month later, when the much larger Sputnik II, which carried what to many is still the classic U.S. pet a dog into orbit.
[IMGCAP(1)]Sputniks I and II may have been historic human achievements, but they were deflating events for Americans, who had become accustomed to their country being unchallenged at the forefront of technological advancement and leadership. Sputnik meant that Americans had to wake up to the fact that what had been a largely unquestioned belief in U.S. innovation, daring, smarts and accomplishments had been not just matched but also eclipsed.
Americans may well have gotten the same type of wake-up call last week when the chief executive officers from Ford, General Motors and Chrysler and the head of the United Auto Workers came to Capitol Hill to beg for billions of dollars in assistance from the federal government. As they did half a century ago, the headlines again screamed about the event and Americans realized the U.S. leadership and strength they had taken for granted might not be as great as they had believed. For many, it was probably as deflating a moment as when the Soviet Union rather than the United States became the first country to launch a satellite and explore space.
There are many differences between Sputnik and the Big Threes marathon appearances in Washington last week. Space exploration, let alone a space race, was virtually unknown in this country when the Soviet satellites went into orbit. In the late 1950s, the idea that a man-made device could be launched was still largely the stuff of science fiction, so the shock was doubled: It could be done and we didnt do it. By contrast, not only has the decline in the U.S. auto industry been obvious and well documented, but Americans have been acknowledging and to a certain extent sanctioning it for quite some time as they increasingly and happily bought foreign-made vehicles.
Nevertheless, there are three reasons why last weeks Big Three-plus-1 grovel had to have much of the same impact on the American psyche as Sputnik.
First, it confirmed once and for all, and for all to see, that an economic advantage many assumed the U.S. still enjoyed no longer existed. It wasnt caused by a Sputnik-like launch by a foreign manufacturer of a new and more technologically advanced vehicle, but rather by the CEOs and head of the union all saying that the prototypical U.S. business and some of the most famous American industrial icons could soon cease to exist.
Second, it was an admission by some of the biggest captains of American free enterprise, capitalism and free markets that a substantial amount of government involvement was needed. Given the Wall Street bailouts of the past year, this obviously wasnt as shocking as it might have been a few months ago, but the fact that it was old-line manufacturing rather than financial companies seeking the aid still made it a new experience.
Third, Sputnik led directly to massive federal investment in the space industry. NASA was created almost exactly a year after Sputnik I was launched. Four years later, President John F. Kennedy made his famous We choose to go to the moon speech, a promise that was fulfilled in 1969.
It shouldnt be that surprising, therefore, if last weeks blow to the American economic ego dealing with the auto industry results in the same type of federal response caused by Sputnik. Indeed, the significant federal dollars that seem to be increasingly likely to be provided for Ford, GM and Chrysler are almost in keeping with tradition.
But NASA wasnt just dollars. Sputnik also led to a substantial devotion of federal policy and management resources. Congressional committees that up to then had paid little or no attention to space exploration quickly became intimately involved in the subject. Even more important, the NASA administrator became the CEO not just of a federal agency, but also of the overall space business.
That may be why Congress is talking about creating a car czar, a federal official who will have the responsibility for directing the federal governments overall response to the current situation and someone to whom, like a regulator in the financial services world, the CEOs and union will have to report as they use the federal funds.
NASA also was more than just dollars because it combined the federal programs and agencies that in some way were dealing with space into a single organization. That, too, may be something to watch for here. The auto industrys troubles cut across a number of existing federal departments and agencies, including Labor, Treasury, Commerce, Defense, Energy, the Environmental Protection Agency, the Office of Management and Budget, the Pension Benefit Guaranty Corp. and the Securities and Exchange Commission. Because of that, a NASA-like agency that combines the passenger-vehicle-related responsibilities of the organizations may, therefore, make as much sense now as it did 50 years ago when it was understood that a coordinated response to Sputnik was needed.
But just as the U.S. response to Sputnik wasnt just a budget issue, the response to the U.S. auto industrys problems isnt just a question of providing resources; it is also about setting goals and policies, and building public support to making them happen.
That means that, if Congress and the White House agree to a bailout plan of some kind for the Big Three, a Kennedy-like speech by the president saying we choose to go to 50 miles per gallon by the end of the next decade should be expected.
Stan Collender is managing director at Qorvis Communications and author of The Guide to the Federal Budget. His blog is Capital Gains and Games.