Pseudo-socialism
From an article by Andrei Shleifer, emphasis mine:
There is, however, a class of cases where the argument against government ownership is not as straightforward. In these cases, cost reductions for which private suppliers have stronger incentives have potentially deleterious effects on the non-contractible quality. For example, private prisons might abuse prisoners by hiring cheaper guards and failing to train them, private hospitals may refuse to treat patients on whom hospitals generally lose money, private schools might substitute less effective teachers’ aides for more expensive teachers, and so on. In such situations, strong incentives may lead to inefficient outcomes or, put differently, the efficient producer might need to have soft incentives. Ironically, the government sometimes becomes the efficient producer precisely because its employees are not motivated to find ways of holding costs down.
The modern case for government ownership can often be seen from precisely this perspective. Advocates of such ownership want to have state prisons so as to avoid untrained low-wage guards, state water utilities to force investment in purification, and state car makers to make them invest in environmentally friendly products. As it turns out, however, this case for state ownership must be made carefully, and even in most of the situations where cost reduction has adverse consequences for non-contractible quality, private ownership is still superior.
While the failed auto bailout plan never constituted ownership per se, it certainly would have entailed the exercise of control rights. After all, one group in Congress pushed for requirements that would have forced automakers to invest in environmentally-friendly products– exactly what Shleifer pointed out ten years ago, but without explicit ownership. Another group pushed for major concessions on the part of the unions. It should not be a surprise that these two groups were mutually exclusive and that their proposed requirements hewed closely to their ideological priors. What few people have mentioned, though, is that government regulation is in part at fault for the current situation. I’ll go into it in depth in a later post, but it shouldn’t be hard to see that the composition of the automakers’ fleets at the time of the oil price spike was in no small way defined by CAFE standards– and not in a way that was helpful to the American auto manufacturers.
This is just to say– it’s not at all clear that any restrictions on the conduct of business by the recipients of any bailout are in the best interests of either the firms receiving the funds or their creditors. While the government has the right to impose restrictions on the money it lends, in doing so, it will more likely attempt to pander to the biases of particular constituencies than it will achieve any useful purpose.