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Auto Bailouts and the Lessons of Poletown

I had the opportunity to screen a portion of my film, Bankrupt: How Cronyism & Corruption Brought Down Detroit, for a group of about 60 people earlier this week and the experience was thrilling. Not just because it was live audience but because it was a live audience that brought some genuine opposition to the premise of the film, which never fails to be interesting and unpredictable.

During the Q&A portion of the screening, several folks were ready with borderline hostile questions about why the film had a negative view about GM & Chrysler receiving what we portray as special treatment in their respective financial crises, whereas private individuals, myself included, facing similar financial strife were left with the “normal” process of going bankrupt.

Overall, those who disagreed with the film seemed to believe that the bailouts were necessary, an integral part of our economic recovery which staved off billions in financial losses, rescued the manufacturing sector of Michigan, and prevented a far worse circumstance than we eventually experienced.

The defense of the film was certainly informed and went over well. But it might have been more effective had this report from the Office of the Special Inspector General for the Troubled Asset Relief Program, which revised the taxpayer loss to around $11.2 billion (up from $10.3 billion,) been available.

However, the questions they asked likely would not have changed no matter the increased cost to the taxpayer. These questions were asked by people that are bought in to the narrative that people’s livelihoods were saved from destruction and that America was teetering on economic obscurity save the actions of our government who bravely used money from her tax payers to finance a recovery.

The truth is, those lofty goals, were they to have occurred, would have been nothing more than a happy side effect. This is because bailouts and cronyism don’t happen in order to correct real problems or solve systemic issues. Bailouts and cronyism are used for short-term victories for politicians and long term financial incentives for well connected companies.

A perfect example of this is covered in my film in which an area called “Poletown” in the early 1980s is seized by local government, away from homeowners and small business with longstanding roots to the area, to make room for a GM factory which will bring needed jobs to the area. Over the protests of the locals, GM manages to leverage their relationship with the city officials to flatten the vibrant neighborhood and plop their job creating factory in its place.

Ultimately, the promised jobs did not materialize in a way consistent with the promises. More to the point, this favor they organized with the city did not fix the systemic issues within the company as foreign competition was not staved off as a result, nor were pensions brought under control, much less were the quality of cars improved. As a result, even with this “job creating” factory, GM continued its downward spiral for the next two decades ultimately resulting in the larger seizure of taxpayer property in the form a $50 billion dollar cash bailout.

And although this first effort with Poletown didn’t produce the promised jobs, the “important” goals to those that spearheaded the project had been met. The local officials hoping for reelection around that time, while perhaps having lost votes from Poletown residents, were able to assure their other constituents that they were working hard to bring jobs to the city. General Motors for their part, were able to build a factory at a lower cost and in a better area with the blessing of their government partners.

The only ones that suffered were the people who’d had their property forcibly taken from them. In a post auto bailout world, we’re all Poletown now.

Written as part of my Blogger Fellowship with the Franklin Center

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