One of the consolations of private life is the ability to offer controversial advice without fear of having to take it. With this in mind, I agreed to offer up some thoughts to my former colleagues through the good offices of The Washington Post.
There is little doubt that the Congress faces a confluence of energy and economic decisions that are as politically divisive as they are popularly demanded, and more rides on the outcome than the politics of 1980. At stake are the economics of the next decade, wherein we must decide as a nation whether we will try to rebuild our aging industrial and technological base or continue the retreat toward a service economy.
The issue immediately at hand is the fate of the Chrysler Corporation and, like the Lockheed and Penn Central fights of the last decade, the politics are no-win. Help Chrysler and risk being party to a "bailout"; refuse aid and leave thousands of auto workers and executives unemployed by Christmas. I believe it is the kind of choice that will recur time and again during the next decade. For while Chrysler's problems are unique in some respects, they are also common to a whole range of "maturing" American industries that will march on Washington for financial relief, the bonus army of the 1980s. Chrysler is merely the advance guard.
In fact, the entire transportation sector, about one-fifth of our gross national product, is in deep trouble. With the need to revitalize mass transit almost desperate, America has but two remaining bus manufactures with the capacity of roughly 3,000 units per year, a quarter of what is needed.The domestic manufacturers of passenger rail cars have vanished despite increased demands by Amtrak and the new subway and light rail systems now being built. The railroad industry, which with barges and pipelines must carry the nation's long-distance freight, is in a state of near collapse, oversized and underfinanced, with remedial legislation stuck in Congress.
Even worse is the tragedy being played out in Detroit. More than 70,000 auto workers are on unemployment and soon joining them will be thousands of middle-age executives who determined perhaps 20 years ago, in a different era, that the insular world of automobiles would provide a secure career. Where do they go now, these 50-year-old men with mortgages suited to $50,000 salaries? For the American automobile industry is in deep trouble (Chrysler now, but Ford is next). And, when Detroit is in trouble, Youngstown and Bethlehem and St Louis can't be far behind. In fact, the tentacles of the auto manufacturers reach into every state, accounting for the livelihood of 5 million people and more than $150 billion in annual trade. As autos go so go steel, rubber, plastics, and so on. Right now, they are going straight down hill.
How do we restore the creaky transportation sector and how can these actions be related to the deeper economic and energy concerns? As a beginning, I would offer five suggestions to the Congress:
1) Resist the temptation to dismiss the Chrysler problems with a quick financial fix, and instead use it as an opportunity to begin defining a new economic strategy for the 1980s. I would give the Chrysler Corporation provisional aid to get it over the short-term crises, but would tie a larger financial package to a policy for the entire auto industry. For, as stated, Chrysler's problems are not unique; they are generic: an aging plant, the absence of technological creativity and a shrinking market.
I would start asking the hard questions: Does the government save all industries that are big and sick? If not, what determines salvation -- number of employees, kinds of products and service, effect on the total gross national product? Do we have appropriate measures of national interest? Unless we begin to face these unhappy questions now, the Congress will limp from bail-out to bail-out without any real understanding of where we are going or why. In the cases of Lockheed and Penn Central, these questions were raised but never solved. Now they must be.
2) Focus on the massive need for capital and how it is to be raised and invested. If, for example, the entire windfall profits funds to be taken by synfuels development, there will be insufficient funds to explore the potential of solar energy, modernize the auto industry and establish a construction trust fund for mass transit. The economic principle of opportunity cost is at play, and there are limits to the amount of money that can be raised under any scenario. We must make broad and informed judgments on how to raise and spend that capital as a total society rather than spilling it piecemeal.
3) Don't get bogged down in ideological battles . Where there is a free market, let's favor free-market solutions. But let's not try to apply this solution to areas where there is no free market. Oil supply is not part of a free market. At home oil is in a corporate straitjacket and abroad it is controlled both in amount and price by a cartel.
The Department of Energy notwithstanding, not all regulation is bad where the national interest is involved. The fuel-economy regulations administered by the Department of Transportation, for example, saved Detroit from an even worse disaster than it is now suffering.
4) Emphasize new technology . America is in the midst of an innovation slump with research and development spending now only about 2 percent of the GNP. Nowhere is this more in evidence than the auto industry, where spending on basic research has dipped to almost nothing at the very time we need breakthroughs in such fields as the non-petroleum engines. Why not structure the Chrysler soulution to produce a major national investment in new auto technology? The basic auto-research program now being negotiated with the industry should be accelerated and vastly expanded beyond what is currently being contemplated.
5) Adopt solutions that truly reflect the urgency of the energy problem -- a problem that is far more serious when viewed from the perspective of supply rather than price . That portion of our oil supply that comes from the Mideast, about 40 percent, must travel everyday in tankers through the narrow 20-mile Strait of Hormuz, which any disaster (political, military or technological) could shut down. With our economy hanging by so thin a thread, it is only prudent that we forge ahead with massive investment in both conservation and supply technologies. Since a barrel saved is equal to a barrel produced and often cheaper, this means in the transportation sector we must speed the renovation of the freight railroads and build urban mass transit as well as fuel-efficient autos. Because of the existent capital shortage, those investments should be considered within the context of the windfall profits debate.
The administration has now announced a new $16.5 billion transportation-energy package that can only be considered a beginning. Retooling the auto industry alone will require tens of billions that Detroit cannot raise on its own. The same magnitude of investment will be needed to modernize the freight railroad industry and renew the inland-waterway system. Economic policy analysis must carefully tabulate the cost of needed investments in transporation and other essential industries and relate them to potential available capital, both public and private. This is essential work, and one hopes Congress will seize the moment. The windfall profits tax, synthetic-fuel development, mass transit, auto-efficiency issues, and Chrysler's financial trouble provide a set of issues serious and broad enough to override any special interest in favor of truly national solutions.
What we are ultimately addressing is the reindustrialization of America, and a new industrial revolution won't happen by itself. I believe we can refurbish our factories and once again make the kind of quality products that will dominate world markets.
But it is easier to draw the plan that leads us there than to follow it. Painful public decisions and regional economic tradeoffs will have to be made and, in the end, only the Congress can make them. From this armchair, I wish my former colleagues God speed.