My Object All Sublime

Posted:
Monday, December 8th, 2008
Category:
The futures

My Object All Sublime: Bailing out the right problem, by Mark Chussil

In Gilbert and Sullivan’s classic “The Mikado,” an emperor (a “true philanthropist”) sings “My object all sublime / I shall achieve in time / To let the punishment fit the crime / The punishment fit the crime.” His prescriptions extend to the “billiard sharp” who is condemned to play “On a cloth untrue / With a twisted cue / And elliptical billiard balls.”

But this essay is not about making the punishment fit the crime, nor is it about rhyme and rhythm, although if I could write like Sir William S. Gilbert it would be. No, this essay is about making the solution fit the problem.

I have mentioned the auto industry often in these e-pages, and I turn again to the proposed auto-industry bailout.

We hear a variety of conditions being proposed to accompany relief: limits on executive pay, change in management, financial oversight, and so on. All sound satisfyingly, righteously stern.

Let us note, though, that each of those conditions is a solution to a perceived problem. Before we start signing checks we should ask if solving those problems will solve the real problem, to wit, how to revive an uncompetitive industry that has resisted turning its steering wheel for, oh, 35 years or so.

Limiting executive pay is a nice symbolic move that might extend the Detroit Three’s life support by a few hours. Nonetheless, it is a nice symbolic move and it gets executives’ attention in case they have been unaware they’ve been running icons of American industry off the road for, oh, 35 years or so. (To be fair, of course management didn’t intend to do so. Why they have done so anyway, and why executives in other industries have done so too, is the subject of much other writing on this website.)

Change in management is a severe form of limiting executive pay. It is potentially a good move, though changing the driver is not enough if the steering wheel is welded in position. Note, by the way, that the D3 has had several changes in management over the last, oh, 35 years or so. There are problems deeper than bad management decisions, most especially the causes of those bad management decisions.

Financial oversight is a fine solution if the problem is corruption or some other sort of villainy. It is not clear that oversight, as in requiring approval for checks over a certain number of digits, solves the problem that the D3 face.

The problem the D3 face is strategic: they build a product that people don’t want to buy in numbers sufficient to cover their costs. Although limiting pay, changing management, and oversighting the checkbook may be helpful, only one, change in management, might be a solution that fits the D3’s strategic problem. The proposed limits and oversight are well-intentioned due diligence for a lender (which is not unreasonable) more than a new, improved competitive strategy for the D3.

I hereby re-recommend the proposal I made in To Bail or to Bail Out. This proposal is designed to see what it will take to turn around the D3, and thus what we, the taxpayers, should be willing to invest. In short:

Give the D3 enough in loans to cover operating costs for the next couple of months.
During that time, run business war games that involve the D3, labor, customers, dealers, simulated competitors, and so on.
As a condition of receiving the loans, the D3 commits to act on a nonpartisan, independent analysis of those business war games.
In return for the D3’s full and open participation in the business war games, Congress also commits to act on that analysis of the war games. Note that the action may be not to bail out the D3.

I hereby add another approach, not mutually exclusive with the re-recommendation. If we’re considering a change in management, how about awarding D3 management positions through a form of competitive examination? (Which is another Gilbert and Sullivan phrase/solution, from “Iolanthe.”) Let applicants — individual managers or, perhaps preferably, entire management teams — run their own business war games, strategy simulations, scenario plans, whatever. Let them present their plans to Congress and to independent, nonpartisan experts in competitive strategy. It’s not so unlike getting a drug approved by the FDA, a weapons system vetted by the DOD, or winning a portion of the broadcast spectrum by the FCC.