Detroit’s first mistake was to wait until it was in dire straits before wooing taxpayers. Education officials began asking for massive public funding in the early 1800s, when enrollment, literacy and median income were already growing rapidly without much government funding. The “common school” reformers thus asked the public to back a winner, and they offered us a tremendous return on our investment. Horace Mann, godfather of public education, promised that if schools got the state oversight and funding he asked for, academic achievement would soar and “nine tenths of the crimes in the penal code would become obsolete.” How could we turn him down?
By contrast, the best that GM, Ford, and Chrysler can promise is that a bailout may keep them from making a bad economy worse. Following the successful public school model, they would have been much better off pitching a government takeover of the auto industry back in the 1960’s, when the business oozed glamour and success. A promise of flying cars by 1999 might well have sealed the deal.
But where the Big Three really went wrong was in asking for a “one‐time” bailout. That’s like a Band‐Aid for an axe wound. Detroit will still have to face fickle consumers and competitors with lower labor costs. If the Big Three fail to cut costs and improve their offerings, they’ll be right back on Capitol Hill in a year or two, hat in hand. What the automakers should have asked for was permanent government ownership and control.
Consider how well this has worked for public schools. Between 1970 and 2005, real, inflation‐adjusted public school revenues more than doubled, to nearly $12,000 per pupil. And the schools didn’t have to compete with anyone or show any improvement to get it! According to the National Assessment of Educational progress, 17‐year‐olds perform no better academically today than they did back in 1970.
If the auto industry had gotten a similarly sweet deal (double the revenue, no improvement required) Chevrolet would still be able to sell 1971 Impalas today, at a whopping $43,479! Due to the rigors of competition, however, they’ve been forced to innovate and keep prices down. They’ve had to improve mileage and mechanicals, refine fit and finish, add airbags and On‐Star, and they still can’t get away with charging more than $21,975 for their vastly improved 2008 model.