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New deals: the Chrysler revival and the American system.

New Deals: The Chrysler Revival and the American System.

New Deals: The Chrysler Revival and the American System. Robert R. Reich, John D. Donahue. Times Books, $17.95. At one level, this is an exceptionally detailed, and for the moment definitive, account of the federal rescue of the Chrysler Corporation. On another, and even more interesting level, the book is an attempt by one of the leading Democratic theorists of positive government to explore the reality of a major federal intervention in the marketplace.

The Chrysler story--described in New Deals with a combination of analytic skill, an eye for the telling anecdote and an understanding of detail and personality--is presented in four stages. They are: the deterioration of the number three automaker; the drive to gain federal support; the negotiations with stockholders, management, creditors and unions; and the aftermath of restored profitability. The second and third stages--the legislative process and the tough bargaining that followed--provide the most insight.

The central political strategy behind the Chrysler bailout was to persuade the administration and Congressmen that the legislation was in their self-interest. For Jimmy Carter, the legislation offered a means to try to retain the support of the United Automobile Workers in the face of a seemingly strong 1980 presidential primary challenge from Senator Edward M. Kennedy. For wavering members of the House and Senate, the corporation and its lobbyists put together detailed computer printouts showing, dollar by dollar, the cash flow from Chrysler to every supplier in every town in each district and state. To line up Democrats, Chrysler hired the lobbying firm of Patton, Boggs and Blow; for Republicans it was Timmons and Co. Joseph Ventura, who ran the Italian-American Foundation, backed by Lee Iacocca, put the arm on the 31-member House Italian-American caucus, persuading members to vote as a block for the bill. Even Gloria Steinem was brought into the battle to attempt to persuade prochoice advocate Senator Bob Packwood, although her efforts proved futile.

In the legislative process, two unlikely heroes emerge in the Reich-Donahue scenario: Democratic Senator William Proxmire and Republican Senator John Heinz. Widely thought of as lightweights --Proxmire as a self-indulgent gadfly, Heinz as a rich kid who bought himself a Senate seat--both men played significant roles. Proxmire, chairman of the Banking Committee, recognized that he did not have the votes to stop the legislation, so he used his position to ensure a thorough airing of the issues and to insist on the addition of provisions limiting public liability. Heinz, a politician well experienced in corporate profits, attempted to require a stock dilution system so that the bailout would not become a government-financed bonanza for just those affluent shareholders whose investments are supposed to be subject to the risks of the marketplace. Heinz was, however, unsuccessful and stockholders did make out like bandits.

One of the toughest fights the federal government had with the management of Chrysler was to persuade Iacocca and other corporate officials to give up their company jets. Iacocca, one government regulator recalled, "called congressmen; he even called the White House. That was the only serious pressure we ever faced.'

In the end, Iacocca gave up the jets, but his sacrifice was negligible in the distribution of suffering throughout a major industrial retrenchment. The people who took it on the chin were the automobile workers. Despite the company's stunning revival in 1984, its American workforce was still smaller by a third than it had been in 1979, Reich and Donahue point out.

"The primary beneficiaries of the rescue [were] the company's managers, creditors, and stockholders,' the authors note. "These are precisely the groups that our economy rewards, and handsomely, for bearing risks . . . What gave was jobs.'

In addition, some of the innovations of the Chrysler bailout-- profit-sharing and union representation on the board--have "begun to atrophy.' The workers gave up profit-sharing in return for a 75-cent-an-hour raise in 1982, and the company only reluctantly agreed to allow the board seat held by United Auto Workers President Douglas Fraser to go to his successor, Owen Bieber.

Reich and Donahue are very cautious in their conclusions: "Many of the participants in Chrysler's revival performed superbly . . .. But the episode left unprobed the messier issues of what obligations we owe each other to share the risks, costs, and rewards of economic change.'

In reality, the distribution of risks, costs, and rewards in a highly political process--like the Chrysler bailout--are not likely to be determined by abstract concepts such as societal "obligations,' but instead by political power. The automobile industry faced an inevitable reduction in employment, but the absorption of the most severe penalties in retrenchment by the least senior of the assembly-line workers reflects the weakness of organized labor. Conversely, the political ascendancy of the stockholders, upper-level management, and bankers in the late 1970s and early 1980s was reflected not only in the outcome of the Chrysler bailout, but, on a much broader scale, in the adoption of tax policies benefiting the most affluent and in wide-ranging federal spending reductions directed at the working class and the poor.
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Author:Edsall, Thomas B.
Publication:Washington Monthly
Article Type:Book Review
Date:Oct 1, 1985
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