Each day seems to bring General Motors closer to filing for bankruptcy protection, and new calls for both U.S. and Canadian governments to intervene. But a group of Canadian CEOs polled recently by COMPAS Inc. would rather see governments do nothing and allow the market to take its course.
The 114 CEOs were surveyed in response to a recent paper in The Economists’ Voice by two University of Chicago business professors, Joshua Rauh and Luigi Zingales, assessing the U.S. government’s role. The professors oppose the government exchanging loans for equity in the automaker, close oversight of GM by Congress and are also against an unsupervised bankruptcy. Instead, they prefer a closely supervised bankruptcy from a commercial bank.
The CEOs in the COMPAS survey agree with all of the authors’ points except one. They believe the U.S. government should not lend GM US$30 billion through a commercial bank to oversee the bankruptcy. In the professors’ proposal, the bank would be rewarded for minimizing losses and further damage to GM.
Asked how the Canadian and Ontario governments should handle the current situation, nearly 60% of the respondents said the market should be allowed to prevail, while 30% said we should follow the lead of the U.S.
“The Canadian government cannot save the day any better than the U.S. government can manage,” wrote one CEO. “The demand for cars in North America will rebound and someone will fill that void and manufacture them in North America if the overall climate for business is right. Governments must provide the framework for a healthy and competitive economy.”
Many of the CEOs expressed similar sentiments. “The market forces are far more powerful and effective than anything government can do. The bankruptcy, if it comes to that, should be allowed to run its course,” wrote another respondent. “There will be a great deal of short-term pain to the economy, the employees, investors and the lenders, but a year from now the country will be far better off, and whatever emerges from the ashes will be in a much better position to compete in the world market going forward.”