Should Governments Bail out Large Companies When They Are Struggling - General Motors in the USA - Assignment Example

English Skills Pоrtfоliо Name: Tutor: Course: Date: Part 1: Essay: Should governments bail out large companies when they are struggling, e.g. General Motors in the USA Introduction In the last two years, companies have struggled financially and even well run companies like Toyota and BMW have had losses and seen the values of their stock market reduce by 40 %. According to Crandall (2009), producers in the USA suffered more due to lack of competition in their domestic operations’ share even prior to the recession of 2007-09. In 2008, the two companies of GM Motors and Chrysler faced the possibility of bankruptcy and the US government was quick to come to their rescue. The government can come to the aid of a collapsing company by its choice (Han and Dow, 2012). This paper will discuss the significance of bailing out of companies by the government when they are struggling financially. Although the whole idea of government bailing out companies may be a distasteful idea, The Philadelphia Inquirer (2012) feels that it is necessary. The idea is distasteful because the problem may be caused by the companies themselves and it creates the impression that the company should help itself out. For instance, the problems that occurred in Detroit, the GM and Chrysler are purported to be their own creation. This is because the companies had for years been using discounts that are deep price and use of cheap financing to give support to their sales, rather than making tough choices that would ensure the companies stay viable in the long run. Despite this, their predicaments were not the making of the companies entirely; the whole economy of the US was in a free fall state and the demand for cars was low. At the same time, the banking system was nearing collapse ad this created scarcity of car loans. For the case of the Northern Rock in the UK, The Telegraph (2008) reported that the bank had been nationalized after the model of its business could not raise the money to finance its loans and mortgages. The Bank of England had loaned £27 billion to Northern Rock but the bank could not find a buyer and this called for public ownership. The bailing out of these companies comes with its advantages. By rescuing the company, many jobs are saved. For the case of the USA automakers, 250,000 workers had been employed at the time of the crisis. Other than this, the connections of the companies with other parts of the economy would mean that its collapse presented a risk to over 2.5 million jobs. The economy was losing millions already and it could not afford to lose jobs as well. Losing the many jobs would greatly shatter the economy, especially at Michigan and other parts of the Southwest and the Midwest (The Philadelphia inquirer, 2012). For the Opel case in Germany, over 300, 000 jobs at large were at risk (Spiegel Online International, 2009). After the bailing out, the revival of the economy has been realized. The Philadelphia inquirer (2012) argues that a fifth of the growth of the economy is attributed to the fact that the auto industry was revived. In addition to this, the government is given control of the company and saves its image from the fact that an important company was falling and the government did not come to its rescue. By having greater control, the government can push the companies to comply with its requirements. For instance, Crandall (2009) stated that the government of the USA would push GM to produce vehicle that energy efficient, which are the vehicles that the GM had been unable to produce for many decades. On the downside, by bailing out these companies, the taxpayers’ money is spent with no assurance that they will get their money back. The Germany carmaker, Opel, needed 3.3 billion Euros for its survival. In a debate held by the Debate.org (2012), the idea of bailing out is seen to be related to Keynesianism. This is because the government is seen to distort the market through its involvement and making taxpayers suffer from the mistakes of others. In addition, capitalism requires that if a private company fails, then other private companies should come in since it is a competitive world. By bailing out these companies, the government violates some of the simple riles of capitalism. The free market is purported to demand that companies should be allowed to fail for them to correct their own mistakes. By saving the companies, the economic recovery is made stronger. The Philadelphia Inquirer (2012) reports that after rescuing the automaker companies in the USA, the companies are doing great, selling cars profitably at 14 million a year while before recession, they had been losing about 16 million of money in annual sales. Despite this, the loss of the domestic share in the market is not rescued. The management of the companies remains the same and this means that the same problems could recur at some other point in time. At GM, the ability of the company to come up with new and appealing models was not affected by the reorganization of bankruptcy. In addition, the bail-out does not change some of the compensations paid to higher employees. In the Detroit three, the higher employees were paid higher compensation despite their lower productivity and this means that it is the lower employees that will sacrifice their pays for the good of the company. Therefore, the bail-out might not really save the company from decline in the future because losing the market share is detrimental to the company and it has to be addressed for the company to realize total stability. Part 2: Critical commentary The paper worked in line with the text that was given. In addition to what was already existed, the paper clarified the various ways that the government and the economy would benefit from bailing out falling companies. Examples of the GM was used to demonstrate how the company benefited after it was bailed out by the government through its sales per year. This example also demonstrated that the economy of the nation performed stronger, an attribute that was given to the bailing out. The paper also discussed how the government would use its influence to control the operations of the company. Other than these, the paper demonstrated the downside of bailing out companies, indicating how the market is affected by government intrusion to the market. The feeling is that the government should let the market be on its own as is required of a free market. Additionally, the consequences of bailing out are discussed and it creates the feeling that for the companies to get back to full operation they should be restructured in terms of management and efforts should be channeled towards ensuring that the market share is increased. This is because a declining market share is not a good indicator for the company. Part 3: Note on a chapter from a book Although much has been written about the challenges that academic women face in combining work, their intimate relationships and their children, the influence of the mommy track and the queen bee is less understood. Mommy tracking means that women spend less time in their places of work and they choose to spend more time with their loved ones, their families. An argument is made by Cummins suggests that all academic women who are single, married or childless are not successful in achieving promotions. The socio-structural issues that face women are combined with the phenomenon of the queen bee. Here, a woman holds a higher position than other women and prevents them from rising up the ladder. But the critical point to note is that the society requires that women work full time from the time they are in their adulthood to the time they are old and this disadvantages the women. Women have to carry out institutional housework and this takes a part of their time at work. Even when women perform excellently in areas like teaching, they are not recognized. The theories that can be used to explain the disadvantages that women face include the social capital, the boundary theory and the human capital. Human capital requires that women be at their places of work most of the time while social capital requires that they socialize to get promotions. The boundary theory explains the constraints between work and life balance. Part 4: Summary made from lecture Taking a cruise holiday has been a very common practice and the past year saw 1.25 million Britons go for the holiday. This involves having luxury for a few days, dancing and dining with the captain among other leisure activities. But this activity has its darker side. Cases have been reported where 30 people have been killed or they have disappeared. In addition, hundreds have been sexually assaulted. An investigation by US congress Nolus indicates that there is no incentive for broadcasting whatever happens in the ship and individuals get assaulted by crew yet no report is made. The families of the victims are not notified of the cases. Congressman Christopher Sheikh brought up the question of whose jurisdiction the case should be handled at. This is complicated by the fact that the cruise ship is moving and therefore the jurisdiction is not easy to tell. Besides, there are no police officers onboard and the cases of such cruise ship incidences are poorly investigated. It is therefore proposed that all ships should have police officers trained in getting forensic evidence and the cases should be reported promptly. In addition, the investigation should be done independently since this is what will give the families the confidence that appropriate investigation was done. Bibliography Crandall W. Robert, 2009, U.S “Industrial Policy “: The Bailout of GM and Chrysler, The Brookings Institution, USA. Cummins A. Helene, Queen Bees and Mommy Tracking: How’s An Academic Woman Supposed to Get Ahead? London. Debate.org, Economics Opinions: Should governments step in to bail out private companies that are close to failing? retrieved on December 14th 2012, from: http://www.debate.org/opinions/should-governments-step-in-to-bail-out-private-companies-that-are-close-to-failing. Han Jungsuk and Dow James, 2012, Should We Commit to Bailing Out? CESifo Conference Center, Munich, Germany. Spiegel Online International, 2009, Saving Opel: Merkel Critical of GM Bailout, retrieved on December 14th 2012 from http://www.spiegel.de/international/business/saving-opel-merkel-critical-of-gm-bailout-a-611271.html. The Philadelphia Inquirer, 2012, Bailing out Detroit, Detroit. The Telegraph, 2008, Northern Rock in £3bn bail-out from taxpayer, retrieved on December 14th 2012 from: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2794277/Northern-Rock-in-3bn-bail-out-from-taxpayer.html. Read More