Tuesday, March 31, 2009

Merits (and Dangers) of Removing Rick Wagoner

The recent ousting of General Motor's CEO Rick Wagoner by the federal Government is an event that will likely be recorded in history books as a defining moment of the Obama Presidency. The removal of a CEO is obviously in stark contradistinction to the business-lenient Bush Administration, where Industry was allowed to evolve unfettered. For our part, we are tentatively in agreement with the President's decision, provided that the Administration treads carefully down the new path it has cleared for itself.

General Motors has been slowly deteriorating for upwards of twenty years, nine of which saw Mr. Wagoner at the helm. Following 9/11 and the ensuing mild-natured recession, GM embarked upon an aggressive financing campaign that incentivized millions of buyers to purchase a new car, despite the fact that the condition of his/her current vehicle did not actually warrant the purchase of a new one. The strategy, which Mr.Wagoner presided over, would have stymied demand for new cars even if the Great Recession hadn't hit. Our purpose is to illustrate the point that Mr.Wagoner, while not entirely responsible, does share some of the blame for the demise of GM.

In addition to removing a CEO with a history of inept management capability, Obama has also sent a message to the executives of other Corporations on the Government dole. The message is this: Floundering about on the brink of bankruptcy, and praying for an economic recovery is not an acceptable strategy in the eyes of your new creditor: Uncle Sam.

Of course, there are also competing dangers involved when a Government chooses to assert itself in this fashion. Namely, we have noticed that Government has a propensity towards the permanent retention of a newfound base of power. The implications for the economic preeminence of America would be devastating in the event that the Government takes an assertive and protracted role in the day to day operations of large multinational corporations. Unfortunately, such actions could easily become a reality given the fact that Government intervention always occurs through a set of lens known as the Best of Intentions.
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