Lessons from the Chrysler Bailout

by Robert Reich, John Donahue



The Chrysler rescue marked a startling departure from political convention. A nation that by tradition masks its projects to succor ailing firms behind Byzantine tax subsidies or foreign trade quotas this time opted to counter-mand the market explicitly. In 1979 commentators assessed the Chrysler Loan Guarantee Act and after several years of debate it the act has been implemented. Chrysler's legal status is now the same as that of any other firm. By 1985 Chrysler was thriving. Its 1984 profits approached $2.5 billion, and it reclaimed its spot among the fifty biggest firms in the world. Five summers after it had sold off its European operations to raise a few more months' worth of cash it bought a stake in Italian sports car maker Maserati. The goal of the act had been to save jobs. Six years later Chrysler was employing 83,900 Americans-far fewer than 1979's payroll of 121,800 but indisputably better than zero. It still invites a lot of controversy, but these arguments for the wisdom of the rescue must be balanced against a weighty contrary case.

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