THE GM BAILOUT

Questions:

1. How would Locke, Smith, and Marx evaluate the various events in this case?
Answer:
There are 3 events in this case, which are:
a. GM CEO asked for a loan from the TARP fund.
- Locke would evaluate that the owners of the GM have a right of property, but they are also
having the responsibility for their property. Therefore, if the company have experienced
losses because of their action, the company should take the responsibility of their losses
instead of asking loan from the U.S. Government. So, he would disagree in this event.
- Smith would evaluate that the market would heal the itself without interference of the
government. The interference of the U.S. Government would lower public’s welfare by
creating shortages or surpluses. Therefore, he would disagree with this event.
- Karl Max would disagree with this event because that is against fair distribution wealth. The
investors already have the profit for all this time and when they are suffering losses, they
asked from the U.S. Government to bailout their company.
b. The U.S. Government had decided the U.S. Treasury could, after all, use the TARP funds to provide
loan to GM. Even though the people disapprove to bailout but financial institution.
- Locke would disagree with this event because it is violation to the right of freedom and
property, taxpayers didn’t agree US government loans the money to GM, the bill didn’t pass
the senate, therefore both rights is violated.
- Smith would disagree with this event because he believes in the invisible hand that will heal
the market. Some company will fall, and some will rise.
- Karl Marx would agree with this because on the one hand the U.S. government uses tax
money to save the bourgeois company. On the other hand, proletarian workers are saved
from the unemployment. In socialism government has obligation to provide a job to each of
their citizens.
c. U.S. Government owns 61 percent share of the company
- Locke would disagree with this event because the U.S. Government took the property of GM
investors who have the right of that property.
- Smith would disagree because of the reason all mention above, government should not
interfere with the market.
- Karl Marx would agree with this event, furthermore he prefer the government own 100% of
the shares. Marx believes that the property should be owned by people and not by individuals.

2. Explain the ideologies implied by the statements of: the letter to the U.S. Congress signed by 100
leading economists, Joseph Stiglitz, Bob Corker, the Republican resolution on the bailouts, Robert
Higgs, and Michael Winther.
Answer:
 The ideologies implied by the statements of the people mention above is socialism because The US
Treasury created a new company name “General Motors Company,” and the now bankrupt “Old GM”
sold its most profitable brands and most efficient manufacturing facilities to the new “General Motors
Company” who used $30 billion of the government’s money to buy them. This action is resulting 61
percent share of the company became the property of the U.S. Government. The U.S. Government
also retained the right to elect 10 of the 12 members of the board of the directors of the “New GM”;
it was now the major owner of a car company. Thus, the company is actually owned by people that is
why the statement implied that Joseph Stiglitz call the bank bailouts “socialism for the rich”, Robert
Higgs wrote that “the government is resorting to outright socialism by taking ownership positions in
rescued firms.” Michael Winther stated that There are only two economic systems in the world . . .
These two economic systems are generally described as “the free market” and “socialism.” Socialism
is characterized and defined by either of two qualities: Government ownership or control of capital,
or forced pooling and redistribution of wealth. . .[T]he current bailout could be described as “super-
socialism” because it involves every possible component of socialism: the forced redistribution of
wealth, increased government control of capital, and even the extreme of socialism, which is
government ownership of capital. Our federal government is not content to just regulate the markets
(capital) but is also taking the next step of purchasing ownership interest in previously private
companies.

3. In your view should the GM bailout have been done? Explain why or why not. Was the bailout ethical
in terms of utilitarianism, justice, rights, and caring?
Answer:
In our view, the bailout should have been done because this bailout can save many people from the
unemployment which maybe prevent from further impact because of the recession such as massive
suicide because of this company pay more than a million of people to live including the retired. In
addition, it maintains the US GDP and economy by not facing another unemployment problem
because of this bankruptcy.
Four basic kinds of moral standards: utilitarianism, rights, justice, and caring. Was the bailout is ethical
in terms of:
a. Utilitarianism is the moral view that in any situation the right course of action is the one that will
provide people with the greatest amount of benefits while minimizing harms.
The GM bailout has more benefits than the costs which is why this bailout is ethical from the
perspective of utilitarianism.
b. Justice, from the perspective of justice, this bailout is not ethic because not only this company
that has problems but also there are many companies facing the same problems. Thus, many
other companies are not getting the same benefits as GM, so it is not unjust.
c. Rights, Judgments about human rights are based on moral principles that advocate respect for
people’s freedom and well-being. And judgments about the importance of human relationships
can be based on what is called an ethic of care. The GM has right to call help from anyone that
can save them from the problems, so it is ethical from the rights view.
 d. Caring, Ethics from a caring perspective is that we have an obligation to exercise special care
toward those persons with whom we have valuable close relationships, particularly relations of
dependency. Therefore, this bailout is ethical from this perspective because it means the US
government is caring all of the parties that involve falling from insolvent.

4. In your judgment, was it good or bad for the government to take ownership of 61 percent of GM?
Explain why or why not in terms of the theories of Locke, Smith, and Marx.
Answer:
U.S. Government owns 61 percent share of the company
- From Locke theory, it was bad for the government to take the ownership of 61 percent of GM
because the U.S. Government took the property of GM investors who have the right of that
property.
- From Smith theory, it was also bad for the government to take the ownership of 61 percent of
GM because government should not interfere at all with the market conditions.
- Form Karl Marx theory, it was good for the government to take the ownership of 61 percent of
GM even further the government should take all the ownership because Marx believes that the
property should be owned by people and not by individuals.
References:

Velasquez, Manuel G (2011). Business ethics : concepts and cases seventh edition. New Jersey: Pearson
Education, Inc.