It's amazing how readily something that would have been considered unthinkable just a year or two ago becomes taken for granted... no big deal... “ho-hum”. The Obama administration is certainly taking advantage of the public's “bailout fatigue” to pave the way for... no more bail-outs, just outright takeovers. And actually, this is one case where logic is on their side. If the taxpayer is going to be held liable every time a firm that is “too big to fail” fails, then the government clearly has a duty to see to it that businesses are no longer allowed to get too big to fail. This can be accomplished in many different ways. One is to apply regulations similar to anti-monopoly regulations, and simply say that when a given business acquires a market share over a certain percentage, or a capitalization over a certain amount, or control over capital of a certain amount, it is simply not allowed to get any bigger – i.e., no more expansion. It either has to cool its jets or break itself in two. Another way is a bit more drastic, I suppose – and that would be that when a business gets too big, by the same criteria, it is automatically taken over by the government. That doesn't seem too practical offhand, but surely the threat of such an action would help to discourage excessive expansion. Then another solution would be one that is already being applied, namely to take a failing business, divide it into a profitable segment and a losing segment, and allow the profitable segment to keep going unhindered, while the losing segment is taken over by the government and becomes a government liability. This is actually the least savory of the three alternatives, but, not surprisingly, it's the one that is actually being applied. Now, knowing what we all ought to know about human nature – and especially the nature of the typical businessman in this corrupt and decadent age – it's obvious that, seeing this, countless businesses will start structuring themselves so that any time one of their divisions starts taking unsustainable losses, it is simply left on the government's doorstep. This, you have to admit, is a new and heretofore unheard-of variety of capitalism – and yet it obviously works, and will continue to work as long as the government sees itself as the ultimate insurer of businesses against loss. Now, in the long run, what this also means is that the government will become increasingly burdened with non-profit-making, non-productive sectors of the economy... like auto manufacturing, for example. But hey, non-profit-making and non-production are what government does best, so I see this as a natural convergence of interests and talents. The only problem is, once the government gets its hands on a certain economic sector – whether manufacturing, services, banking, housing, health, insurance, securities, whatever – it will never give it back, any more than it has ever de-regulated agriculture since the New Deal. And what this means is that those sectors will be forevermore doomed to be truly “non-profit”, if not entirely non-productive... which means they will no longer contribute to economic growth, and you can forget all about them ever being innovative, creative, or anxious to increase efficiency. And they'll have about as much credibility overseas as those places in China with names like "People's Revolutionary Struggle Twine Collective" had back in the 1970s.
We have already seen what happens when the government runs everything – or at least everything that counts. We saw it in Russia from the Bolshevik Revolution on... we saw it in China for many decades... and we continue to see it in places like North Korea and Cuba. (I would include some African states, except that, in those places, there really isn't anything for the government _to_ run, either well or badly.) But also, let's admit, aside from the gross economic distortions, every once in a while collectivism seems to come out on top – at least temporarily. Who put the first satellite into orbit? Us? No – it was the Soviets, with their exclusively state-owned engineering and manufacturing sectors. Who managed to conquer most of Europe before they were, very gradually and at great expense, beaten back? Us, or one of the other “democracies”? No – national socialist Germany, where the manufacturing sectors were nominally in private hands, but totally controlled by the government. (If GM and Chrysler want to see their future, they should study the history of the Krupp firm.)
So yes -- “industrial policy” can actually produce what appear to be advantages over messy old competition. But in the long run, and with most of the incentives that tend to inspire creativity, innovation, and expansion unavailable, stagnation is likely to set in. Not to mention which, the gross inefficiency that government involvement naturally introduces into everything means that you wind up with much less output for the same input. Russia, for example, had some remarkable military, technological, and manufacturing achievements from World War II through the Cold War, but at the price of every other sector of its economy being stuck in the pre-Industrial Age. The advantage of that system, though – especially for liberals – is that it involves a great leveling -- also known as the disappearance of the middle class -- and the elevation of “intellectuals” and “theorists” to positions of absolute power. So you can expect considerations of total output and efficiency, as well as of growth and innovation, to be ignored by the Obama administration simply because those are not what they would consider “values”. It's much more important to institute what I'll dub “EMO”, or Equal Misery Opportunity... and to put the right people in positions of leadership, regardless of the negative impact it tends to have on the people they pretend to represent.