The CEOs of the big three car makers have come to Washington telling lawmakers that they should give them multi-billion dollar loans so they can keep operating their businesses. They promise to return to profitability by reducing their dealerships, reducing the restrictiveness of work rules, etc., whatever is the latest explanation for their failures to be successful in the market. Why they never did these things before is not explained.

The fact is that the car companies are like the legacy airlines that couldn’t continue in the face of competition. Those airlines have gone out of business one after another because they long ago got into contracts with their suppliers and labor unions, at a time when they were insulated from competition by government regulations. When the regulations were lifted, competition arose and they fought a rear-guard action against new competitors until they finally recognized that they couldn’t sweep back the tide of competition and either went into bankruptcy or merged, or created new units that were not so shackled by past contracts. The car companies have not followed suit and now ask the public to support them while they try to get out of the most onerous of these contracts. So long as support is there, neither they nor those with whom they have contractual obligations will make the necessary changes.

The arguments for government support may persuade Congress but they signify a state of mind that has become too commonly accepted in America today. When they ask for support on grounds that the government bailed out financial institutions, it is like students in school who justify cheating on tests on grounds that “everybody does it so why shouldn’t I?” One can’t blame the car companies (and state and local governments, home buyers, divorce lawyers, and everyone else in the country) for asking for a hand-out but it is incumbent on the government to put its foot down and say “No.” Otherwise, the bad behavior will grow like a cancer until it rots out the entire system.

Once government support starts, it increases the problem that called for it in the first place and it becomes harder and harder to withdraw the support. Think of rent controls in New York City or agricultural price supports. Politicians find it impossible to withdraw those regulations because it would be painful for renters, or farmers and their creditors, to make the necessary adjustment to market prices. If the big three go into bankruptcy without government help, however, they will not disappear, they will simply be reformed into leaner and more efficient producers and the politicians will not be blamed for the pain of adjustment. It isn’t true that American car companies don’t know how to produce good cars, or cars that the public wants. But they won’t be able to compete until they break free from the past and all the help, and all the intervention in the production process associated with government help will not prevent their ultimate failure.

This is a critical time in American history. Firms fail when, for whatever reason, they become inefficient and firms grow on the basis of efficient investment and management. If we cannot accept failure, we will end up with nothing but inefficient producers and an ultimate failure of our system of free enterprise.