A tale of two U.S. interventions: GM and Afghanistan

By Philip Zelikow

The U.S. government is now bankrolling two substantial enterprises -- both too important to fail.

One is the automobile company, General Motors. The U.S. government appears to be putting up a total approaching $50 billion to keep the reduced company afloat. It is set to own 60 percent of the company.

The other is the Islamic Republic of Afghanistan, a sovereign government in central Asia. Purely by financial measures, the U.S. investment there is not quite as large as in General Motors. But since the prospects of getting the money back are not as good, perhaps the level of federal spending in this case can be regarded as roughly comparable. The federal government does not have a formal ownership stake in Afghanistan, but foreign donors pay more than 90 percent of the costs of operating the government. The United States foots most of this bill -- especially in security spending. And there is no prospect of Afghanistan being able to afford the security forces it has now, much less those proposed for it, any time in the foreseeable future.

Ordinarily a common description for the first case is that the company has been nationalized by the United States government. And a common description for the second case is that the state has become a protectorate of the power that pays for the army. (The United States does this in Afghanistan to a much greater degree than was ever the case in Israel, and to a much greater degree than was even the case in Iraq in recent years. In this respect, the proportion of U.S. sponsorship is a bit reminiscent of South Vietnam.)

The United States government does not like to use terms like "nationalization" or "protectorate." Why? Because these descriptions would make it sound like the U.S. government is in charge. Well, isn't it? In both cases, the answer is: Not quite. And in both cases the question is worth pressing a bit harder.

In the first case, GM, the U.S. government will own the company. But it will not offer or defend a business model for GM's success, since we disclaim any desire to run this company. (Though the government will impose certain new constraints on how the company can be run.) The argument is that, with the massive subsidy and the freedom from old constraints that will come from bankruptcy reorganization, the company should do fine. But some big questions arise:

(1) How does the U.S. government judge the viability of the business model?

(2) How does the U.S. government play this role while running a two-level game: one in which the government runs an auto company and the other in which the government has a carefully limited role in directing the private sector of the economy that trades automobiles, with competitors that include private U.S. companies (like Ford) and foreign companies manufacturing in the United States.

(3) If the U.S. owners are passive investors (not the case so far), who on the board will provide guidance and accountability for management?

In the second case, Afghanistan, the United States (and other donors) will subsidize the Afghan government. But the United States cannot authoritatively select a successful "business model" for the enterprise, since we disclaim any desire to run this country. (Though the United States will impose certain constraints on how Afghanistan can be run.) Yet here too, some large questions arise:

(1) How does the U.S. government judge the viability of the foreign government it subsidizes?

(2) How does the U.S. government play this role while running a two-level game: one in which foreign donors effectively run a parallel governance/security system in Afghanistan, with its own separate budget, and the other in which the United States has a carefully limited role working "alongside" the Afghan government's own governance/security structures. (There is another two-level game involving the seams between Afghan central and local authorities, but it is too complicated to develop in this post.)

(3) If the U.S. funders are relatively passive investors (with a 90+ percent stake!), who provides guidance and accountability for management? When the U.S. government provides almost all the money for a government, to what extent does it become responsible or accountable for what that government does and how that government is managed?

This is an old problem. In the history of various kinds of outside interventions in troubled enterprises and countries, the outside government often gets involved because the local enterprise is in extremis. It is in extremis because the status quo isn't working. So, in these cases, the outside government naturally starts thinking about regime change. General Motors has already had one change of management. But of course Afghanistan is different. It is a sovereign state...

I know these two stories are more complicated than I've let on in this little thought experiment. Yes, there are ways of sharing power. Still, in puzzling over the prospects of the U.S. government's investment in these two enterprises, I want to understand the strategy for future success and assess whether the strategy is viable. And this little thought experiment does spotlight threshold questions, like: Whose strategy? And who's responsible?

And then there is one more issue: If the enterprise is too important to fail, how can the U.S. government limit its exposure? Isn't it the case that, to have enough influence, the United States and its allies have to be willing to take responsibility, or be willing to walk away? And if the government is willing to disinvest, then isn't the government also saying that, if they are not adequately managed, the enterprises can be allowed to fail, after all?