13 November 2008

"How could these companies be so bad for so long?"

Thomas L Friedman asks the question:
Last September ... the chief executive of Chrysler [was] explaining why the auto industry, at that time, needed $25 billion in loan guarantees. It wasn't a bailout, he said. It was a way to enable the car companies to retool for innovation. I could not help but shout back at the TV screen: "We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?"

How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling SUVs and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, GM threw way too much energy into lobbying and maneuvering to protect its gas guzzlers. This included striking special deals with Congress that allowed the Detroit automakers to count the mileage of gas guzzlers as being less than they really were - provided they made some cars flex-fuel capable for ethanol. It included special offers of $1.99-a-gallon gasoline for a year to any customer who purchased a gas guzzler. And it included endless lobbying to block Congress from raising the miles-per-gallon requirements. The result was an industry that became brain-dead. How to fix a flat, 'International Herald Tribune', 13 November
I'm getting a bit fed up of lobbyists telling us that the health of the economy depends on the health of the finance sector, the housing sector or the car industry. If it does, then 'the economy' is, to put it bluntly, not worth defending. What government should be about is looking after the wellbeing of actual people, not particular industries, failing corporations or abstract economic variables. If social and environmental wellbeing require a smaller or more responsive finance sector or car industry, and if that means some adjustment costs for these industries then so be it.
I'll go out on a limb here and say that taking taxpayers' money on such a scale and giving it so transparently to inefficient corporations is politically unsustainable. True, governments in the west have done this with agriculture for a long time now, but the disastrous effects of such transfers - on consumers, taxpayers, animal welfare and the environment - have been too slow-moving to arouse public anger. Bailing out the car industry and the bankers though, I think, is different.

What the French Revolution, writes William Doyle
most certainly was not, was a single event. It was a series of developments, bewildering to most contemporaries which stretched over a number of years. It was a sustained period of uncertainty, disorder, and conflict....
If our governments can't come up with any better solutions to the current financial crisis than by bailing out on a massive scale the deadbeats in industry and finance then I fear for the future.

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