There is increasingly insistent talk on Capitol Hill to give Federal money to GM and potentially Ford and Chrysler, this is a terrible idea and should be discarded
G.M. and perhaps the other American automakers have headed into a seemingly irreversible tailspin and are calling on the Federal government to rescue them from an almost certain demise. The prospect of a Federal bailout of the Big Three raises two important questions: first, why on Earth would anyone spend money to allow the GM et al to continue running a bad business; and second, why should the government intervene to save any company, big or small, that can’t survive on its own? The answer lies I think in what Americans tend to want from their economic system: they want a system that provides the benefits of both a capitalist and socialist system, which simply isn’t possible.
Put bluntly the American automobile industry is a mess; inefficient production models, inflexible vehicle development programs, and years of increasingly generous UAW contracts has stripped the auto companies of the ability to perform their core function: producing a car that people want to buy for a profit. Stiff competition from foreign manufacturers, increasing gas prices, and decreased consumer spending has exacerbated these woes to the point that GM, Ford, and Chrysler are reported to be on the point of bankruptcy. Capitalism dictates that the companies be allowed to fail; if people don’t want what they’re selling at the market price let them go out of business. This cruel process leads to the demise of thousands of small business every year and occasionally to the failure of a big company too. Why let the companies fail, both big and small? Efficiency. Capitalism allows resources to be used in the most efficient manner possible and allows people to consume products according to their tastes. This is the great benefit of our economic system and it has created the most vibrant and powerful economy in the history of the world. The downside to a capitalistic system is of course its cyclical nature as well as the painful transition as goods and production are reallocated throughout the system.
Which brings me back to GM. If the Federal government gives more emergency loans (yes more, a first round of loans was already approved a month ago) to the company it is in essence saying that the value of the jobs and resources tied up in the company are worth enough to the economy to allow it to use an inefficient system to keep making cars that no one wants. This valuation is inherently flawed and should be discarded. When the typewriter industry started dying in the late 80’s and early 90’s no one wanted to save it because there was a clearly better alternative; such is the case now. No company or industry is so vital that it should be exempt from the trying fire of the market; while there will be pains associated with the end of American auto making as we know it, the pains of maintaining the automakers on life support will be even greater in the long run.
Posts
4 comments:
I agree with Dave here. Even though it would mean a lot of jobs being lost, there can emerge a small business that can replace the void left by the carcass of the Big Three. The Japanese automakers are able to make money even though demand is generally down because they give consumers what they want: practical vehicles that have a history of reliability that get good gas mileage. The Big Three got lazy during their glory days and let quality slip. Now they have a history of being unreliable. Also, we haven't seen any of the Big Three match the gas mileage of the foreign cars, even though that's something consumers demand. It just doesn't make sense in a capitalistic society. I agree we let GM die and make way for a more cost effective company to fill its place.
In general I agree with your post, but you seem to be missing a fundamental part of the question here. Do GM, Chrysler, and Ford really operate in a free market system? Competition is great, but US companies have a significant handicap when they compete with their foreign counterparts because of the regulatory burdens they have to deal with. They are also disadvantaged by our employment laws, our pro-plaintiff tort laws, and our environmental laws. You don't really expect them to compete with the Asian automakers under these conditions do you? I agree that bailing them out is a bad idea, but I think that if we want any of our manufacturing businesses to remain competitive, we must reform and/or eliminate the significant legal and financial disadvantages that we impose on them.
That's certainly not going to happen under Obama and a Democrat controlled congress.
I agree with most everything as well. In my experience, American cars are less refined and less reliable than their Japanese competitors. The big 3 have made significant improvements in past years, yes, but protectionism and bailouts will only delay their inevitable decline and demise. They can shrink, although painfully, in response to what the market dictates. Capitalism is what our economy is based on, and this would defeat the market's purpose. If any regulation is needed, it should be to make sure that the execs can't plunder and pillage their mismanaged and dying companies excessively (wow, that sounds a little socialistic--Obama is getting to me). No, I've always had a distaste for overpaid executives.
You don’t address the human concern that lots of people will lose their jobs and not be able to find new jobs in the current economic crisis while you talk about “the painful transition as goods and production are reallocated throughout the system.” The question is, are the jobs of thousands of Americans more valuable than maintaining a capitalist system? I don’t know.
Post a Comment