Dani Rodrik on Simon Johnson

Of Johnson's widely cited and highly regarded Atlantic piece, Rodrik writes:

Simon's account is based on a very simple, and I believe misguided, theory of politics and economics.  It is an odd marriage of populist and technocratic visions.  Countries fail because political elites always end up in bed with economic elites.  The solution, apparently, is to let the technocrats (read the IMF) run your affairs.

On the whole, I think I side more strongly with Rodrik than Johnson. (I find it hard to have a firm opinion in these matters.) That said, perhaps it's “populist” to think political elites always end up in bed with economic elites, but it seems, as a matter of fact, they often do. My opinion is that a certain “populist” enthusiasm for democracy, in the absence of strong legal and cultural constraints on government action, almost inevitably delivers a great deal of regulatory capture–that is, tucks political elites snugly in bed with corporate elites. Isn't that a cynical vision? Moreover, when the incentives of insufficiently-limited democracies lead to this kind of result, supra-national technocratic institutions can in fact act as a salutary check on governments precisely because they are undemocratic.
Free Exchange's Washington blogger seems to have something like this in mind:

Of course, the IMF can't hold America's feet to the fire in the way that the WTO can. But the WTO achieved that power, in part, because American leaders wanted an outside force to be able to tie their hands, so they could shrug at angry voters and say, “Sorry, them's the rules”. I wouldn't be surprised to see national leaders constrained in crisis response by domestic politics seeking to empower the IMF in the near term.

That's a really interesting thought. Now, I am not, and have never been, the biggest fan of the IMF and Rodrik is right that it's weird for Johnson to talk about the Fund as if everyone knows all about its totally awesome track record. That's just a little too convenient for Johnson, an old IMF hand. Nevertheless, it's not crazy to look for a disciplining force external to national democratic politics when the interest group dynamics of national democratic politics has helped create the problem and persist in blocking the solution.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

72 thoughts

  1. Ah Vitriol. Is there an argument for bailing out the companies rather than simply providing income support to the laid-off workers post-bankruptcy? The later would be cheaper and allow GM’s assets to be put to use in more productive projects.
    Perhaps I should rephrase: is there an argument for bailing out the Big 3 that doesn’t hinge upon the inherent nobility of working in an automobile factory?
    If we must choose between bailing out the company or doing nothing, I can understand the argument for postponing the inevitable bankruptcy of Detroit- now might not be the best time for another big firm to go belly-up. But if we are going to postpone the inevitable, how do we ensure that we don’t end up in this situation in perpetuity?
    Or do we think that all GM needs is the expertise of congress to teach them how to make great cars?

  2. William Graham Sumner, where are you?
    Wilkinson advocates the return of Herbert Spencer’s Social Statics.
    To paraphrase Oliver Wendall Holmes, this is the espousal of an economic theory that much of the country does not entertain. I would simply note, for good reason.
    But note that it is nothing new.

    1. Did you miss this part, “We should do what we can to limit downside risk consistent with the goal of producing broad prosperity.” I am in favor of unemployment insurance, and would even favor making it more generous, and adding retraining, if that was shown to be effective. As K. Larson notes, it’s simply senseless to prop up firms that waste resources that would be better used elsewhere instead of simply helping displaced workers make a transition to something new.
      Have you read the Social Statics? It is a masterpiece of liberal social thought. Or do you just throw out the name “Herbert Spencer” as a bugbear? Please read the excellent Stanford Encyclopedia of Philosophy entry on Spencer.

  3. Tens of thousands of workers are NOT going to be thrown out of work if GM fails. The factories will be bought up by competitors and turned competitive without the sweetheart union deal, but with still very good salaries.

  4. “Even a career that builds nothing is better than a career that builds Chrysler Sebrings.”
    Pure gold!
    Besides, writing like Will’s does have a productive, valuable purpose – if our politicians read this, they will save us far more of our produce than an assembly-line worker produces.
    “Maybe it’s time to reread your Keynes et. al.?”
    Um, it’s never a good time to read Keynes. Maybe you should try Friedman. Unlike Keynes, he has the advantage of being correct.
    Will, this post is getting bookmarked. Absolutely perfect. Too bad the “But why can’t life be perfect?!?” crowd isn’t grown-up enough to see it.

  5. I work in Big Time advertising. I’ve worked on Big Three auto accounts, met their top execs and others just below. These “move the metal” palookas are the biggest ham-fisted, thick-headed slugs you’ll ever meet in your life. More than anything (unions, benefits, etc.), it’s these lunkheads who are responsible for the ugly, tinny clunkers coming off the line that nobody wants. I don’t care how many billions you threw at these legacy failures, it won’t change that.

  6. If you compare poor people in the US to poor people in the socialist utopias which were/are China, the USSR, North Korea, and Cuba — or the poor in the well regulated Utopias such as India, Vietnam, Egypt, Iran, Mexico, Brazil or Argentina, you will duscover that our poor live better than the upper middle classes of these countries. However, if we adopt sufficient regulations and legislate more compassion, we can make our poor equal to theirs. YES WE CAN!
    And remember, in the case of China and Egypt – they have hab 6000 years of civilization to perfect their governments.

  7. Will is dead-0n. Take the money from the prospective bailout and use it to extend unemployment benefits and grants for relocation and retraining. We have auto manufactures here down South that are doing fine. And my farmer friends tell me that John Deere has a ten-year back order on tractors, combines, and other farming equipment.

  8. Perhaps a government directed reorganization, similar to what happened to the bankrupt railroads in the 1970s is in order. The auto industry infrastructure is important to preserve, rather than pile $30 billion on three companies that have negative book value, perhaps the government should take them over, reorganize them and then resell them, as happened with Penn Central and 6 other eastern US railroads. The rail industry is now healthy and competitive, though there are many fewer companies.

  9. Consider the Amish. What’s the Big Three to them? For that matter, what’s a Ph.D. from Harvard to them?
    Plus ça change, plus c’est la même chose.

  10. Sigh….First of all, bankruptcy does not mean shuttering the doors. For companies like these, it means a reorganization. Happens all the time, some companies come out of it, other do not. It does allow the company to realign contracts that are keeping it at a competitive disadvantage advantage.
    Second, does any rational individual really think $25B is going to bail the Big 3 out? This just keeps things humming until the credit markets free up again. Sure, we are probably in a recession, and the next time there is a recession, they will need to be bailed out again, etc., etc,.
    Put the companies into reorg., let the union’s membership decide if their jobs are worth salvaging. Shouldn’t it be their decision what wage is fair in light of the current economic conditions.
    I lost my business back in AZ when my major customer went chapter 11. Had to relocate and start all over again. Never asked for a penny from my friends or gov’t. Why should I be asked to save someone’s job when they will not even try to save it themselves.
    Reward success, punish failure and make sure the playing field is level. Everything else works itself out over time.

  11. Chapter 11. Re-organize. United Air did it…No big deal. Why all the crying? GM/chry/Ford are all poorly managed. This isn’t news. Union contracts killing the domestics. Crummy managers…Companies go bankrupt every day. They will come out a much better company….or not.

  12. I’m waiting for a smarter-than-everyone-else Liberal to explain the necessity and virtue of investing in failure.

  13. “No one is watching you. Your job and your dreams may suddenly evaporate.”
    Someone is watching. Not just watching, but caring.
    Perhaps more to the point, everybody *wants* someone to be watching them, and to care about their life. If they don’t believe in God, or don’t believe He cares, then they turn to government.

    1. You don’t speak for everybody. I don’t want someone to be watching me, neither an omnipotent, omniscient God nor an omnipotent, omniscient government. Both are childish fantasies.

  14. the continued deindustialization of our country
    Uh, there are more major automakers making cars in the US than there were 10, 20 or 30 years ago.
    The country may or may not be deindustrializing, but US-made cars with “Toyota” nameplates displacing US-made cars with “Oldsmobile” nameplates is not an indication of said deindustrialization.
    Sure, a well-to-do white kid…
    Yeah, there’s no argument with the Race Card. And reason can’t stand up to the moral superiority of being lower middle class…

  15. Let the UAW buy GM. Let the workers put up THEIR pensions, THEIR homes. They made the money, they made those POS, they sat in the job banks, they voted for high Democrat taxes, rules, regulations, fuel standards.

  16. “Tens of thousands of workers are NOT going to be thrown out of work if GM fails. The factories will be bought up by competitors and turned competitive without the sweetheart union deal, but with still very good salaries.”
    Well, Chapter 11 doesn’t mean GM shutting down. So chances are most of the factories would keep building GM cars for GM. But if GM really did go into liquidation, I really doubt that any other automakers will be buying up GM factories or product lines. There’s a lot of over-capacity in the industry, and the Japanese and European automakers have very intentionally avoided setting up production facilities in Michigan to stay away from the UAW. I suspect that no automakers are going to need any new plants at all for a few years, and when Toyota and Honda do find they could use another plant, there’ll be plenty of open space and tax breaks to be had in Tennessee, Kentucky, Alabama, etc. Volkswagen recently went through the process of selecting a site for a North American plant. Did they reclaim one of the many shuttered existing auto plants? Of course they didn’t — they choose to build a new one in Chattanooga.

  17. Why is it that people who move around from city to city for work always recommend that for you? People who have been dislocated, don’t mind the virtues of dislocation. Hey, Joan, get off on earthquakes? Good for you! Those of who don’t are, what, lesser beings? Apparently. My habits are One With The Universe — yours are some kind of cost/perversion/moral failing, if they’re not the same as mine.
    Bailing out banks is fine, because we still use them to squeeze other countries; can’t really do that with Chevys, so they don’t deserve cash. Got it, Will.

  18. Megan McArdle wasn’t so “righteous” when it cam to bailing out “people like her”.She fully supports taking money from lower middle class workers in the hinterlands to fund bonuses for the big boys on Wall Street.She can’t fathom that solvent banks might step in and pick up the pieces. Creative destruction is for the little people after all. “Real Americans” oppose all the bailouts when they aren’t teaching their children myths about the Flying Spaghetti Monster, killing animals for food, and voting for Governor Palin.

  19. Yeah, I called him the “white Kid” because he has had a life of advantage and privilege that most have not. And for all that advantage, he contributes nothing that is useful.

    1. What’s the point of this? What exactly did I say that was incorrect? I grew up the son of a cop and a nurse in a small town and went to the University of Northern Iowa on an art scholarship, because that’s what I could get a scholarship in. I lived in poverty to send myself through an M.A. program in philosophy. I worked third shift at Wal-Mart for a summer to save enough money to move to the PhD program I worked my ass off to get to. I agree that I’ve had it better than most people in most places, but WTF do you think you know about me?

      1. Ok WW, I agree the ad hominem snark is off base. But both you and Megan surprise me with your arguments. Esp. Megan’s weird rant about the UAW.
        The reality is that the world’s biggest automaker VW comes from that wacky country, Germany. You know, high-wage, high-benefit, completely unionized. . .Germany. Their auto industry is gangbusters. And despite all these unions and high salaries, Germany is a manufacturing powerhouse.
        You guys absolutely have to address the German car industry in your critique, it seems to me.
        Also, a great argument for intervention would not be a bail-out, but for the government – since the market cap is now relatively low – just to buy the damn automaker, loan the stock to the UAW to run as an employee-owned company, and have the UAW either pay off the cost of the loan over 20 years; or at least pay dividends to the taxpayer until the economy turns around and then have them pay off the stock loan.
        I mean peeps, let’s get creative but stay rational, ok? And stop with the insults on WW, that’s not discourse.

      2. No, we really don’t have to explain the German auto industry.
        The Germans do well despite a heavily unionized workforce. I don’t really know if it is as featherbedded and inefficient as some but maybe it is.
        Babe Ruth was a big, big drinker, a heavy smoker and perhaps the greatest baseball player of all time. (Certainly one of the greatest.)
        The route to athletic excellence does not lie in alcohol and tobacco use. The Babe had some big advantages that allowed him to cover up his weaknesses.
        The Germans have strengths that overcome their weaknesses.
        There is no contradiction between saying the UAW is a problem for the US car industry and the success of the Germans.

      3. Well Some Guy then you are certainly open to the critique that the best thing to do is just copy the German model hook line & sinker, since you have provided no serious argument as to why the German model won’t work here. If the Germans can do it, so can we.

      4. I did not intend to provide a detailed argument that the German model cannot work here.
        I very much doubt that we can emulate the Germans hook-line-and-sinker. Germany is Germany. It has an entirely different set of economic institutions, economic culture, demographics, eductation system, tax structure, geography, corporate laws, etc. I am surprised that anyone would need this point elucidated.
        Similarly, I could not emulate Babe Ruth’s success by taking up all his habits. I would simply be a fat, untalented, wanna-be baseball player with lung problems and a wife in divorce court.
        Further I would not want to fully emulate Germay, even if we could. Perhaps the German car industry is currently more successful that the US car industry. So what? That success comes at a price and it might not be a price worth paying. Indeed, I would not want to pay it.
        Personally, I’ve been to Germany and I don’t want to live there. Do you? (If you are not living in Germany, I guess that the answer is no.)

      5. I know little enough. But I know enough to know that it is so easy to be an economic purist when it is not your family, your home and your future. The point about other Co’s will come in a buy up the mess is unlikely. The states that have the new car factories gave away the horse and the barn in terms of tax breaks. That is probably not possible these days. Do you really feel comfortable making the guy earning $100,000 pay for the stupidity of the big players. If you are, I know all I need to know

      6. Do I feel comfortable with making the poor HS grad making $100K pay fo the sins of management?
        Everyone benefits from the mistakes and successes of other people. Millions of Americans have benefitted from the genius and initiative of Henry Ford and Bill Gates.
        Doesn’t really matter if I am comfortable with it, it is unavoidable. Either the UAW pays or we all do. They are certainly more responsible for the success or failure of the Big 3 than I am. Should I be taxed to featherbed them for another 60 years?

  20. If GM, Ford, or Chrysler went through Chapter 7 liquidation, what happens to their legacy pensions? That probably sets the worst-case direct cost to taxpayers for option A let them fail. Option B would be something like Chapter 11 restructuring where Chevrolet, Ford, and a couple other brands survive, but maybe with legislation and loans to speed up the process. I prefer option B restructuring with a smaller but successful self-sufficient US owned auto industry emerge from the wreckage. Hope they’re capable of restructuring.

  21. A fine example of misplaced and short-sighted sympathy is Malden Mills. Nice gesture by the CEO to continue paying the full salary of his worker’s who lost employment due to the fire, but now Malden Mills is out of business and it’s underfunded pension plan will never pay out full benefits.
    Nice job running the company into the ground.

  22. Let’s be honest. Any auto bailout, if it happens, will be a bailout of the UAW and their bloated wages/benefits/pensions, not a bailout of the Detroit Big Three.
    Even though it would hurt my income, the best thing to happen to Chrysler/Ford/GM would be bankruptcy reorganization from which they’d emerge with labor costs at parity to the non-Detroit brands.

  23. Survival of the fittest.
    Unless, of course, your beached whale of an industry systematically helps Democrats obtain elected office. Then the liberal illuminati come running, because, well – they owe you one.
    How is it that a bailout for the big three isn’t seen as a huge favor to a colossally well-armed lobbying group?

  24. As a “white kid” who grew up in greater poverty than almost any ‘poor’ Americans suffer today, I’d like to see dexter’s bona fides. I’m betting he’s a child of upper middle class lifestyle who essentially ‘learned’ his economics by living off daddy and mommy. Thus, his support of the government rescuing those who have come to failure mainly through their unwillingness to live in the real world.
    I agree with Will. Cushion the blow, but the Big 3 and the UAW have to join the real world, and it looks like only bankruptcy will make that happen.

  25. This BS from someone who has probably never been in a car plant. And that probably applies to a goodly number of the commentators here who spend much of their time telling us how exceptional the US is, but apparently we’re not exceptional enough to be able to run a car industry unlike the French and Germans of old Europe. The US car industry is the source of 3-4 million jobs both directly and in parts suppliers, dealers et al. At the moment they have a combined market share of around 33% or five million units a year. If they go down at least half that will be lost to the Japanese, Germans and French. 1000’s of small sub contractors are going to go bust not to mention thousands of dealers. Then guess what whose going ot pick up the pension and healthcare tab, the American taxpayer. It’s time to get beyond the immature sloganizing and union bashing. They have major problems mainly created by management. The unions share some responsibility but they are not the problem, after all the most unionized car industry in the world is in Germany and guess what, the most profitable car companies are in Germany. So grow up and realize this is an enormously complex problem that needs to be handled intelligently. SInce the adults are about to take over in Washington I have some confidence this is going to happen.

    1. So, since blame can be spread across both Management and the Union, we must be intelligent (copyright dimo party) and bail them out. We’ll need the unions’ money and muscule for the next election, plus we’ll get to “save the car companies” again in a few years.
      Got It!

    2. While we are at it, let’s grow up and realize that the problems facing candlemakers and horse-and-buggy manufacturers are enormously complex and need to be handled intelligently. These industries are the source of many jobs, and providing jobs is their primary function. It’s long past time to extinguish the sun and ban automobiles in order to save these jobs.

  26. Been in a couple of factories. Most impressive Honda and Toyota. Most workers standing around idle, Chevy plant, and big 3 supplier factory.
    Also, my credentials: grew up poor, first gen to college. Hope that qualifies me to comment.

  27. John, love your post. So much material to work with.
    Also been to a German factory (non-auto, but highly union). Workers were most professional, and cared about their product and their company. Can’t say I have seen that in a big 3 plant.
    If management is so bad, let them fail. New managment will come in and get profitable or liquidate. Americans still make good cars. But now they are called toyotas, hondas, mercedes, and BMWs.
    As for who picks up the health care tab… we taxpayers either way.

  28. The three companies have three different attributes.
    – Quality (initial and long-term): Ford=1 (passenger equal Toyota; trucks not so good), GM=2 (mixed among brands), Chrysler=99
    – Ownership: Ford & GM = Public; Chrysler = Private
    – Cash for operations: GM = 3 months; Ford = 9 months?; Chrysler = ?
    All three have hourly rates ~ $75 and average > 20 hours per vehicle in labor, while the foreigners in the US average < $50. (In hours Ford is lowest and close to Toyota’s 17 hours per vehicle.)
    Left alone GM will tank first, with someone rationalizing brands and product eventually.
    In the meantime Ford may then decide to screw CAFE and build whatever it can sell and import stars from its foreign factories while it gets concessions from the UAW.
    Chrysler is screwed. Someone may buy Jeep, but God help them and the wealthy investors who sought to make a bundle.
    This is right and just.

  29. I can’t believe I’m still reading comments about the automakers going into Chapter 11. People, it isn’t going to happen – automakers aren’t airlines, it’s a completely different business. No one will buy a car from a company in bankruptcy, even a Chapter 11. IT IS NOT AN OPTION. You market purists can take your pious the market is God attitudes and stick them where the sun doesn’t shine. Letting the automakers go down will put this country into a Depression at least equal to that of the ’30s, and if you think capitalism will be better off as a result, you’re smoking something far more powerful than the best weed around. Killing capitalism through capitalism – not exactly smart.

    1. Saving capitalism through socialism, on the other hand, is exactly smart.

      No one will buy a car from a company in bankruptcy, even a Chapter 11. IT IS NOT AN OPTION.

      What does this even mean?
      I can’t believe we are going to have the bailout argument over and over again. Maybe bailout proponents can give us a list of companies they consider too big too fail, before they fail, just so we know how far this bailout ideology is supposed to go? I mean, if no major company is considered small enough to fail, that sort of says all there needs to be said about killing capitalism, doesn’t it? Put a fork in it, it’s done.

    2. Jim –
      Is it all or none? Do we give all three whatever it takes? Is it “fair” to give Chrysler, a company with little realistic product in the pipeline, as much as we might give GM with its Volt? Arguably Chrysler’s owners have much less invested than GM’s or Ford’s shareholders do. And what about Ford’s preferred stockholders? Should they retain their voting advantage?
      Is it possible that potential investors are holding back to see what transpires? Is there another Kirk Kerkorian waiting in the wings?

  30. Let ’em fail. So what if we say adios to 5% of our GDP in the middle of a steep recession? Who cares if three million people lose their jobs? It’s their own fault anyway. Same thing happened in the financial meltdown: all those damn Wall St unions messed everything up.
    To hell with them. Much better to suffer $200 billion in damage to our economy than to sacrifice six weeks of Iraq War spending to save the upper Midwest from total collapse. And anyway, Adam Smith and his magic laissez-fairies will save us, amirite?

    1. That’s the point, Ernesto. If no one wants to buy Detroit’s cars, then that 5% of GDP is already lost. They might as well be digging holes Monday through Thursday, and then filling them back in on Friday. A steep recession is when we especially want the people and resources that used to produce the 5% of GDP to be redirected to enterprises that are actually productive.
      It is amazing how the labor theory of value persists after all this time.

  31. Micha: What Chapter 11 is not an option means is that those who suggest Chapter 11 is the way for the automakers to go are not being realistic. People will simply not commit $15K+ to buy a car from a company that is in bankruptcy. If bankruptcy is the option, it’s a Chapter 7 liquidation.
    Mike: Perhaps not all or none, certainly not just a blank check, but I fail to see how letting the companies die in the next year will produce anything other than economic pain on a scale few of us can imagine.
    I also love the “retrain the workers” option. Can someone please tell me which industries are in desperate need of millions of workers? America doesn’t make a whole lot of anything these days. There are only so many spots for more consultants and burger flippers.

  32. Hilarious. You can always count on the types who rail about the “eeevil corporations” to be first in line when said corporations come begging for handouts.

  33. I think what we’re seeing is the common bias towards stasis and against dynamism (visions spelled out in Virgina Postrel’s The Future And Its Enemies).
    I think Will spelled out very well how far-seeing sympathy is better than short-sighted sympathy. But, lots of people won’t accept it.
    It’s interesting how many people accept dynamism in either personal/cultural areas or economic areas, but not both.

  34. How salvageable is an industry whose essential business model (let’s be honest) is to generate cash flow for its retiree pension and medical plans? Legacy costs add at least $1,000/vehicle to Detroit’s vehicles, which is why Detroit can’t sell fuel-efficient cars at a profit.
    It’s also why Detroit doesn’t have the cash to invest in new model development for cars that American consumers want to buy…and it’s only going to get worse, as the UAW now has more retired than active members for the first time. As for “far-seeing sympathy”, the UAW seems more interested in prolonging feather-bedded contracts and work rules than in providing opportunity for the next generation of UAW members.
    If Washington really wants to save Detroit, why doesn’t it waive CAFE mandates for Detroit, so they can build and sell those vehicles they can at a profit? Detroit has effectively ceded the small-car segment to the Japanese and Koreans, anyway, who will continue to produce (in the US even) and sell small cars profitably regardless of regulatory favoritism shown Detroit.

  35. On Germany. I’m far from an expert on these matters, but as a European, Italian to be precise, I do know how much Germany, Volkswagen in particular, has been investing in Poland. The wage differences are also remarkable in what is supposed to be a unified market. I recently read of a spread of about €30 an hour for factory workers. So I’m not sure the German example is such a good one; it might actually, if we knew all the facts, prove the opposite of what the contributors here have intended — namely, that there is no way to keep Detroit afloat by imitating the German auto industry. Of course, you can always try to force the Canadians to work at slave wages; after all, it serves them right for living in such a cold country that doesn’t produce one decent wine.

    1. But the US automakers do outsource to lower wage countries: Welcome to Mexico, home of the Ford Mustang. Specifically, Cuautitlan, Mexico, where engines are shipped for assembly.
      As for Canada, GM’s been there since the ’50s – GM makes Chevrolets there. On the wine front, try the Inniskillin. So alas Robert, you’re mistaken on all counts.
      I repeat my question: why cannot we take this opportunity and give ourselves a German-style world-class auto industry? I await a serious reply.

      1. A quick, albeit superficial Google search using strings like “factory jobs Germany, Poland Volkswagen” produced as top results: “Daimler chooses Hungary for new car factory”; “Volkswagen builds new engine plant in Poland.” A search for “Fiat 500 factory”, our new sub-compact produces this: “Italy’s biggest car-maker is going to ramp up the 500 factory in Tychy, Poland. It will now knock out 67,000 units this year . . .” To be fair to webgrrl and the truth, some of these articles also talk about investments in their respective countries – just Germany by the way — usually related to the luxury models of their production line, where profit margins, I’m guessing, may be different from GM products. What I understand from all of this is that the prevalent model for staying competitive has little to do with investing in your own backyard when that backyard is characterized by high labor costs. That some German car companies still have enough profit to do this is commendable, but they are also companies that are not in the economic hole that GM is in. And if they were, I doubt that they would try to return to profitability by building in Germany. But webgrrl’s premise brings up other problems. Many of which have already been mentioned on this blog. (Here I admit to being way over my head; I’m neither an economist nor even a blogger, but I’ll press on). Does the world need all of these car companies? Don’t we now have a problem of overproduction? Is this a good industry to invest your money and your future in? Do you still have that Yankee know-how to combat Germany, Japan, and just wait, China in car production? Is this a battle you can win? The British have lost, and it might not be winnable anymore. Then, who would build this German-type company? Not your current management class, it would seem. So who, the government? I live in a country where the State decided to invest heavily in the chemical industry, chemicals seemed future proof, but as the factories were being built, the market for chemicals and where it made sense to produce them had radically changed, and so as a result our landscape is littered with abandoned chemical factories (and now some Fiat factories as well). I reluctantly take back my crack about “one decent wine” from Canada, even though I remain highly skeptical.

      2. Let me take this piece by piece, and then I’ll still my argument; it’s done its work, I think.
        Here I admit to being way over my head; I’m neither an economist nor even a blogger, but I’ll press on“.
        Commendable. Not knowing in public is a big step forward, but as Robin Hanson would say, while it’s something, it isn’t much. Of course none of us know, that is why we have the discussion.
        Does the world need all of these car companies?
        Consumers will decide, yes? But it seems there is much pent-up demand for cars in rising economies, such as India.
        Don’t we now have a problem of overproduction?
        Doesn’t seem like it – it seems like the problem is not overproduction per se, but production of the wrong thing. We need smaller, efficient, green cars, that’s what consumers appear to calling for.
        Is this a good industry to invest your money and your future in?
        With such low market caps, actually, it appears that a plan to sell ’em to the UAW would cost less than either bankruptcy or bailout to the taxpayer.
        Do you still have that Yankee know-how to combat Germany, Japan, and just wait, China in car production?
        Oh yeah. “Yes we can.”
        Is this a battle you can win? The British have lost
        The British tried hard, but they didn’t try smart. You saw that with Rover.
        Then, who would build this German-type company? Not your current management class, it would seem. So who, the government?
        Definitely not the government. I hate to keep repeating myself, so I’ll stop, but it’s time to pull the rope sideways. Let the UAW own it, and make them hire Germans to manage it. Let the Germans build a German-style industry with employee ownership.

      3. I’m ready to close this argument too, but do you really end up giving GM — and Ford too? — to the UAW? Are these reasonable suggestions? Is it legally, constitutionally possible? Do you nationalize these industries first and then gift-wrap them for the UAW? Does the UAW want GM? And for the Germans, didn’t they just spend a lot of money to get away from Chrysler? I know very little about the UAW but I do know about Italian unions, and actually they would not be at all against becoming entrepreneurs (not a good word, I know, but I don’t know exactly how to define the concept), but only in a fixed system. In other words, with special concessions, tax breaks, monopolies or access to public funding that would make their activity unassailable. I suspect the UAW, if we are talking about anything remotely realistic, would take GM under the same conditions — namely, no more free market, no competition just guarantees, privileges and political control. So welcome to Italy. We tried to sell our airline, Alitalia, to the French, but with the help of the unions that deal fell through. Now we are trying to pay Italian banks/industrialists to take it over and it’s still not clear if even that’s going to work. Many years ago we could have sold Alfa Romeo to Ford, but, true to form, we ended up paying Fiat to take it. The result: the erosion of our manufacturing base (no other car manufacturer has ever opened a factory in Italy and Fiat itself has all but moved out) and a public debt, a good part of it created by the 1 million € loss per day of Alitalia, that has spiralled beyond all control. Be careful what you wish for.

      4. Robert, in the USA we have had several large employee-owned companies that are/were relatively successful. Avis was probably the best known. So yes, it’s legal, and yes this has been done before here and even in a related sector involving cars. Please take that rope section and yank sideways . . .1. . .2. . .3!

  36. “Do you still have that Yankee know-how to combat Germany, Japan, and just wait, China in car production? Is this a battle you can win? The British have lost, and it might not be winnable anymore.”
    To be fair, instead of efficiently building cars that people liked and wanted to buy, Britain in the 60s and 70s tried bail-outs and state-ownership and state-sponsored mergers of failing car companies, culminating in the fantastic British Leyland, supported by the taxpayer rather than customers. On the other hand, foreign car companies did manage to create an environment in Britain (eg, Japanese car companies in Sunderland) where quite reasonable cars could be made and turn a profit. “Intelligent” policy makers in Washington might be well-advised to check historical examples abroad carefully before jumping into action. It took a long time before the British Government was finally free of Leyland (and other failing industries).

  37. I’ve of the opinion that GM is probably making the best cars that it has in its entire existence, but the labor, business, and environmental regulations (some of which are of their own making) are stacked against it. At least a chapter 11 will clear some of that out, and might encourage lawmakers to create a more hospitable environment for the businesses that come out of bankruptcy.
    But, no bankruptcy, no fixes, and we’ll be back giving them another bailout in five or so years.

  38. One assumption in this thread that has gone unchallenged is that the manufacturing base of the USA has been seriously eroded. This is simply wrong! In real dollar terms we manufacture more product now than we did 20 years ago. What has happened is that we have,through gains in productivity, produced more with less labour imput. Also the nature of our manufacturing has evolved with the more productive, like computers, replacing the more labor intense, such as textiles. Do you think its healthier assembling computers or to work at a spinning machine? Who do you think has the more pleasant work environment and better income? That’s what happens with “creative destruction”.

  39. 1) The US auto industry, in late ’07/early ’08, signed a new UAW
    contract that removes all of the healthcare and other post
    employment benefits from their balance sheets and into a trust
    (called a VEBA, or voluntary employee beneficiary association) that is
    managed by the UAW.
    2) Every auto analyst declared at that time that GM, F and C, with the VEBA, reached labor cost parity with Japanese, German and Korean automakers. The WSJ, et al described the UAW’s agreement to the VEBA as a fundamental change in US labor relations. Low interest loans to US OEMs would not be a UAW bailout…the current contract has already solved this problem.
    3) Also at that time, GM’s share price was in the 20’s: Deutsche Bank (the same firm that last Monday set a $0 target price on GM’s stock) set a target price of $48 and praised GM’s management for devising a method to get out of providing healthcare/pension benefits for hundreds of thousands of retirees and current employees.
    This price target of $48 was set less than one year ago.
    4) What happened? in 2007, about 16.5 million vehicles were sold in
    North America. In 2008, the number will be about 11 million. Every automaker is experiencing 25%+ decreases in units sold. This drop in demand is close to unprecedented, i.e., the credit crunch is hitting “main street.” The claim that “GM and F should make cars that people want to buy” is disingenuous.
    Don’t believe me? Believe this guy: “This environment is more severe than anything we have ever experienced,” said Mitsuo Kinoshita, Toyota’s executive vice-president, who added that profits were likely to remain at depressed levels next year as a result of weak US demand. “Honestly, it is difficult to foresee when it will bottom out.”

  40. Thank you Jason, for making the point I’ve been trying to make in a much-less successful way in other posts. A mere 4 years ago the Japanese and German automakers were clamoring to make full-size trucks and SUVs just like the ones created in the US. A big part of what has caused these problems is a major shift in consumer demand which has affected all automakers in the world. It has affected the big 3 more because they were more invested in that product mix. That is a poor management decision. But Toyota is in major trouble as well, primarily due to declining sales of large trucks in the US market. Sound familiar?

  41. As the U.S is turned into a third world multicultural country it will be less able to compete with the asians and europeans.
    Educational standards have declined in the U.S since immigration policies changed
    in 1965 to favor third world countries.
    Since then the U.S has gone from ranking about 2 to ranking about 23.
    The U.S originally limited immigration only from northern europe.
    Those are the people who created all the inventions and industries that made the U.S what it was before it started it’s decline in 1965.

  42. There is one comment by Stu that we make computers in the U.S .
    Most PC’s are probably made in China.
    I was working on DEC servers 10 years ago and I’m almost certain
    they had a sticker that said “Assembled in China” on them.

  43. That bail out just when to last year dept for sure. Auto industry sales last year are negative. When the government gave a bailout its good for nothing. I feel bad for the people that are making the cars that have been layoff.

  44. This is truly shocking data. ….people who make more struggle less to pay housing costs, while people who make less struggle more.USAToday is such an insightful new agency. We are lucky to have them around…no one would have ever been able to surmise the in depth insight and analysis that they continue to give us on the daily basis.
    Of course the reason for this struggling is that we live in a consumer driven society in which consumption is king. Buy more than you can afford, you can have it all, keep the masses poor through the encouragement of consumption. It all harkens back to George Oewell’s “Brave New World”.
    Summit County real estate listings

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