Posted by ninme at 10:06 am
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The Times - Car Trouble
The new administration should resist demands to rescue US car manufacturers; aid risks diverting scarce resources and provoking trade retaliation
The American car industry is in deep trouble. Sales in October fell to their lowest level since 1991. The big three manufacturers - General Motors, Ford and Chrysler - recorded big losses in the last quarter and are haemorrhaging cash. Deepening recession, tighter credit conditions and a shift in consumer tastes away from sports utility vehicles, on which profit margins are high, have inflicted severe damage.
The companies are looking to the US Government for help. They have asked congressional leaders for $25 billion in loans to cope with the recession, and another $25 billion to fund employee health care schemes. And they are finding a receptive audience. At the weekend, Nancy Pelosi, the House Speaker, and President-elect Obama both expressed support in principle for a rescue. They were wrong to do so. A bailout of the car industry is a terrible idea. It augurs badly for the new administration’s response to tough economic issues.
Hah! Hah hah hah hah!
The financial crisis is born of mismanagement and predatory lending in the private sector. But at least the bailout of the banks is not a straight subsidy: the taxpayer gets a stake. A rescue for the car industry would recall the failed industrial policies of the 1970s. Subsidising manufacturers in order to protect jobs is a politically potent cause, but it does not work. Its enduring economic effects are to divert scarce capital from more productive uses, and to provoke other countries to erect trade barriers. The danger in acceding to the demands of the car manufacturers is that other industries will also seek aid to withstand recession. Yet the most successful and innovative American industries in recent years have operated without subsidy or trade protection: for example, software, telecommunications and entertainment. American cars have not attracted enough buyers. Supposedly targeted industrial aid is more likely to breed complacency than promote competitiveness.
Rescuing ailing industries represents a retreat to comforting orthodoxies by the Democrats. The new administration might note that the British Government has learnt from experience. Labour in the 1970s supported British car manufacturing, when British Leyland faced a liquidity crisis. The company was a constant drain on public resources. Only later did Labour grasp that investment in manufacturing is wasteful if there is no demand for the product. Gordon Brown has rightly urged Mr Obama not to introduce protectionist trade policies, which would merely compound the crisis. They are not the only example of economic interventionism that should be avoided scrupulously.
Hah!
You know, if I wanted to spend a load of money on an American car, would have bought one. But I don’t want to. Oh wait, yeah I do, but the ones I want they won’t sell here.
Update:
The Times - They might run the economy just like British Rail
The hotel on the shortlist to host the next G20 meeting has a chequered past, by Ross Clark
I am not into Eastern mysticism, but I find myself fretting over the architectural karma that will effuse from the walls of The Grove country house hotel in Watford if it is picked to stage the follow-up next spring to the emergency G20 summit. Far from sorting out the world’s economic problems there, I fear there is a risk that Messrs Obama, Brown and the others might flip and reorganise the global economy along the lines of British Rail.
My own experience of the Grove was in 1985 during its earlier incarnation as BR’s management training centre, when what had been Lord Clarendon’s drawing room was a smoky bar, and his croquet lawn was built over with prefabricated lecture rooms. Harvard Business School it wasn’t. When I arrived for a week’s course as an engineering trainee, the director of studies was quite open that some BR top brass were unconvinced by management training. “They think we spend our time here sitting in circles, holding hands and chanting,” he said.
If only. What followed was a week of seminars presented by functionaries clearly struggling with the concept that they were running a business, not a job club for them and their mates. Too many passengers were using some services, the man from InterCity told us, so we are going to jack up the cost of tickets to discourage them. Can’t you invest in more rolling stock and try to expand the business? I asked. No, he said: that wasn’t part of BR’s remit.
Etc and so on…
Now that bankers and hedge fund managers are in the dock, it is easy to forget how nationalised industries ruined the economy. But with Gordon Brown out to convince the world that we need another state-led Keynesian spending splurge, we would do well to recall what happened last time the State took it upon itself to run industry. The Grove’s transformation from rundown training centre to posh hotel shows just how much richer the country is now.
sigh