Good-bye, Chicago
Sorry, but I don’t think I agree with the premise that we should not bail out the car guys. Well, to be honest, I don’t like the idea of a bailout either and do not support one per se. However, we’re talking about a loan, not a gift and there are significant strings attached such as eliminating Detroit’s opposition to laws against pollution and for increased mileage standards.
My reluctance concerns method. It’s one thing to talk about capitalism and socialism and letting foolish car memes hit evolutionary dead ends and all that. It is right and proper to extinguish those bad ideas and behaviors but letting these giants fail is like self-immolation. Do we really need to destroy the village to save it?
Part of the problem I see is that we are applying rules for individuals and small businesses to these companies. Individuals have a great deal of responsibility to themselves to stay solvent and healthy and if they fail, under most circumstances the consequences are appropriate.
What is the right stance on the car companies? Well, I think first we need to give up the fiction that there is anything close to raw, naked capitalism or socialism for that matter. When you get to be as big as a car company, you become your own environment which makes you quasi socialist. That is the essence of Charles “Engine Charlie” Wilson’s 1956 comment to congress that “…for years I thought what was good for the country was good for General Motors and vice versa” which was later misconstrued as, “What’s good for America is good for General Motors.”
Democratic capitalism lets the winners continue playing their hands until they run out of luck and for years the car companies designed, produced, advertised and sold cars that appealed to the vanity of the American motorist from the ‘burbs until long after that vanity should have expired. Detroit still builds big, sleek, shiny, fuel guzzling road locomotives, living rooms on wheels. One ad I saw in a magazine this week for an SUV boasted a refrigerator and a DVD player. The Conestoga wagon of the twenty-first century all dressed up and tweaked out with nowhere to go.
Detroit has fallen. Hard. The paradigm has changed and no one wants to buy its products anymore even with gas comfortably below $2 per gallon. Yes, they should have seen it all coming—Peak Oil, economic crash, global warming and all the rest were evident for anyone to see. I bet all the execs in Detroit can quote you a great deal about all of those subjects to the point where you’d think they were advocates. But they did nothing because their job descriptions said maximize shareholder value, not save the planet or anything more idealistic.
Detroit’s problems were really imported from Chicago, specifically the Chicago school of economics associated with guru Milton Friedman and the University of Chicago. The meltdown we are seeing is actually the wheels falling off the Friedman express, a simplistic belief in the power of markets, unfettered by regulation–a Darwinian swamp.
The ascendancy of Friedman style economics made it impossible for Detroit, or Wall Street for that matter, to openly collaborate with government and its regulators to achieve anything close to sustainability. Such collaboration became an epithet—socialism in business, liberalism in all other branches of human endeavor.
So now the socialist chickens come home to roost and what was not paid forward by all parties into the common endeavor we call America, is now being paid backward by the unborn. But it is never that simple. Letting Detroit go bust means millions of jobs, of course, but more fundamentally, Detroit represents a big chunk of our ability to make things that we might need in an emergency.
Fighter jets and ships are built elsewhere but what about tanks, trucks and all the other wheeled war machines? Who builds them if Detroit goes down? Do we gen up a separate wholly owned government ground fighting transport industry? Caution here, the F22 fighter jet has a price tag of $300 million per. I suppose there’s always outsourcing, or is there? Please don’t lecture me about the virtues of outsourcing. War fighting is the one thing a people has to do itself or the enterprise is kaput. Look at Rome. Look at Kellogg, Brown and Root (KBR)! Look at Blackwater!
We might need fewer cars and more mass transit but we also need Detroit. Not the Detroit of the last fifty years, though, run by a bunch of financial wizards, but the Detroit of the first part of the twentieth century, run by car guys. Car guys build cars for reasons that make sense, cars that are fun to drive, cars that accomplish transportation related goals. Financial guys build cars as an adjunct to their effort to make money. They make what they have to in order to achieve a quarterly revenue goal.
So let’s rescue Detroit–save the companies but kill the business model and make Milton Friedman that curious footnote he deserves to be. The rescue will cost much more than the $15 billion or so that congress in its infinite spinelessness has negotiated with a very unpopular president. It will be enough to get the car companies through the holidays and to a new and pragmatic administration. Meanwhile let’s all write on the chalk board 100 times, “I will not be seduced by the siren song of unbridled free markets again.”
At least till the next time.
Discussion
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Denis–
Nice job thinking around this problem. Nothing is ever quite as simple as it seems unless you’re a University of Chicago professor of economics. At the Albany Nanotech Forum in 2005, a person of this ilk gave a talk about how sending jobs overseas was great – but not for manufacturing, but for high-level jobs – people in R&D, doctors, engineers, etc. This person’s thinking was that those displaced people were quite smart and thus could learn entire new emerging disciplines every 10 years or so. Never mind that it takes an engineer six years of advanced education to get that job in the first place…
Thankfully, the audience in attendance reacted largely with blank stares and mouths agape.
As for the U.S.’s industry/military linkage and what’s become of it: DARPA recently had to scramble to organize a coalition of semiconductor companies to on-shore a fab to make the chips needed for defense purposes. This came after the realization that most of the hardened military-grade silicon we use was made in Taiwan. And what could possibly happen to interrupt the flow of silicon from Taiwan?