Congratulations to us!
We were no fools – instead of saving our money and putting aside $500 a month to buy shares in the bluest of blue chips, the Dow’s anchor and Detroit’s pride, we spent the money on gambling, carousing and riotous living, hoping that everything would work out for the best.
And did it ever! Without buying a single share of G.M., we own it!
Aren’t you excited??!! I’m not.
The O team has laid down a big bet on the domestic automobile industry. They’re betting that smarter, more efficient companies will emerge, phoenix-like, from the wreckage of G.M. and Chrysler. Unlike their predecessors, the new companies will build efficient, high-mileage cars and trucks of impeccable quality, to which consumers will flock like so many hungry pigeons, and (shades of Ronald Reagan), it’ll be morning in Detroit. Or will it?
History suggests that such interventions are cash infusions rooted in economic delusion.
Consider the British shipbuilding industry. During 1914, British shipyards built more new tonnage, both naval and merchant, than the rest of the world combined. They remained dominant for the next 30 years, providing the ships that allowed Great Britain to prevail in two world wars.
But immediately after the Second World War, the industry began its long decline, which multiple government interventions failed to stem.
Although demand for new ships soared after the war, British shipyards didn’t adapt the production methods that the United States had created to build Liberty ships – welding rather than riveting, prefabrication and assembly-line techniques borrowed from Detroit.
For a while, things went well. But a dozen years after the war’s end, West Germany and Japan were both building more tonnage than Britain.
Plagued by archaic corporate structures, an expensive labor force and sleepy management, the industry went into rapid decline. Successive interventions and restructuring led to the nationalization of the industry during 1977, its subsequent re-privatization by Margaret Thatcher and its slow disappearance.
Today, British yards build only naval vessels – and very few of those. Shipbuilding, dominated during the 1960s by Japan and West Germany, has migrated to South Korea and China.
Successive British governments were no more successful in fighting the earliest manifestations of a globalized economy than was Canute, the English king who had commanded the tide to retreat nine centuries before.
As Alan Jamieson wrote in the Journal for Maritime Research, “Shipbuilding has become the symbol of British industrial decline in the 20th century … After all those political initiatives, all that remains is the pale shadow of a once great industry.”
In retrospect, it’s not clear that any intervention, however well-conceived, could have saved the industry. Shipping and shipbuilding are both anarchic, entrepreneurial realms where business flows to the lowest-cost producers.
And what about automobiles?
The Obama administration is at least partially right – new companies will indeed emerge to compete for the markets once dominated by G.M. and Chrysler. That’s fine – except that those companies will manufacture their vehicles in Asia or South America, not Michigan or Tennessee.
Detroit’s long decline, like that of British shipbuilders, has one primary cause: other manufacturers build better vehicles for less money.
It’s possible that massive government subsidies will give birth to a new Detroit, one capable of competing not just with Japan, but with the emerging automobile industries of China and India.
Supporters of this view point to the government’s $1.2 billion investment in Lee Iacocca’s Chrysler during 1979, which enabled Chrysler to cut its costs, stiff its bondholders and emerge from a de facto bankruptcy.
That bailout worked, because Chrysler was fundamentally healthy. It had a dynamic management team, a decent post-bailout cost structure and attractive new vehicles that were ready to market.
That’s hardly the case today.
The government is holding a losing hand. Withhold subsidies, watch the industry disappear and be blamed for it – or dump in the cash, put the industry on life support and hope that something good happens.
That’s economic reality – and one of the many reasons that economics is called “the dismal science.”
Indeed, compared to the delusional beliefs that seem to affect the administration, King Canute seems sensible, even perhaps unfairly maligned.
According to Henry of Huntingdon, who wrote the “Historia Anglorum” around 1154, Canute commanded the tide to halt only to demonstrate the limits of earthly power to his fawning courtiers.
When the tide ignored his command, Canute said, “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws.”
Can we include globalized economics among those “eternal laws”? Time will tell …
John Hazlehurst can be reached at John.Hazlehurst@csbj.com or 227-5861.