One of the most detrimental interferences government can make in a capatilistic, free-market soiciety is that of proppoing up an industry or firm that is incapable of sustaining itself on its own. In such cases, everyone loses. No wealth is being created and debts are simply transferred from the firm to the government to the taxpayer, literally dragging everyone down. It is for this reason that some firms and some industries must fail.Lately we have seen the big three automakers beg for bailouts from the government. (Never mind they flew to DC in their private, luxury jets.) They reason that their industry is vital to the economy of the country and that the collapse of their companies would deepen the recession and destroy America's ability to compete in the global auto industry.
The fundemental basis for their arguments assumes that there could never be new American automakers. This is preposterous. If anything, America needs new automakers. We need fresh faces with innovative solutions to the problems we face. We need american automakers who aren't tied to the inneficient traditions of the past.
Here is the thing: giving the automakers bailout money will only posptone the inevitable. It will reduce the incentive for them to make real changes. Even now, we aren't seeing clear plans with solid visions and redical innovations proposed by the big three. We need a paradigm shift and all we are seeing are some proposals for small adjustments to the status quo.
Mitt Romney wrote an excellent article about this topic. He listed three major changes that need to be made in the auto industry. First, they have to control their costs better. There needs to be a complete restructuring of labor agreements with the unions. If they can't compete with foreign costs stuctures, they will always be at a disadvantage. Second, they need new management. They need to purge the old ways of doing things and embrace a new vision. Finally, they need to set their sights on the long-term. No more fussying about quarterly earnings and short term gains, all decisions need to be made with eye on the future.
If the big three can't do this on their own, in my opinion, it is time for them to go extinct. The American auto industry is too important to be in the hands of dinosaurs. Where ever there is a demand for a product, there will always be a company ready to step in and meet it. That is the beautiful thing about capatilism. I am excited at the thought that America could someday again be global leaders in the auto industry, and I am confident that could happen with or without the big three.
What do you think?
What do you think?
2 comments:
I like Mitt. His view on this subject is unique and he is probably best suited to know how to fix the problems with the automakers.
The banking system of the U.S. is vital to the economy, and bailouts of banks are necessary when they are ready to fail (why they are in trouble is another matter). The auto industry is not in the same league as banks. An analogy was used that I think helps clarify. The government takes it upon themselves to ensure certain services are maintained, things like roads, water and electricity. These utilities have become so important to our daily existence that any long-term interruption of service would be devastating.
This is the case with banks. If large banks started failing, there would be a ripple effect that would cause most of the banks in the country to fail. This has happened quite a few times throughout the history of the country, and is one of the things the Federal Reserve and FDIC were created to prevent. Banks are the monetary equivalent of the power grid or interstate system.
The auto makers aren't even close to being utilities. The biggest change that will happen if they go under will be the reduction of the labor force and their pay. They won't sink every other company. If they cease operating altogether, foreign automakers will step up production, and other companies will be created to fill the demand. Like you said, that's the beauty of capitalism.
I really, REALLY hope that Washington decides to let the automakers die, and let the greedy people in that industry (both the management and the unions) reap what they've sown.
I received the following insight from my wise grandfather:
"I consider myself to be very conservative but also pragmatic. In the case of the auto manufactures there are two reasons that they should be given some help but not with a straight infusion of money.
(1) They are important to our defense capabilities in that the military gets much of the equipment type weaponry from them. It is very important that we keep ourselves the strongest military force on the planet. (2) Letting them pass away would leave a hole in the economy from which I believe we could not recover.
I believe, however, that we should help them through the bankruptcy courts under chapter 11."
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