Market forces should be let loose on GM
IT is a sign of our troubled and confused times that the US government will end up owning a majority stake in General Motors (GM), the ailing car giant that is heading into bankruptcy. It remains unclear what exactly will happen to Vauxhall, the UK division of Germany’s GM-owned Opel, but it seems likely it will be snapped up either by Fiat or by Magna. Some British jobs will go; but the plants will probably survive – or at least so we must all hope.
But even if the UK is shielded from the worst impact, the symbolic importance of GM’s implosion cannot be underplayed. Together with the already bankrupt Chrysler and the troubled Ford, the Detroit Big Three carmakers were once bywords for technological innovation, efficient working practices, marketing prowess and wealth-creation. For years the world’s largest firm, GM reached its peak size as a share of US GDP in the 1950s, becoming the first corporation to pay $1bn in tax a year and employing more staff than anyone outside the Soviet Union. Charles Erwin Wilson, the firm’s president, was appointed Secretary of Defence by Dwight D Eisenhower in 1953; these days, the nearest equivalent would be George Bush’s appointment of Goldman Sachs’ boss John Paulson as Treasury Secretary.
Yet at their height carmakers overshadowed even Wall Street in clout and influence. In an infamous and oft misquoted moment during his confirmation hearings, Wilson told the Senate that “for years I have thought what was good for the country was good for General Motors and vice versa”. This statement was always nonsense, as it implied Washington should help, single out and subsidise GM; it was a very corporatist view of the world, typical of the 1950s and of the then close links between industry, the military and Washington.
It is a shame that the consensus in America remains that the state must continue to intervene in the car industry, even though this has merely allowed it to remain stuck in its glorious past and discouraged essential change. Bush also did it; astonishingly, Ronald Reagan even bailed out Chrysler in the 1980s. Yet the firms have been in decline for years, as a new generation of US-based, Japanese-owned factories grabbed ever more market share and outshone Detroit’s antiquated working practices, high costs and pathetic arrogance.
The wrong lessons have been learnt from the credit crunch: it was necessary to prevent the financial infrastructure from collapsing last year, which meant that regrettably some banks needed to be bailed out. But for other industries (and in the future, finance) markets, not self-interested politicians, should be allowed to pick winners; capitalism’s process of creative destruction is derailed whenever failing firms are propped up. Capital and labour must be allocated to their most productive uses; this creates the most wealth and jobs over time.
The good news is that GM’s bankruptcy process will allow a lot of the old baggage to be swept away and costs to be cut. Chrysler looks as if it will soon emerge from Chapter 11 in a much reinvigorated form. Hopefully Vauxhall’s new owners will continue to invest in the plants, introduce new technology and working practices and make them far more efficient. That, rather than another series of bailouts, is their only long-term hope for survival.
[email protected]