Who has the correct approach given the US has just decided to bail-out its automotive industry:

Candice Miller:

"Republican Representative Candice Miller of Michigan said, 'I cannot believe that this Congress will allow the backbone of our manufacturing and industrial sector to be swept away."

From international press:

Jeff Flank:

"Republican Representative Jeff Flake of Arizona said, 'Some of us simply believe that the best way to ensure long-term viability of the auto industry is to allow them to go into bankruptcy'."

I posit that Flank is correct and that the lean towards Corporate Socialism is undesirable. If GM fails, then the fitter competitor should receive its trophy. There might be a rough patch but the auto workers would end being employed by Toyoto or similar. When the US Banks failed (remember CHAMP and the Bank of America) failed in Oz, our retail banks simply acquired the pieces.

Investors have the right to score big on the stock exchange and also to loose everything. In this instance, it is they, who voted for incompetent directors.

Could it happen here? Well, Agriarian Socialism already exists in Australia (and elsewhere in the West). So, perhaps, unfetted Corporate Socialism is not too far away.

Fear, hard financial times, corporate socialism and an external threat, when combined, represent the underpinnings Fascism. Examples, WWII Germany and WWII Italy.

Relatedly, historian, Caroll Quigley, posits societies are must at risk when the powerful act sustain the wealth status quo.

Oly....

the problems with the US Auto industry are 2 fold.

1/ They have kinda clung to the 'big is good' idea of a car..... unlike their Jap/Korean competitors.

2/ The Unions have sought to retain relevance by pushing for ever increasing and UNcompetitive conditions (health care being the most notable to my knowledge)

So... I'd suggest giving the Auto Industry INCLUDING the unions an ultimatum.

a) Executives must RID themselves of the idea that the company owes them a corporate Jet and many other expensive perks.

b) The Unions must RID themselves of the idea that you can endlessly suck more and more out of a company in the interests of workers.

c) The company culture must focus on those ACTUAL realities of the market.. what it wants.. etc.. compact, economical cars.

I think they are part way there with some electric/hybrid units coming out soon. but that only addresses the middle area.. the market.
Now.. deal with the top and bottom end of management/workers.

I agree.. LET EM GO BUST if they cling to unreal aspirations. But then...there comes a trade off which includes national security and local skilling. You can't just sacrifice your whole economy on the grounds of philosophical 'correct'ness.

Ultimately.. if the machinery of production is as efficient as the overseas competitors... that leaves just ONE unpalatable area.. "workers conditions"...does it not?

The free market was only ever intended to apply to small businesses.

For the American congress, the large car manufacturers, mining conglomerates, arms dealers and finance houses are institutions on par with the courts and senate (except the Republicans would never try to undermine business the way it does the courts).

Of course we should let the big players fail and see just how robust the deregulated market really is.

You need to get serious and start to think about who really is
being baled out here. Its not the share holders, for companies
like GM are worth a mere pittance on the stock exchange.

(around 2 billion$ IIRC) So they hardly matter in the discussion.

Its the effect on the total US economy, that it seems they are
worried about. Suppliers, workers, suppliers workers etc. etc.
GM alone seems to owe around 60 billion.

American pride is at stake too here. Having their auto industry
owned by the Japanese, would be more then many patriotic Americans
could tolerate.

So politics is the issue here. The shareholders lost their money
some time ago and hardly matter.

Oliver “I posit that Flank is correct and that the lean towards Corporate Socialism is undesirable.”

I whole heartedly agree.

“Corporate Socialism” brings up the specter of rapacious monopolies hell bent of defending the “Status-Quo” by denying the natural processes of industrial renewal through innovation, ultimately, to the disadvantage of the consumer.


Polycarp “You can't just sacrifice your whole economy on the grounds of philosophical 'correct'ness.”

I see nothing ”correct” in spending ones resources on keeping a dinosaur on life support, long after it would have otherwise died and its place in the food chain been replaced by new species.

Sancho “The free market was only ever intended to apply to small businesses.”

Really?

It was the free market which developed the small businesses from which big businesses grew… a for instance “Microsoft”

I figure your depressing take on things is unfortunately right, Yabby.

And feel saddened that it should be so.

Dear Oly,

I thought that the bail-out by the Government for the US
auto industry although passed in the House of Reps.
was rejected by the Senate.

It does look like the end is near for the American
car industry ...

Hi Foxy,

When I posted, it was about the same time that the Senate blocked the Bill. I didn't know. I have since been informed, but haven't read, George W., is deverting the money from a Wall Street stash.

Greetings Poly,

There have been infrastructural problems with US industry for a few decades. The was true ofthe US Banks back i the 1980s (and again now). Big is not necessarily better or more profitable.

Dear Col,

In the 1970, the Bank of NSW, published two book volumes on its history. The Chapter on the 1930s financial systems is very informative. In seems the Great Depression didn't just happen. One major problem leading into the GB was multiple borrowings by Government to fund its operations. The cumulative effect was that our Government had difficulty paying the Interest, after dipping into the Market thirteen times, over a couple of years and, the Government itself could not raise further money and, the Commonwealth Bank (then the Central Bank) held huge overdrafts with the Bank of England and Westminister. If we wish to avoid major prblems in 2010, austity and product capacity must be our focus, not creating debt to save non-achives.

Lession: Don't borrow.

The New Deal in US was okay, but limited, to th extent that as each project was finished, the work force became unemployed again.

Protectionism must be avoided at all costs, i.e., limiting trade to protect local industry or protecting mature campanies.

Yes, the small business owning doesn't have the ear of government anywhere near the extent of the top end, whom incidently are very willing to sack thousands of workers to keep the dividends rolling-out.

The ability to create virtual wealth probably goes back to 1974.

Poly,

The free market acts, as you allude. but didn't fully articulate - by meeting consumer needs. It is positioning which meets consumer needs, not handouts, that must drive business strategy. In 1929 Henry Ford's, "in any colour provided it is black" philosphy almost backfired, when GM offered different colours. The last miniute recognition of this fact/demand almost sent Ford under. Likewise, GM had problems with "product orientation" with the Edsel, whereas, market orientation supported the successful Mustang.

Col,

I just realised I commented on small business from the perspective of lobbying. Concurrently,I do agree with you that little fish with innovation and drive, become bigger fish, and, whales (really a mammal) in the case of Microsoft.

Oliver my understanding of the actions which initiated the Depression was a collapse in confidence following people literally signing up for debts in shares which they could not repay… basically similar to a kiting scheme with shares instead of cheques – not dissimilar to your description of NSW government.

But I do not assume that snippet is the sole cause abut would note following the depression a lot of corporate regulations have been enacted or have changed completely from what they were previous.

“Yes, the small business owning doesn't have the ear of government”
And it is 70 % of the work force who are employed in small/ medium business.

“The ability to create virtual wealth probably goes back to 1974.”

Disagree with you on one point :
Virtual wealth is a nonsense, unless you can “cash it in”, there is no wealth

but the perception of it will always increase in a bull market just as surely as it will evaporate in a bear..

maybe your perception of “virtual wealth” is a facet of “public confidence in the future”, which walks in lock step with bull versus bear conditions…?

Microsoft is a useful example in some respects, I had some reservations about mentioning it because it is a-typical but easier to quote than hundreds of other innovative / entrepreneurial names behind the business successes..

Thinking on a couple

Hewlett Packard
Virgin (poly-glot)
Grollo.

There are many food processing companies I know (but not national names)
The wealth of tomorrow is built on the innovations of today and the industries of yesteryear are either cash-cows or extinct.

No point in being ‘sentimental,’ the game is no different to the jungle and whilst “survival of the fittest” is not the creed, certainly those companies which do not embrace the changes brought by innovation will die and deservedly so.

Krudd wrecked public confidence with his incompetent handling of the economy. He is presently popular, he used a big lump of surplus to buy votes but memories are short. He has no surplus left to squander on grandiose schemes.

He deserves to go.

Col,

I have no argument with what you say about the Roaring Twenties and the borrowing for shares as an initiator. What, subsequently, acted to increase the decline was the US protecting its home industries and not importing. In turn, other countries did not by from the US, thus, the total value of World trade fell.

By virtual wealth, I was referring to the practise of riding of the back of a feigned economy built on protracted deficit spending.

Relatedly, if the US becomes backed into a corner with respect to its huge debt, it is feasible it might orchestrate circumstances where others need to devalue their currencies so it can acquire assets via FDI, to built itself up again?

You mention "cash cows". Strategic Marketing 101, suggests "cash cows"
should not be supported, rather, "cash cows" managed into divestment(Boston Consulting Group Matrix)and milked to develop new products/SBUs.

I think the real "Sir Humpheys", i,e., knowledgeable advisors in the public service need to be listened to by politicians. Unfortunately, we too often see policy on the run, by the polies, under pressure from the Press. Were I Kevin Rudd, I would reading every edition of Harvard Business Review from 1925-1935 and, Australian Hansard and the broadsheets of the same period.

Yabby,

If the US automative companies fold, it is certain, as you say, there would be a major impact on suppliers and peripheral industries. Japan and China perhaps can review this situation and expand their offshore operations in the US.

It could prove unwise in the long run for Asia to assume full control over all manufacturing capacity, including parts, because a sustained (not re-employed) loss of jobs in the US diminishes the size of potential Japanese markets. That is why the US built up Western Europe, after WWII (Marshall Plan), to have external markets.

If Asia does take control of World medium tech. manufacture, what new opportunies does this present the West? A winding down of the semi-skilled, yet, the further development of mid-life higher education aimed towards new sectors?

Oliver….”By virtual wealth, I was referring to the practise of riding of the back of a feigned economy built on protracted deficit spending.”

Yes, I did misunderstand you

What you speak of is the path along which Krudd and Co seem hell bent on dragging us down…. And down … and down….

Your interpretation of the role for cash cows is exactly as I had anticipated…

. . . “either cash-cows or extinct.”

I have seen a number of less than imaginative operations which believe they have a divine right to “ride a dinosaur” and seek handouts at every opportunity… more corporate socialism usually disguised as “government picking winners”.

Your suggested reading for Krudd is an excellent idea… but I doubt he possesses the creative insight to pursue it… he prefers to take the council of the pig ignorant and bleeding hearts of the left.

Personally, I will continue to plod my own path,

Following these socialists is similar to following a blind person as they navigate their way through a mine field, quietly moving along, tapping the earth with a white cane… until “boom” (and not an economic boom)

"Following these socialists is similar to following a blind person as they navigate their way through a mine field, quietly moving along, tapping the earth with a white cane… until “boom” (and not an economic boom)"

Col,

That made me smile, until I realised, it is true.