Friday, November 21, 2008

How to Save “American” Industry

Dateline: Washington, D.C., October 1, 1908— Wagon manufacturers, wheelwrights, and the Teamsters Union petitioned Congress for a bailout today in light of Henry Ford’s roll out of the mass-produced Model T Fords. “These assembly line made new-fangled contraptions are going to be the death knell of our industry which has been the back bone of the U.S. economy since before our independence in 1776!” one of the injured parties was heard to say.

Thank goodness Congress did not step in the way of progress back then. In fact, nobody would have had the temerity to ask Congress to stop the fledgling auto industry back then even though it surely caused the loss of many jobs as America adjusted from horse drawn vehicles to the internal combustion engine.

Dateline: Washington, D.C., circa 1915— Hank, the ice-delivery man, decries the advent of the modern household refrigerator. “These things are going to mean the end of my job and the jobs of thousands of others who haul ice to households across America every day,” he said while testifying before Congress on the need to protect American jobs. “Never mind the fact that refrigerators are more convenient and will significantly reduce food-born illnesses in the United States. I am talking about an industry that has been part of every American’s life for centuries and an important part of our economy.”

Oh my gosh, can you imagine all the jobs lost over the past century as light bulbs replaced oil lamps, airplanes supplanted passenger rail, natural gas usurped coal, petroleum made the whaling industry obsolete, computers performed secretarial and accounting tasks, robotics made cars cheaper and better, carbon-graphite was used in place of steel, now we send e-mail instead of letters, and text messages have overtaken phone conversations. Yes, we live in a changing world. Everybody wants progress; it is the change they don’t like. The reality is that one of the few constants in life, besides death and taxes, is change. Come on America; build a bridge and get over it.

As I write this, the “American” auto industry is before Congress telling them and the American public that if the Federal government does not bail them out it will be the end of our modern economy. And the American public is buying the idea that a bailout is appropriate even as they choose to buy foreign cars over “American” made automobiles.

I am struck by the notion of what Chrysler, Ford, and GM describe as the “American” auto industry. Excuse me, but doesn’t Chrysler own Mercedes-Benz and isn’t Volvo and Jaguar now part of Ford and Saabs are now a GM product? Have you looked under the hood of your “American” car? There you will find parts made in Canada, Mexico, and all over the rest of the world.

And what are the Toyotas that are made in Alabama, Kentucky, Texas, West Virginia, and Indiana—chopped liver? Did you know that Honda has been manufacturing in the U.S. since 1979 and building cars in America (Ohio) since 1982? They have facilities in Georgia, Colorado, Ohio (5), California (5), Alabama, Texas, Michigan, North Carolina (2), and South Carolina. Honda buys parts from more than 600 U.S.-based suppliers.

Have you ever thought about the hundreds of thousands of jobs in foreign car dealerships and repair shops across the country? Whoops, I forgot the Honda and Toyota repairmen are like the Maytag repairman which is, I guess, one of the real reasons Ford, GM, and Chrysler are no longer numbers 1, 2, and 3 in U.S. auto sales and need a bailout.

It comes down to this—are we for free trade and fair competition, or not? In a competitive economy there are winners and losers. In America, we all have the inalienable right to pursue happiness which in many cases manifests itself in the form of going into business for your self. Nowhere is it written that you are protected from failure. Now we have this new phenomenon—too big to fail. I am not naïve enough to think that there are not certain elements that are so intertwined in our economy that their failure is simply too catastrophic to contemplate. I am not necessarily against bailouts if they are well conceived and structured on economic principles, not political expediency. But, the real question is—how did we get to the point of having so many “too big to fail” companies out there?

The only fair competition is what economists call “pure competition.” No barriers to trade, no social engineering, no regulations—pure free market mechanisms functioning based on consumers making the best decisions for themselves and businesses maximizing profits. Where those two intersect is called Supply and Demand. To my knowledge, no country or place on earth has pure competition and no place ever has had it, so let’s get past that.

But, if we want American products to be freely sold in other countries, then we must lead by example. Moreover, before Americans should ever consider getting into a trade war by imposing tariffs or quotas, we would be wise to remember that, even when we suffer the worst trade deficits, America is by far the largest exporting nation in the world. We have much, much more to lose in a trade war.

If Congress and the Executive Branch want to help the U.S. economy, the Federal government should 1) get its own fiscal house in order, 2) Congress should, for the first time in three years, actually do the hard work of passing a Federal budget instead of punting with Continuing Resolutions, and 3) the U.S. Government should continue to exert appropriate pressures on other countries to open their markets to U.S. products. Then, and only then, will all “American” industries thrive.

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