The Vital Small Differences

The Photograph is of the president's little known future relative, 'Barack Gorbachev'. I have mislaid the attribution but will restore it later today.

I suggested last year that Mitt Romney, in a post-election broadcast, was callous to urge bankruptcy for the Detroit motor industry. Mr Romney, whose father was governor of Michigan and a candidate for president of the United States in 1968, is immensely rich. He has a grasp of business. He knows that American bankruptcy is not really the same as bankruptcy in Europe, but in fact is a court-based protective scheme in many instances, which often allows businesses to carry on or to reincarnate themselves easily.

The federal government didn't heed Mr Romney's advice, and yesterday admitted that Detroit would have to go out of business, but only when measures to protect workers and to try and maintain companies after restructuring or international mergers took place.

The small difference is that the administration now in place is clearly trying very hard, or at least giving the impression of trying very hard, to keep workers in their jobs a little bit longer and to keep pay going to as many of the 'small people' as possible.

From a business point of view, Mr Romney was right and I am nearly completely wrong; but I would suggest that not simply trashing all the workers because of the mistakes of their bosses is a good thing.

I wish people did that in this country, though I wonder if anyone can do anything other than forestall a slump. That's what I thought Gordon Brown was doing last year, until he turned out to be working for the banks too. Forestalling matters because ordinary people deserve a break in which to adapt to a future of slumping living standards, if the only price is a few more billions not going to insolvency lawyers, is a good thing.

This is one of those small differences with huge implications. It may well be that the west is tottering, and that the warnings of sages as great as Thomas Jefferson and the International Monetary Fund's economists that the western world has been captured by an oligarchy of bankers have come true. It may well be that some Frederick Winslow Taylor version of efficiency would have been served if those men and women had been put out of work last year.

But if Detroit's problems are in fact a consequence of society, and in particular the political class's failures, and of the greed and short-sightedness of Detroit bosses over the years, why should lives be cheapened without a political effort to do everything possible, and to get rid of those at the tops of businesses who made the mess?

By society, I do not mean some amorphous body that can be blamed for ills. I don't do that with crime or welfare, as my two demented obsessional readers will know. Instead, I mean that, in the first long boom between 1953 and 1973, and in the second, between 1983 and 2008, finance was allowed to become proud on the back of grossly inefficient healthcare schemes which could have been substituted for a cheaper and more efficient government health insurance. Everyone knew this in Congress, and everyone let it happen, and in fact actively torpedoed the flawed Clinton effort to do something about it.

The media class and politicians took a pass on what short-sighted and ultimately arcane, unknowable financial markets were actually doing, and companies abandoned or suppressed new technology after new technology that would have massively improved the car industry. Members of the public who had a vote, and employees, and governments all did this and did not raise a finger.

This country, an observer and fellow traveller of the United States run by a mixture of bankers and governors from the European Union mediated by the monoglot products of political science courses, just went along.

So when, as I confidently expect will happen, Mr Romney, who is in many ways an impressive man (even if I did call him Moonchild McSquillionaire last year), says 'I told you so', I think that Mr Obama will be able to turn around and say 'Oh, well, there is one small difference. I tried.'

I think that this struggle of Mr Obama is about to get deeper. Rumours and stories keep reaching me, and are all over the place anyway, of major financial institutions being insolvent. I think that the banks in the United States have a good chance of ending up nationalised; and, like my friend Martin Kelly, I think that this is probably going to be a good thing.

But, this morning, I am glad that President Obama tried to defy Romneian gravity yesterday, and to hold Detroit together. It is no exaggeration to say that the world now depends, once again, on the American economy.

This is James Morrison, and the song, which seems a sort of night-shift background tune and appropriate, is One Last Chance.


Martin....very good post and analysis. As far as the auto industry, there is plenty of blame to go around. First of all, immense bigness triggers a vast amount of inefficiency in your operations. A small one in the USA could tell the difference in models from Buick, Chevrolet, Oldsmobile....all divisions of the same company - GM. Each division had its own immense bureaucracy, competing against other GM brands not to mention other fellow members of the American oligopoly producing similar inefficient autos for the past 70 years. In the 1970's, with the onslaught of foreign competition, more stringent regulation from Washington and the dramatic increases in fuel prices, the North American auto oligopoly's economic rationale started to disintegrate. Around this time, Chrysler was bailed out by the federal government under Lee Iacooca. The US companies gradually became more uncompetitive (as their regional oligopoly became part of an even larger and more competitive global oligopoly) over the next two decades without changing cost structures or reevaluating their product and market position strategies. Ignoring hybrid technology and electric R&D, they continued to produce the exactly wrong product until the present time although they are scrambling to put an electric auto on the market in 2 years.

I agree with Romney that a grossly inefficient industry in an old and incestuous oligopoly beset with legacy pension issues, inefficient cost structures, wrong products, obstructionist in attitude towards environmental concerns.... should have restructured at least a decade ago if not more. Instead, during boom times as you described, it 'powered ahead' during the past decade making fat profits on vehicles with the same truck frames...knowing that significant issues needed to be addressed....but kept their fingers crossed that the consumer buying boom would never end.

Although it will cause short term pain for plant workers, middle management and related suppliers, continued government bailout money is the wrong strategy especially at the wrong time. There are many other industries in North America hurt by this recession by the banking system failure but whose economic and business fundamentals are sound unlike the auto oligopoly. Why take 'precious and limited dollars' to continue to subsidize an old oligopoly that refuses to confront its own internal problems like any other industry that has found itself upside down on several levels?

The alternative in the nationalization of an inefficient industry with the President of the USA making CEO hiring decisions and continuing to subsidize this worth billions every year of expensive borrowed funds? I believe that the private sector solutions are a much more efficient and productive alternative to government bailouts even for national landmark industries.
Martin Meenagh said…
Thanks for your long and well-thought out comment. I'm just in, but will do you the courtesy of a reply in the morning. I think that we basically agree.

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