Well, the title doesn't matter. I think it is a fait accompli. Some Coastal Democrats might be suspicious of the car culture, but they have empathy for the problems which emerge from de-industrialization. Republicans have no credibility or capital. A bailout will happen, but I believe that most people will see that it is going to simply put off the inevitable. Megan McCardle talks about the de-industrialization of the "Other Rustbelt," towns centered around less iconic firms:
Just as the auto industry made (and broke) Detroit, Rochester was the creation of Eastman Kodak. Kodak bonus day was like Christmas without the tree: celebratory dinners at the local restaurants, shopping trips at the Midtown Plaza, which locals claim as America's first enclosed mall.
Then in the 1970s, it all began to change. Smaller companies filed antitrust suits. Fuji and Polaroid nibbled away at their film business. In 1997, Fuji started a price war from which Kodak's stock price has never fully recovered. And the advent of digital cameras has been devastating. Kodak has made up some of the lost ground by making cameras, but this is a fiercely competitive business much difference from the old core business of selling the cameras cheap and the film dear. At its peak, Kodak employed 60,000 people in a city of perhaps 300,000. Now the city's population has dropped to 210,000--but Kodak employment has fallen to less than 15,000.
When I was a kid I actually lived in upstate New York. I was confused when I opened up The World Almanac and saw that my town had a population which was declining decennially! I know whereof she speaks. I spent my adolescence in what might be termed a "resource industry" region in the Pacific Northwest. Some of my friends had fathers who had an expectation of making $20-30 per hour in the logging industry. This was good money, though dangerous work. We know what happened to that way of life....
Detroit will fail. It is just a matter of time. They have structural legacies from the era of American corporatism in which organizational entities made deals which were predicated on the fact that the United States was the only major industrial power to make it through World War II with their capital base intact. We obviously don't have that competitive advantage now, over six decades past World War II, but the legacy of the deals labor and management made in the wake of that era is still with is. The children of loggers who wanted to make $20-30/hour knew that they had one choice: go to college, get a degree, and go into the white collar track. The same is true of most of the auto-industry, but there are no eco-romantics relocating to the Rust-Belt to challenge the emotional arguments of labor unions....
Addendum: There's an independent symmetry between the decline of various types of "mom" & pop" enterprises and sclerotic industrial era mega-corporations in fields like automotives or steel. Both these types businesses are being outmaneuvered, but from different sides. The new companies have both economies of scale and flexibility in terms of their relationships with labor.
Update: Chances Dwindle on Bailout Plan for Automakers. Things that make you go hhhmmm....
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You might not want to save Detroit, but what to do with the industrial wasteland that will be left? Some things are too big to fail...
but what to do with the industrial wasteland that will be left? Some things are too big to fail...
not these things. 50% of americans were farmers in 1900. no more. a whole culture disappeared, and depopulation is a serious issue across vast swaths of the farming midwest and plains.
let the wasteland rot. and let the people move. that's already reality across vast swaths of the midwest. what makes the auto industry special? like i said, it's sexier than steel or mining or logging.
also, if you REALLY want to pump money into the region, infrastructure development would be less of a waste of money. still skeptical that people frankly want to live in michigan if they can move somewhere else, but investing in the auto industry puts off the inevitable. more generalized capital investment at least helps the economy broadly.
" the fact that the United States was the only major industrial power to make it through World War II with their capital base intact."
Clearly, we need another war. Not a war for oil. A war for jobs. Bomb the heck out of India, China, Malaysia. They wouldn't see it coming. Oh, wait, they have nukes too. Never mind.
But seriously, it's interesting she brings up Rochester (I lived in very post-industrial Troy for a while, so I know the feeling). Not only were there a lot of good manufacturing jobs there, but those companies (Xerox, Bausch & Lomb, etc.) spent big money on research and development in optics, chemistry, and electronics. So that aspect of it is also greatly diminished.
Razib, you may be right, but McCardle's article is piss poor evidence for your point of view. I am a quality inspector at a GM assembly plant in MI. If you read her entire article she claims poor big three quality entirely on silly union rules then comes up with one example that happened at a supplier. What the hell is she talking about? I have no problem with someone criticizing my employer if they know what they are talking about, but McCardle is making things up to fit her oversimplified assessment of the problem.
Correction: http://meganmcardle.theatlantic.com/archives/2008/11/invidious_comparis… this is the article she blamed the union for poor quality, not the one you referred to above. I have examples where workers pointed out defects and management said ship it. Plenty of blame to go around,I guess. It's sad to see where we are headed. FYI, our last contract in 2007 gives new hires $14 per hour and inferior health care plus no health care or pension when they retire. But hey, we have moved on to new technology and don't need cars anymore! We will fly around like the Jetsons! Can't wait to get my new job in the flying saucer factory!
But hey, we have moved on to new technology and don't need cars anymore!
other companies make cars. even in the USA ;-) those types of bitter jokes would be funnier if you were dealing with people who think the car companies shouldn't be allowed to go bankrupt if they can't get credit, as i do. transportation: just not all about you :-)
My attempt at sarcasm. Just trying to get a handle on this myself. I was trying to point out that I don't agree with your analogy or comparison of the auto industry with farming "50% of americans were farmers in 1900. no more. a whole culture disappeared, and depopulation is a serious issue across vast swaths of the farming midwest and plains". I think new tchnology had a lot to do with that, just like we don't need as many phone operators or buggy makers. We still need cars. So I don't buy that argument. Japan has unions and the government pays workers health care and pensions and I doubt they would let the companies fail. No doubt we have problems but are we going to try and compete or give up. It may be too late but I don't think any of us can say that for certain.
the japanese make cars in the USA. that's what i was alluding to. as for this:
. So I don't buy that argument. Japan has unions and the government pays workers health care and pensions and I doubt they would let the companies fail.
great. for americans. if japanese tax payers want to bail out their car companies in the future that is good for american consumers. you can think of it as a transfer of payments from the japanese tax payers to american car buyers, because the japanese car companies can afford to sell cars cheaper than they would be if they're getting propped up. i guess the japanese get "pride" that their country still makes cars?
. No doubt we have problems but are we going to try and compete or give up. It may be too late but I don't think any of us can say that for certain.
if autos are so potentially lucrative other companies should pop up, no? that's one reason firms like *jet blue* are doing so well, they don't have legacy contracts with older workers which constrain them, their employees are young.
and jeff, to be clear, it sucks what is happening to the auto industry because of the dislocation and dispossession that will affect workers. but that dislocation and dispossession has to be normalized to the overall dislocation and dispossession which have characterized a host of industries within the past few decades. it's happened to many many americans over the past generation in heavy and light manufacturing sectors. unless we close our borders to all trade we as a people just don't have enough money to go around to help every industry in every contingency, so if we do engage in bail outs we have to be selective.
I rarely comment on blogs. It was interesting chatting with you, Razib.
To Jeff Miller:
I lived 15 years in Japan, and worked at (not for) Nissan, Mitsubishi, Fuji Film etc. (Did a short stint at a Toyota supplier, not long enough to get a feel.)
Japan has unions. But they are very different from US unions. Typically they are one-company unions, not like the UAW or the Teamsters which cut across whole industries. The unions do sometimes fight their companies for benefits or whatever, but are more likely to be service organizations for the employees.
The government does NOT typically pay for citizen's health care. I was for a while covered under the government-run insurance system. As a single male I paid very high premiums, depending on which year, from $300 to $400 per month.
The government also does not pay pensions except to government employees. By US standards public social services/benefits are meager.
I have my opinions about how the Japanese have managed to create the economy they have, but I think Razib would object if I rambled too long. (I won't be offended if this post doesn't make the cut on your new, tougher rules for posting.)
but I think Razib would object if I rambled too long.
well, you were kind of on topic. the main issue is i don't care if american cars are better quality, japan has different unions, etc.. that's why i didn't even address jeff's point there, and don't even care if megan is wrong. the companies aren't making enough money. end of story. if the problem is american health care or union regulation, change that on a broad basis. focusing on a few specific corporations is not good for us in the long run. all it's doing is picking *specific* winners and saving *specific* jobs.
we're looking at really high unemployment right now. many people are hurting. unfortunately, many of these people aren't hooked up to iconic industries and don't live in swing states.
I think we have to face reality and realize that GM is not in its current straights because it builds bad cars. In fact the quality of GM cars is really a detraction from GM's true problems which is an unsustainable pension structure.
At present GM has three pensioners for every active employee. Paying these retirement benefits is whats really killing GM. Also healthcare is something that's killing GM, GM's spends more per vehicle on healthcare than it does on steel.
This is why I am skeptical about a bailout. What's the point in giving GM cash today if it's going to get killed by its pension obligations tommorrow? GM will still be bankrupt and the government will still be out 25 billion. Its a no win situation.
Also there is the issue of opportunity cost. The real cost of GM going bankrupt isn't all the jobs that will be lost but all the other things tha won't get funded. As someone who lives in the Los Angeles area and has to contend with heavy traffic on a regular basis I have to wonder its rational to put another four million vehicles on my roads? I would much rather see that money spent on mass transit. As a NATION the US only spent $6 billion on rail(yes that's the entire federal rail budget). If we could spend $20 billion in my part of the country on mass transit not only would it create jobs but it would improve the quality of life substantially for people in Southern California. Contrast this to another four million vehicles,which would mean longer commutes more frayed nerves a dimissed standard of living.
America needs light rail and mass transit, not more vehicles on the roads. Its time to face the facts and allocate our resources rationally. GM and perhaps even Toyota are destined to be Dinosaurs, creates from a bygone era that can't survive in a modern world.
Also there is the issue of opportunity cost.
yes. i actually disagree on a lot of the specific inferences you are making after this point, but on this specific issue that doesn't matter. the auto industry radically changes, or it disappears, but the status quo isn't viable. i doubt that the bailout will do anything except put off the inevitable.
If the retirement programs are bleeding money in the form of healthcare benefits, why can't the government extend Medicare/Medicaid to the retirees directly, in lieu of cash infusions? How about for current employees? Is this too wacky to work?
I actually believe that GM will survive in some form. Its just too big to disappear altogether, although that isn't to say that some Chinese car company might buy the tooling and simply keep GM alive in name only.
The bailout is dumb because it doesn't address GM's problems. Regardless of what you may believe they are.
What angers me is that this money could be spent on so many other things. If you're a progressive healthcare for the uninsured if you're a rightwinger more weapons for our troops in Afghanistan.
This bailout is a large waste of money but it pales in comparision to Paulson's $700 billion dollar TARP program, another government black hole.
As someone who probably knows something about ecology Razib I think you probably realize that sometimes we need large extinctions in ecosystems. Evolution is change and some forms of life such as the cockroach and crocidile are real winners. However GM,Ford and the US banking system really represents an enormous waste of resources that could really improve the quality of life for all of mankind.
The idea that we can do something without risk is what screwed up the financial system in the first place. I find it appauling that people believe this risk transfer from the private to government sector will create a riskless situation. In fact we are only amplifying the very risks we seek to reduce.
I think historians will look back at 21st Century America and and say with much justification "Those people were total dumbasses".
If the retirement programs are bleeding money in the form of healthcare benefits, why can't the government extend Medicare/Medicaid to the retirees directly, in lieu of cash infusions? How about for current employees? Is this too wacky to work?
i think a lot of these retirees are old people are already covered by medicare. but, they have extra health insurance on top of that which the are at risk of losing. also their pension benefits on top of social security.
but the retirees are the main reason that GM will never really get itself out of the hole. it had to focus on $$$ SUVs because they had high margins and so it could pay its fixed costs to the retirees. it doesn't have a cushion because there's some much money going out the window in that direction.
it really sucks what is going to happen to these old people. and liberals like ezra klein like to point how great unionized workers have it re: wage, pensions and health care, these are going to lose these if GM isn't bailed out now. but
1) unless we bailout or buy out nationally they'll lose these benefits in a few years anyhow in all likelihood from all i've heard
2) there are many old people in this country who don't have healthcare on top of medicaid, and their pensions on top of social security is a pittance. i suppose social justice types can make the argument that you're just going to send many old people into this pool if you don't bail out GM, but if you have money to bail out GM and you care about quality of life of all americans, i think that this sort of redistribution (excuse the term!) is really unfair.
of course the bail out people reiterate this is a loan, and the american gov. might make money out of this. might. i've listened to them on the radio and they don't sound hopeful, but, the bail out is the only chance they have at this point, nothing to lose. frankly, that's the sort of rational decision making which is totally justified if you are using other people's money. socialize risk, privatize benefits (yes, we might get our money back, and some, but the big beneficiaries on a per unit basis will be associated with the auto industry since they'll get to keep their jobs/pensions/stock).
I, myself, think we need better leadership from manufacturers towards market needs and desires. The Big Three made some stabs at building more efficient cars and moving to alternative energy sources for propulsion during the 1970's but followed the Reagan Revolution to go back to building big guzzlers, and bypassing the CAFE limits through turning more and more of their vehicles in to crossover "trucks." The apartment complex parking lot where I live has gobs of these SUV's that never see off-roading except when their drivers are DUI and go into the ditch. But they sure are nice inside.
This last spring when I was selling one of my cars I had several calls from people trying, unsuccessfully, to dump their Escalades, Hummers, Tahoes or whatever for something more fuel efficient.
It may be that the big three had to stick with these high margin vehicles because of their pensions, but when the price of oil was touching $150 per barrel, I wondered at the value of a high margin on low volume.
I hate to say it because I think that Michigan and other rustbelt states have been suffering economically from the shift in industrial economics, but the American Auto Giants may need to fail in order for those regions to survive into the future. I agree with Razib on this that a focused bailout on a specific industry is misguided.