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Lessons from the past

By wmadministrator

Bailout for automakers exemplifies bigger problems



Renowned economist J.A. Schumpeter used to refer to progress under capitalism as “creative destruction” – the replacement of businesses that have outlived their usefulness with businesses that carry technological and organizational creativity forward, raising standards of living in the process. Indeed, this is very much like what happened a hundred years ago, when the automobile wreaked havoc on all the forms of transportation built up around horses.

For thousands of years, horses had been the way to go, whether in buggies or royal coaches, pulling trolleys in the cities or plows on the farms. Were all these people to be left high and dry? What about all the other people who supplied the things used with horses – oats, saddles, horse shoes and buggies?

Unfortunately for all the good people who had gone into all the various lines of work revolving around horses, there was no compassionate government to step in with a bailout.

Actually the automobile industry is not nearly in as bad a situation now as the horse-based industries were then. There is no replacement for the automobile anywhere on the horizon. Nor has the public decided to do without cars indefinitely. While Detroit’s Big Three are laying off thousands of workers, Toyota is hiring thousands of workers in America, where a substantial share of Toyotas are manufactured.

Will this save Detroit or Michigan? No.

Detroit and Michigan have followed classic liberal policies of treating businesses as prey, rather than as assets. They have helped kill the goose that lays the golden eggs. So have the unions. So have managements that have gone along to get along.

Toyota, Honda and other foreign automakers are not heading for Detroit, even though there are lots of experienced automobile workers there. They are avoiding the rust belts and the policies that have made those places rust belts.
As for automobile dealers, they can sell Toyotas just as easily as they sold Chevrolets. And Toyotas will require just as many tires and parts.