Monday, June 01, 2009

Not Newt, but Ralph Nader, on GM

Today's bankruptcy declaration in federal court by General Motors is an avoidable, crude weapon of mass devastation for workers, dealers, auto suppliers, small businesses and their depleted communities. For GM's voiceless owners -- the common shareholders -- it is a wipeout...The proximate cause of the bankruptcy was supposed to be the inability of GM and the government's auto task force to reach an accommodation with GM's bondholders. But late last week, the bondholder problem was moving toward rapid resolution, and was clearly resolvable. Why then are GM and its multibillion government financier proceeding with bankruptcy?... The bankruptcy and the GM restructuring plan are the product of a secretive, unaccountable, Wall Street-minded government task force that assumed power because of a Congressional abdication of historic magnitude. By all rights, the restructuring plan should have been submitted to Congress for deliberative review and decision...Ralph Nader Statement GM on Bankruptcy, 6/1/2009 (cited on Breibart)

The writer would be the first to admit that he doesn't hold a brief for Ralph Nader. However, this statement, cited in its entirety on, a valuable source on any day, is a stark reminder that this most radical of consumer advocates, first and foremost, respected constitution, law, precedent, and contract. And, in its frenzy to prove that it's above all such trivial considerations, the current administration in Washington has flung contempt on constitution, law, precedent, and contract.

GM, to be honest, and the UAW, have a fine precedent for their ongoing irresponsibility. In the late 1960s and early 1970s, the American steel business, both in management and the Steelworkers Union, carelessly ignored a common fact in the modern world. Any group holding the information required to manufacture a product, or deliver a service, if sufficiently financed, and armed with a committed management and workers, can be a competitor to an established firm in any industry. The steel industry, as content as GM management in the last decade in the inevitability of their success, and the permanent capture of their share of the market, proceeded as if Korea, Japan, and other countries were incapable of outselling an American business that had failed to recapitalize itself for generations, that used old-fashioned techniques, and produced steel at a higher price that was not as good. The steel industry crisis was handled more sensibly than the American auto industry's today. A succession of Presidents, from Nixon through – gasp – Carter refused to help. The industry, over two decades, completely reconfigured itself according to the needs and possibilities of a new marketplace that included worldwide competition. The vast integrated and antiquated steel mills of Pittsburgh and other cities were closed, then demolished. Mini-mills, producing high-grade specialty steel, became the core of a modern steel industry in America. Now, these mills, with highly paid workers and fine management, produce world class products and can compete with anyhone.

With GM and Chrysler, however, we have the perverse intervention, so well exhibited by the dismal history of British Leyland, a disaster manufactured in socialist Britain out of its disintegrating auto industry in the 1960s. The intervention of successive Labor governments in the automobile marketplace did preserve jobs at such divergent factories as Jaguar, MG, Austin-Healey, Rover, and a few others. But, after a decade or so, the reputation and reliability of all of its makes had become so poor, their designs so old-fashioned, that British Leyland fell apart, its better pieces, such as Land Rover and Jaguar, sold off to overseas buyers. The market settled the issue. Modern versions, such as the Mini, the Jaguar sedans and sports car, the Land Rover, even MG, long lost to Europe and America, are being built in the U.S., China, and Germany. Almost as many automotive jobs as existed for British Leyland in England are still there. It was a better solution than a political entity like BL.

Socialist intervention is perverse in other ways than its artificial opposition to a market's judgment on quality, modernity, and reliability. Socialist intervention turns a capitalist business into a nationalist symbol, in which it does service in a way quite contrary to socialist rhetoric and philosophy. A nationalist, socialized business becomes an instrument of foreign policy; instead of generating products and services, it becomes a political instrument, effectively nullifying the creative tension between nationalist objectives and profitable enterprise. Eliminating this tension also severely constrains trade, providing the foundation for trade war, not between companies, which is relatively harmless, but between armed national governments.

Socialist intervention also trashes the contractual relationship between investor and business, telling the world that the investor is nothing but a gambler, whereas the business, especially its workers, must be protected from all comers, private or public. The effect on investment, of course, far from restraining gambling, greatly encourages it. If an investor does not feel safe in buying into a productive enterprise, what's left but Las Vegas?

The effect on both managers and workers is more insidious. They now know, by the example of the government, that political necessity outweighs quality of design, its execution, and the product's reliability. All they have to do is not produce good cars, but shout good slogans at election time.

If anyone is still buying GM in two years, this writer will be astonished. Even if the new ad hoc CEO of GM cuts prices to the bone, cuts wages and benefits, reduces management to a skeleton crew – in short, acting like a capitalist robber baron, it won't help against Ford, Nissan, Toyota, BMW, and the rest. We already know what happens. Leyland went bust, and so did the old GM. Unmoored from the market or any kind of realistic sense of the world, they produced junk that nobody would buy.


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