Wednesday, December 17, 2008

Postponing Reality and Rust Belt Policies

Economist Thomas Sowell weighs in on the Big Three bailout:

We are told that the collapse of the Big 3 automakers in Detroit would have repercussions across the country, causing mass layoffs among firms that supply the automobile makers with parts, and shutting down automobile dealerships from coast to coast.

A renowned economist of the past, 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 100 years ago, when that new technological wonder, 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, whether pulling trolleys in the cities or plows on the farms. People had bet their futures on something with a track record of reliable success going back many centuries. 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? Wouldn't they all go falling like dominoes when horses were replaced by cars?

Unfortunately for all the good people who had in good faith gone into all the various lines of work revolving around horses, there was no compassionate government to step in with a bailout or a stimulus package. They had to face reality, right then and right there, without even a postponement. Who would have thought that those who displaced them would find themselves in a similar situation a hundred years later?

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 3 are laying off thousands of workers, Toyota is hiring thousands of workers right here in America, where a substantial share of all our 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.

A bailout of Detroit's Big Three would be only the latest in the postponements of reality.

9 Comments:

At 12/17/2008 9:32 AM, Anonymous Anonymous said...

Granted. Then how about some assisted suicide money to spread it out over 4 or 5 years?

 
At 12/17/2008 10:18 AM, Blogger Walt G. said...

Sowell said: "Toyota is hiring thousands of workers right here in America, where a substantial share of all our Toyotas are manufactured."

Where has Sowell been lately? Toyota is not hiring during this global recession. Read a quote about it from today's Detroit News article "Nissan to cut production, temporary workers." You'll notice they keep their core employees even when production stops. It appears they have a jobs bank: Doesn't it?

Nissan has cut production by a total of about 225,000 vehicles over the last year, 16 percent of its initial production forecast for 1.388 million vehicles in the current fiscal year through March.

Other Japanese carmakers such as Toyota and Suzuki have also cut production and temporary workers.

 
At 12/17/2008 10:20 AM, Anonymous Anonymous said...

As usual, Thomas Sowell applies a hard slap and a bucket of cold water to the delusional leftists who infest our society.

 
At 12/17/2008 10:22 AM, Anonymous Anonymous said...

"Where has Sowell been lately? Toyota is not hiring during this global recession."

He's talking about the trend, not about the last several months.

 
At 12/17/2008 10:40 AM, Blogger Walt G. said...

Hey, It's a world-wide recession!

Toyota delays Mississippi assembly plant – Associated Press
December 15, 2008

NEW YORK (AP) -- Toyota Motor Corp. is shelving its plans to build the popular Prius hybrid in Mississippi as the slump in the auto industry continues to hobble the Japanese carmaker known for it emphasis on fuel-sipping vehicles.

Toyota's plant under construction in Blue Springs, Miss., was scheduled to begin production in 2010, marking the first time the gas-electric Prius, which has been on sale for more than a decade, would be built outside of Japan and China.

But Mike Goss, a spokesman for Toyota's U.S. arm, said Monday that despite investing $300 million in the plant so far, the automaker is delaying production there indefinitely because of the industrywide downturn.
Construction of the plant is about 90 percent complete, and Toyota will finish the building, Goss said. However, the installation of the factory's equipment and machinery -- "the most time-consuming" element of construction, he said -- is delayed indefinitely.

The roughly 100 people who have been hired to oversee construction and install human resources plans at the plant will not lose their jobs and will be assigned other duties, Goss said.
"Those people's jobs are safe, and we'll find things for them to do," he said.

Mississippi Gov. Haley Barbour said at a news conference that the state has invested $200 million in the plant, while local governments have invested about $35 million. He said Toyota plans to work with state and local governments to mitigate extra costs caused by the delay.
"While we definitely are disappointed (and) wish it wasn't happening, we understand that these companies like Toyota have to operate in the private marketplace and have to do so successfully," Barbour said.

Although Toyota's U.S. sales have held up better than those of its Detroit-based counterparts, the entire industry has seen a steep plunge because consumers are skittish about making big purchases during the recession, and it has been more difficult and more expensive for some buyers to obtain financing in the tightened credit markets.

Toyota reported its auto sales in the U.S. fell 34 percent in November, while sales across the industry sank 37 percent. The company's sales are down 13 percent for the first 11 months of the year compared with the same period in 2007.

The Toyota City, Japan-based automaker has also seen volumes of its once-popular hybrids plunge amid the collapse in gasoline prices. The Prius was a brisk-seller earlier this year as a gallon of gas fetched well over $4 a gallon, but U.S. sales plunged 48 percent in November. Toyota's other hybrids, like gas-electric versions of the Camry sedan and Highlander sport utility vehicle, are facing even bigger sales declines.

There are also signs that Toyota is starting to feel the slowdown in sales globally as demand in emerging markets like China, India and Latin America weaken. Toyota last month slashed its profit forecast for the fiscal year that ends in March to 550 billion yen ($5.9 billion), one-third of its previous year's earnings.

David Rumbarger, president of the Community Development Foundation, a northeast Mississippi development group that helped lure Toyota to the state, said he's disappointed with Toyota's decision to delay the plant but understands it, given the industry's flagging sales.
"Obviously, in these economic times we need every job we can get, but we're patient," he said.
Seven suppliers have announced plans to open near the Toyota plant in Mississippi. Rumbarger said each will evaluate its own business plan and decide when to open.

Toyota first announced plans for the Mississippi plant in 2007 and said it would make Highlander SUVs, but the company said this summer it would build the Prius there instead. Back then, Toyota couldn't keep up with demand for the hybrid, which gets 46 miles per gallon on average and remains the highest-mileage passenger car on the U.S. market, according to the Environmental Protection Agency.

The plant, northwest of Tupelo, Miss., was initially to be up and running in late 2009 or early 2010, but Toyota pushed the date back to mid-2010 after seeing signs of a slowdown in the U.S. auto market earlier this year.

Toyota has made other cutbacks recently to adapt to declining vehicle demand. Last week, the automaker announced production cuts at factories in Indiana, Kentucky and Canada, on top of other reductions in November, when Toyota also cut several hundred contract workers.

 
At 12/17/2008 11:15 AM, Anonymous Anonymous said...

Walt,
How about the UAW golf course/money pit? Would you like to justify that as well?

The foreign companies are managing to get along without a bailout from the US government). The difference between Toyota's 'core worker' retention and the Big 3 bailout is that the Big 3 don't ever want those workers back.

 
At 12/17/2008 11:49 AM, Anonymous Anonymous said...

They rightfully condemned the executives of the Big 3 for flying to Washington on their corporate jets to plead poverty before Congress. Now, it's time for the fat cats at the UAW to give up the lush life:


http://www.dcexaminer.com/opinion/Should_UAW_Sell_its_Championship_Golf_Course.html

 
At 12/17/2008 1:53 PM, Blogger Walt G. said...

We still have the golf course, so I guess it could be considered an investment (I don't, and have never, golfed). I ride motorcycles and shoot pistols for a hobby.

Private jets? I don't think the bankers had to even go to Washington for their $700 billion.

GM spent $4 billion on Fiat with nothing to show for it. Maybe they should have bought golf courses.

anonymous said: The foreign companies are managing to get along without a bailout from the US government).

Make no mistake about this: their government will support them as well in the future as they have in the past. Japan has a strong industrial policy to help their companies as well as a forward thinking financial system that does not focus just 3 months ahead.

 
At 12/17/2008 8:11 PM, Blogger @sethstorm said...

It isn't postponing reality, it is postponing what Sowell wants to become reality.

File him under "Unrepentant, Politically Motivated to sink Detroit"

 

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