Industry Today: The World of Manufacturing

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 Date:6/22/2009

 

Wake Up Call
Global Glee at GM’s Fall
Despite the auto industry’s implosion, America is an industrial strength to be reckoned with, Reginald Dale maintains; still, government control needs to balance against free-market entrepreneurship.

The decline and fall of General Motors has been depicted around the world, with a fair amount of glee, as an ominous portent for the entire future of the United States. In the words of an Australian commentator, GM is “a metaphor for everything that is wrong with America and symbolic of the rapidly changing international economic order.” How long will it be, asks an analyst in Tokyo, before GM’s bankruptcy translates into distrust of the dollar, which “is having its pretensions to greatness challenged increasingly, not least in Asia?”

And from New Delhi: “The once-mighty company is pinning high hopes on emerging economic powers like India and China to reverse its decline.” Most damningly of all, Canada’s Toronto Star asks bluntly: “If mighty GM can fail, cannot also the United States?” The paper immediately supplies the answer, “Absolutely.” Twisting the knife, it adds, “If you don’t feel the tingle of national mortality in all this, you’re not paying attention.”

There are certainly grains of truth lurking in the muddy depths of some of these sentiments. It is true, for instance, that GM remains highly successful in China, and that developing countries now account for one third of global car demand. It is true that America’s relative share of global economic power is declining as Asia’s rises, and that GM’s glory days coincided with American political and economic dominance, at least of the “Free World,” during the Cold War.

But these sanctimonious analyses seem skewed toward emphasizing America’s vulnerabilities rather than its strengths. Their authors do not mention – or perhaps even know – that the United States remains the world’s largest and most innovative manufacturing nation and was rated the world’s most competitive economy in the latest report by the World Economic Forum. The voices of doom also sound curiously dated. They reflect a strain of schadenfreude over America’s woes more typical of the foreign reaction to the Bush administration than of the adulatory global response to Barack Obama’s elevation to the Presidency.

And therein lies part of the explanation for the belittling tone of many of these predictions. They prefer to cling to a view of America as a lumbering, outdated colossus, rather than to critique the dubious measures the Obama administration has taken to handle the auto industry crisis, even though the vast expansion of government that these measures involve says more about today’s world economy, and is more potentially damaging to America, than the actual crisis itself.

The second reason for international nonchalance about Obama’s methods is that, even if they are new to America, they are not much different from the approach favored by many other countries, either now or in the recent past. The global ripples from GM’s collapse have themselves demonstrated how far governments have become, or still are, involved in industrial policy – despite the bad reputation the term acquired in the 1970s – in order to achieve political aims, such as safeguarding plants and jobs and winning elections. Among the various repercussions:


  • The German government has been sharply criticized for offering GM’s European Opel subsidiary to the Canadian Magna International and a Russian bank under terms intended to save jobs in Germany at the expense of EU partners such as Belgium, Poland and the UK.

  • Belgium has complained to the European Commission about Germany’s behavior, stating that, “A one-country solution for a truly European-based company seems not in line with the idea of a European Union and its legislation.”

  • Britain’s biggest union has urged the UK government to step up financial support for the “new Opel” to secure jobs in Britain.

  • The Italian government, on the other hand has been criticized for not doing enough to back Fiat’s bid for Opel.

  • Beijing is reportedly threatening to bar a Chinese company from buying GM’s Hummer brand for the specious-sounding reason that the deal flouts China’s environmental policy.

  • The Australian government is crowing that its earlier support of Holden, GM’s Australian subsidiary, has secured the company’s survival.

  • Even before GM collapse’s, French President Nicolas Sarkozy provoked fierce hostility when he called on French automakers to repatriate their production from Central and Eastern Europe to France.

  • Japan, France and Germany have all recently helped out their national automakers.


It was little more than a year ago that the rise of “State capitalism” became a fashionable theme in analyses of geopolitical trends. The phenomenon, defined as increasing government intervention in commercial transactions for political motives, was seen as antagonistic to Western interests. That, of course, was when largely non-democratic governments in Russia, China and the Middle East were accused of using huge sovereign wealth funds, or the control of national energy supplies, to increase their global influence at the expense of the West.

One can argue that state ownership of national oil companies, or of energy giants like Russia’s Gazprom, are of a different order of magnitude from the U.S. government’s temporary (perhaps) intervention in the auto industry, at an estimated total cost so far of $115 billion. And it is true that GM is no Gazprom. But the theory behind the Obama administration’s actions is much the same – governments are better equipped than the private sector to make business decisions to promote their own and the nation’s economic and political interests.

In the U.S. auto industry the government’s influence can be felt in the hiring and firing of top executives, reducing pay levels, choosing dealers and marques to be eliminated, pandering to the wishes of the United Auto Workers labor union, overruling legitimate credit claims by investors, and re-gearing the entire auto industry to the production of “green” vehicles, which the majority of American drivers don’t want.

It remains to be seen how far these measures will be temporary. One expert predicts that a government-supported, loss-making GM will drag on for the foreseeable future as a drain on national resources, producing inferior products like Amtrak or the Post Office. But even if the government withdraws from the auto industry, there can be no doubting its overall ideological commitment to a vastly increased state role in the economy – whether through control of the health system, tighter, cost-increasing regulation, guidance on executive pay policy, huge budget deficits that are likely to squeeze out private investment, tax increases and other policies that diminish private sector incentives.

It is equally clear, however, that most Americans reject this approach. Although former Secretary of State Colin Powell recently said that Americans “want more government in their life,” a subsequent poll showed that 71 percent actually wanted less government, while only 17 percent agreed with Powell. Fifty-five percent disagree with the government’s increased role in the auto industry, and well over two third prefer free-market to government solutions to business and economic problems. So hope remains that America’s entrepreneurial genius has not gone down with the Titanic-style sinking of its once proud industrial flagship.

Reginald Dale is Director, CSIS Transatlantic Media Network, and a former senior editor, commentator and foreign correspondent for the Financial Times and the International Herald Tribune