The policies that ruined the auto industry

 

Don't blame the Detroit 3

By BARRY C. LYNN

A lot of people are angry at the Detroit Three automakers, including many members of Congress. And why not?

GM, Ford and Chrysler seem still too bloated and old-fashioned, their workers too pampered. For too long the carmakers have failed to design and bring to market the smaller and more fuel efficient vehicles we now want to buy. Yet it is important to put the blame where it really belongs, not on management or labor, but on Congress.

Viewed over the long haul, the all but complete bankrupting of the Big Three is a stunning event. Not long ago the American auto industry was the greatest manufacturing complex in the world. Had a competitor nation consciously intended to destroy this system the result today would surely count as one of history's great coups. Yet no strategist in Tokyo, Brussels or Beijing cooked up this blitzing of Detroit. Rather it was the product of a set of incoherent policies made right here in America. The environment of law in which these companies had to operate in recent decades all but guaranteed their destruction.

So many factors work against America's manufacturers today – tax policies, monetary policy, the structure of metals markets — that it's hard to figure out what to fix first. But let's consider four of the biggest, and these in relation only to the auto industry and only to Japan:

*Corporate Governance. American managers are expected to "share out" much of the profits they gather with investors. Japanese managers are expected to reinvest most of their profits in new technologies, machines, and people.

*International Trade System. The Big Three have enjoyed no protection on their home turf since the 1960s. The Japanese market, by contrast, is still far more closed than the U.S., which means Toyota and Honda are today still able to "tax" Japanese buyers to subsidize their operations in America.

*Energy Policy. Beginning in the 1980s Congress structured fuel efficiency standards in ways that all but forced Big Three to shift investment and marketing from next-generation cars to last-generation trucks. In Japan, the structurally high price of gasoline has for decades provided a strong incentive to invest in leading technologies.

*Industrial Unions. The Taft-Hartley Act of 1947 created a patchwork regulatory system that allows the same company to treat workers in different states in different ways. Unlike GM and Ford, which are held in place in union-friendly states by the UAW, Japanese firms that manufacture in America are free to invest wherever they wish. This happens to be, almost always, in "right-to-work" states.

Two systems. One marketplace. After 30 years the results of this clash are: Detroit is prostrate.

http://www.freep.com/article/20081201/OPINION05/81126100