31 March 2009

The Collectivization of GM


President Obama and the 'auto task force' seem to be moving past just having a sacrificial lamb in Wagoner, to wholesale manipulation of production and management decisions. Jim Kuhnhenn writing for the AP today reports:

On Tuesday, Sen. Bob Corker, a Tennessee Republican whose state is home to auto manufacturing plants, said the administration's aggressive intervention in the industry sets "a very dangerous precedent."

It wasn't just the forced ouster of Wagoner that causes him concern, Corker said on CBS's "The Early Show." He accused the administration of taking a "we know best" attitude in connection with the problems in the domestic industry and said that should "send a chill throughout the country."

The president was hardly ambiguous about his desire to use the beleaguered state of the industry to press one of his top policy agendas — an energy policy that emphasizes the manufacture of fuel-efficient, environmentally friendly cars.

"The United States will lead the world in building the next generation of clean cars," he said.

If you're old enough to remember the last decades of the Soviet Union, you should remember the collapse of its state-run collectives and enterprises. These were utterly inefficient affairs, that produced little, polluted much, and often failed to pay their employees. The accompanying long 'bread lines,' that marked the 50s - mid-80s of the Soviet Union were mute testament to the utter failure of that kind of decision-making, but the Politburo continued to run a well-oiled PR campaign that forced citizens to pay lip-service to the 'glorious success' of the USSR.

The Administration's efforts to manipulate the market are no doubt well-intentioned, but they are doomed to failure. Not only does the government lack expertise and experience in these matters, it is trying to force both the supply and demand sides of the economy to meet what it determines is 'good,' rather than allowing demand to drive supply (and cost). Government determination of what products GM can and can not produce, and at what price they sell them, will not help to save the US auto industry, particularly if those products are not wanted by the majority of the public. Most studies indicate that consumers are interested in 'green' products, but that they also demand costs comparable to current prices, improved performance, space, (especially in the US), and power.

Government can play a role, however. Like it or not, fossil fuel supplies are not infinite, nor is their use particularly healthy (economically and otherwise) in the long run. The government can help fund the R&D side of the equation, and can provide tax breaks to encourage buyers. This allows the market to function, while still encouraging long-term changes in behavior and decision-making, and with far less cost to the tax payer.

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