Category Archives: Business

Capitalism, Corporatism, Free Markets

Some useful thoughts from Rod Long, over at Cato Unbound.

As he points out, there is a broad-based mythology that defending capitalism is equivalent to defending “big business” when, by its nature, big business abhors capitalism (at least as understood by true free marketeers). Of course, I agree with Jonah Goldberg that we latter should abjure the term “capitalism,” both because it is such a misunderstood word with a wide variance of definitions, and because it is fundamentally a Marxist concept.

A “free-market economy” (something that hasn’t existed to a large degree in this country for many decades) is what should be defended and supported, and we should continue to push to get the country to move back in that direction to find our way out of our current travails (which really started back in the Depression Era). Just as one example, there’s an interesting discussion over at Megan McArdle’s place, here and here, on GM’s straits (about which I’ve also had thoughts over the years, as someone who grew up with it). I think that, as one of the commenters over there notes, the roots of the destruction of the American auto industry lie in the Wagner Act:

GM and the UAW are a perfect illustration of bad government in action.

At some point, a collective decision was made that the unions should be given such expanded powers that they could destroy the company if they wanted (see the above post describing how a strike at a key plant could idle the whole company). What happens here? Well, naturally the union tries to extract as much as they can from the company with the tools available. The union doesn’t profit from increasing profits and building a healthy company, it profits from building an overstaffed company that exists to benefit its employees. The union would have been better served if it divvied up the right to collect a union payout from GM among the workers of the time and let them sell the claims. Then the union could simply negotiate the maximum dividend possible for the holders of these claims. This way you have a rationally run company with the benefits going to the larger voting block (the workers) than the shareholders who are all presumably evil capitalists.

What would have been much more honest and worked better would have been outright nationalization of GM when the rules were set up that the UAW could destroy the company. Instead you’ve got unclear property rights and consequent ill management.

It took a long time to kill the industry, but that doesn’t mean that it wasn’t the cause. Arsenic or mercury can kill over a long period of time as well, though death might actually occur from some other ailment that the toxin-ridden body is ill equipped to fight.

The toxin in this case may be a lot of things (perhaps even including “capitalism” by some warped fascistic definition) but it is an abomination to a free market, and it has destroyed the American auto industry.

[Update a few minutes later]

IBD says let GM go bankrupt:

Far from vanishing, many of GM’s assets would be quickly purchased by competent foreign automakers eager to expand their capacity in what is the world’s largest auto market. Happily, the list of well-run car companies, from Toyota to Nissan to Porsche, is long.

How this helps Michigan, the auto sector and smaller firms reliant on the latter’s health is pretty clear. With capable auto executives finally overseeing GM’s poorly deployed assets, the value and utility of each would rise, thus perpetuating the existence of jobs in the sector, all the while ensuring that other businesses that exist due to GM will enjoy more stable commercial relationships with competent management.

So while the cries of certain Armageddon would be ear splitting in the event of a GM failure, the U.S. auto sector would actually emerge much healthier thanks to a change in ownership that would be the certain result of GM going under.

The problem of course, is that this will be another Enron, in that many people will be thrown out of work, and lose pensions (I should note, for the record, that as a Michigan native, I have close family members who may be in this situation). The political pressure to maintain the status quo will be intense, and unfortunately, given the fact that despite all of the talk about “change,” the status-quo-ante types (at least when it comes to static economic circumstances) have just entrenched their power in Washington, that’s probably the way it will go. If GM is going to get federal money, it should go toward buyouts of long-term employees, and then let the market work to redeploy its assets toward more useful purposes than maintaining an expensive company-town welfare state, that makes cars on the side.

[Update mid morning]

Matt Welch says to the barricades to defend free markets. Except that he uses the confusing word “capitalism.”

I should add, that I consider George Bush’s biggest failure not the events leading up to this crisis, but his response to it, in which (as Matt points out) he capitulated to those advocating government solutions to government-caused problems. Of course, it’s on a par with “compassionate conservatism” and “comprehensive immigration reform” and “no child left behind” and “prescription drugs” and myriad other issues, large and small, on which he showed himself to be anything but a conservative (let alone a libertarian). Had he been a Democrat, the Dems would have been cheering all of his actions as the greatest thing since LBJ and the Great Society.

Speaking of compassionate conservatism (and the tone deafness of George Bush and Mike Gerson and others to how rightly offensive the phrase was to actual conservatives), imagine how well the Democrats would take to a nominee who ran on a platform of “logical liberalism.”

[Early afternoon update]

Iain Murray has more thoughts on free markets and their relationship to liberty:

…as Jonah says, markets are more than this information delivery system. Where the Chicago School has gone wrong is in focusing purely on economic efficiency. As my boss Fred Smith said way back in 1983, “The Chicago School’s case for antitrust policy . . . rests solely on economic efficiency, as if rights had nothing to do with the matter — as if business had no right in principle to dispose of its property as it sees fit, but only a conditional freedom so long as it helps maximize some social utility function. That is to say, no business is entitled to its property if that property can be redeployed so as to expand output. With ‘conservative,’ ‘pro-business’ economists taking this view, who needs social democrats.” In other words, if we value property rights, the free market is an essential consequence. And that is why market socialism never works, because it devalues property rights. Liberty demands property rights which demand free markets. We only interfere with that chain in defiance of history.

It is not a coincidence that communist nations are the most unfree on earth.

[Early evening update, particularly for Instapundit readers, who might want to look around the site]

I’ve talked in the past about the fact that my father was a GM exec, but I’ve never noted what he did there.

Here’s a little background, which may be apocryphal, because I only knew it from my mother, but they met after the war in New York (he was from Brooklyn). She was a former WAC who had served in Egypt, and had decided to see a little more of the world before heading back to her home in Flint, Michigan.

He was standing on a soapbox in the Village, haranguing the crowd on the benefits of Marxism. As an economics major, raised on Keynes, she fell in love.

They married, and finished their graduate degrees, at various places (NYU, UCLA, other, his in Psych–Industrial Psych, hers in Econ). In the fifties he tried door-to-door in Lansing after moving to Michigan with his upper Midwest bride, but when he got an offer at A.C. Spark Plug in her home town (as a result of her brother, my uncle, being an engineer there) he took it, and settled into a middle-class lifestyle, during the best years of the company, in which he raised his family.

He moved up though the white-collar world at AC, in “personnel” (these days, it would be HR, which is one of the reasons that he could get me summer jobs there during college), until he got an offer to go to work for corporate in Detroit, a job for which he commuted sixty miles a day each way from Flint, and we never had to move. I know that this is no big deal of a commute in southern Cal, but for me, it was amazing. He died at an age slightly older than me (right now, for those reading in the future) that I can count on one hand, and not half of it, from a heart attack (his second–he had had his first about a decade earlier, in his forties). That was almost three decades ago.

His job?

Head of labor relations, and negotiator (perhaps chief negotiator, though (as Doctor Evil said) I can’t vouch for that), with the UAW.

[Bumped to the top, because there’s a lot of new stuff]

Hoover, Or Reagan?

Which president will Barack Obama want to emulate? He has said that he admires Reagan, but only for his transformational qualities, not for his political beliefs. But if he persists in his apparent desire to implement some combination of Hoover and FDR policies (raising taxes on the productive, protectionism, enforcing high wages), he’ll end up making a bad situation much worse, and end up being a one-termer for sure.

Forty Bucks A Barrel?

It’s certainly plausible to me. Given how much of an overshoot there was, it wouldn’t be surprising to see it dip that low before stabilizing. As I’ve long said, over a hundred bucks was unsustainable. I would hope it won’t stay that way for long, though. It’s harder to justify shale and new drilling (and conservation) at those prices.

Worse Than I Thought

And I thought that card check was already pretty bad:

Under EFCA, the terms set by the arbitrator will be the furthest thing from a “contract.” It won’t be an agreement between management and labor. Rather, wages, hours and terms and conditions of employment will be dictated by a government appointed arbitrator. The mandate will be binding on the parties for two years. Neither the company nor the employees can reject it (At least when the Central Committee set the wages for tractor assembly workers in the Leningradskaya oblast there was always the possibility that the wages might change later that afternoon).

Currently, if employees don’t like the tentative agreement negotiated between union leaders and management the employees can vote it down and instruct their leaders to go back to the bargaining table to get a better deal. Not so under EFCA. If the employees don’t like the arbitrator’s decree of a 2% wage increase, they’re stuck. Similarly, if the company can’t afford the arbitrator’s command to pyramid overtime, the company’s stuck. The consequences aren’t difficult to imagine.

This is a small business owner’s nightmare. As is the health insurance mandate. Obama will be a disaster, economically, at least if the Democrats get enough votes to block filibusters in the Senate.

[Update a couple minutes later]

Here’s more on the job-destruction potential of Obama’s health-care plans, from that bastion of right wingery, the New York Times:

the penalty in Massachusetts is picayune compared with what some health experts believe Senator Barack Obama, the Democratic presidential nominee, might impose as part of his plan to provide affordable coverage for the uninsured. Though Mr. Obama has not released details, economists believe he might require large and medium companies to contribute as much as 6 percent of their payrolls.

That, Mr. Ratner said, would be catastrophic to a low-margin business like his, which has 90 employees, 29 of them full-time workers who are offered health benefits.

“To all of a sudden whack 6 to 7 percent of payroll costs, forget it,” he said. “If they do that, prices go up and employment goes down because nobody can absorb that.”

Writ large, that is one of the significant concerns about Mr. Obama’s health plan, which like this state’s landmark 2006 law would subsidize coverage for the uninsured by taxing employers who do not cover their workers. And it is a primary reason that so-called play-or-pay proposals have had an unsteady history for nearly two decades.

This is 180 degrees from the direction that we need to go. Most of the problems of the current health-care system stem from its being tied so much to employment, which is an artifact of wage controls during World War II. The first critical step in fixing it is to decouple it from the job, so that plans are portable, and people are more connected with choosing their provider. McCain’s plan isn’t perfect, but it’s a big step in the right direction, and the demagoguery of the Democrats on this issue (as on most issues) has been shameful.

More Margin Problems

The new littoral ship that Lockheed Martin is building for the Navy is four percent overweight:

The Navy and Lockheed already have a plan to remove nearly all the additional weight from the ship over a period of about six months once the new ship, which is named Freedom, gets to Norfolk, Virginia, in December, said the sources, who asked not to be identified.

As I said, margin, margin, margin. If you miss your weight target by that much on a launch system, it’s bye-bye payload. In this case, it simply puts the ship at risk in combat.

As the emailer who sent this to me asks, “I wonder if Lockheed will remove excess weight from Orion at no additional cost.”