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November 27, 2005
General Motors And The Dynamic Market
Michael Barone has a must read piece up in WSJ's OpinionJournal, in which he notes that the massive layoffs and plant closings announced by General Motors signify the passing of an economic model that promised (and delivered) much wealth--for a while (hat tip: Powerline).
The success of the Big Three and the UAW seemed a fit symbol of America's postwar economic dynamism. In fact, this was an economy characterized not by dynamism but by stasis, to use Virginia Postrel's term in "The Future and Its Enemies." New Deal legislation had been designed not for economic growth but for protection from the downward spiral of deflation. Those laws, not least by encouraging unions, strove to prop up wages and prices and to provide security to workers and existing firms. Keynesian economics was employed to flatten out the business cycle as much as possible and to reduce unemployment.[...]
Everything was hunky-dory until the mid seventies when increasing foreign competition and declining American quality combined with the catalyst of high oil prices, and the slide began.
Faced with domestic-content laws [pushed by the Big Three], Japanese and European firms built large plants in the U.S. with nonunion work forces. That has left the Big Three and their spinoffs, like Delphi, with redundant work forces and huge legacy costs in the form of generous pensions and open-ended retiree health benefits.[...]
The attempt to protect workers from all risk has turned out to be very risky indeed, since in a dynamic economy large corporations are subject to competition from firms with lower costs. In the auto industry the result is significant pain for those who relied on the Big Three and the UAW; but the result is also a vastly faster growing economy and many more opportunities than provided by the European welfare states.
I never believed the "buy American" hard sell campaign. I didn't see how it was fair that I was expected to buy a clearly inferior product just so a guy who screwed in windshields all day could keep his $25 an hour job. What about the single mother of three who makes half that hourly wage, with no benefits? You're damned right she'd buy a Toyota, as did I back then.
And guess what? I'm now on my third Ford Explorer, thanks to the quality improvements made possible by that biting competition twenty years ago. Stasis is for the birds.
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