On the failures of the Auto Industry, etc.
Tuesday, November 18th, 2008As I was dressing this morning (which would’ve been afternoon for you east coasters), I was listening to an interview / call-in show featuring Congressman Mike Doyle (D - PA).
He was speaking at length on the necessity of saving the US automobile industry by granting their request (to be made formally this afternoon by the CEO of Ford, I believe) for a large taxpayer loan. As I listened, I kept hearing him say that the auto industry must be saved really for two reasons, which were repeated consistently no matter what the initial question.
The first, which I don’t dispute the fundamental truth of, is that the automotive industry is a major employer of middle class workers in the US. This is all well and good, but discussing this bailout (and, loan or not, it is a bailout) as if the industry will disappear completely overnight is extremely misleading. Yes, certainly the industry is in trouble. Companies have been slashing their workforces for years, continually hemorrhage vast amounts of money, and seem incapable of genuinely gaining ground against their foreign competitors. Further contractions of the industry will hurt, yes, but we’re not actually talking about 3 million additional unemployed skilled laborers tomorrow morning if we don’t drop tens of billions of dollars on the Big 5 (or is it 3 now?) today.
The second major presumption of Doyle’s “Save the Automakers” position was that the loss of this industry (again, all of it, immediately, by implication) would represent the catastrophic loss of all the Research and Development work that the industry does and which America needs in order to remain competitive in the global economy.
This point I dispute on a couple of levels. First, and I hope you’ll forgive the snark, if the United States automotive industry’s R&D was really all that, they wouldn’t be requiring tens of billions of dollars of assistance. They are just years, decades maybe, out of touch with the state of the art being developed in Japan and Germany. They’ve moved only reluctantly towards retooling to support hybrids and alternative fuel vehicles and even then had to be dragged, kicking and screaming about their bottom lines and the needs and wants of the American consumer, to that table. Claiming that we need to salvage their vaunted R&D programs at taxpayer expense represents either a clear misunderstanding or a deliberate oversight of the meager reality.
Of course big companies do R&D, and many do it very well, but the foundation of the argument for saving the carmakers because of their R&D wings presupposes that there are no alternatives, and further relies on the belief that market forces represent the most efficient way to allocate resources for this kind of work. The market is a wonderful thing, but if there is one area that arguably is least benefited by reliance upon market economics, it’s basic scientific research.
Let’s face it, the market is a lagging indicator in most cases. It responds only as rapidly as consumers recognize and understand the conditions that affect the market. In a perfect case, the consumers are all well informed about current circumstances as well as the predicted future conditions that will affect the market, and in that case only, the market may (but is not guaranteed to) respond rapidly and ahead of immediate circumstances. In reality, most consumers are not that well informed, either because they aren’t paying attention, don’t exercise reason in tracking through difficult issues, or, commonly, aren’t provided enough genuine facts about what to expect in the future.
This argument underpins most of my response to knee-jerk free-marketeerism — even allowing that a perfect market will best allocate resources, we don’t have perfect markets, and we must be sure to recognize those cases where the imperfect ones that exist in reality actually do provide the superior solution.
To presuppose that the kind of basic scientific and engineering research that will support the future generation of energy efficient cars (not to mention all other devices that will benefit) ought to be performed by the historically deficient auto industry is just absurd. In fact, it’s clear that the market is largely to blame for the very situation we face. The American public demanded big trucks, SUV’s and other inefficient but fun vehicles, and the industry not only made their billions by filling that desire, but actively lobbied in favor of policies (energy and otherwise) that would keep them in the high margin business of selling these types of vehicles, even after the writing was on the wall with respect to our eventual need to reduce consumption drastically.
So here’s my alternative proposal… let’s not loan billions of dollars to a set of organizations whose credibility in performing basic scientific research is nil, and whose management has been self destructive or brain dead for 25 years. Rather, make that money available to organizations who can and will make good use of it. Direct those funds to the National Science Foundation and other funding mechanisms for academia, whose ability to perform basic science is part and parcel of their mandate. Set aside 200-300 million dollars towards establishing a series of X-Prizes for advances in the materials science and engineering disciplines necessary to advance the state of the art in this country. Provide incentive for American entrepreneurs and researchers to do this kind of work for the auto makers, whose market incentives were never before, and will never be, sufficient to make them forward looking and responsible stewards of the huge power they hold over the economic, environmental and energy policies of this country. Perhaps even found a national laboratory with a mandate for performing work on modern energy and automotive technology, much as the Sandia, Los Alamos and Oak Ridge labs did for Nuclear research and as the NIH does for much basic public health research.
By all means, salvage what can be salvaged of the auto makers in the interests of job retention and maintaining an industrial and manufacturing base in the US. But please don’t foist this ridiculous notion of automaker funded R&D on the public. It’s wrong, and while it may be politically sensible to speak well of companies that employ your constituents, in this case doing so is to spread misunderstanding and inaccuracy. Basic science will almost never be performed best — and by best I mean best for the world at large… by this metric, even the drug companies largely fail — by organizations responding to market forces, because by it’s very nature, basic research may or may not be economically rewarding and will always have to be initiated well in advance of the day the resulting technologies are needed. At best, todays markets provide incentive just as new ideas need to be available, and at worst, lag until they’ve been needed for some time already. It’s time to wake up to this reality and stop throwing good money, money that could be made to serve this nation in countless ways, at companies that provably, unequivocally, do not deserve to be trusted with it.
