Trade policies deserve blame for auto industry’s downfall
Trade policies deserve blame for auto industry’s downfall
BY EAMONN FINGLETON • December 22, 2008
http://www.freep.com/article/20081222/OPINION02/812220305
No epithet these days seems too contemptuous in referring to the American auto industry’s managerial competence, and no policy proposal too heartless in addressing the industry’s high labor costs.
Yes, some of Detroit’s injuries are self-inflicted. But no industry is perfect. Not in the United States and not anywhere else. Even the American financial services industry — so recently held up as a poster child of supposedly world-class management — is now seen to be less than infallible.
There was once a time — some of us remember it well — when Detroit led the world in both labor productivity and research and development.
What went wrong? The most important reason for Detroit’s downfall has not been incompetent management — the executives running the industry now are hewn from much the same timber as their predecessors of the 1960s. As for “greedy unions,” labor seemed far more powerful in the 1960s than it does today (after all Detroit’s wage rates in those days ran nearly four times those in Japan). The elephant in the room is unfair foreign trade practices.
Though you never would know it from recent reporting, for 40 years the Detroit companies have been systematically undermined by foreign competitors’ predatory pricing in the U.S. market. They thereby have been starved of the adequate returns necessary to invest in new, more efficient production technologies. The Japanese, in particular, have used unfair trade practices to devastating effect. They have kept their home market as a protected sanctuary, where, operating in cartel fashion and free from effective foreign competition, they generally have garnered super-rich profits. These profits have been the ultimate source of the massive investments in both manufacturing technology and R & D that have enabled the Japanese to pull far ahead of the U.S. industry.
Meanwhile, the Japanese have kept the American competition pinned down in the American market — at times, particularly in years past, at little more than marginal cost.
Even Korean carmakers are shut out of Japan — although Korea and Japan do huge trade in other areas. Korea is Japan’s third-largest trading partner and Japan is Korea’s second. As a matter of so-called administrative convenience, industrial planners on both sides have outlawed trade in cars.
For students of Japanese protectionism, perhaps the most telling point is that while France’s Renault company, through its stake in Nissan, nominally controls Japan’s second-biggest showroom network, Renault has never been allowed to sell more than token numbers of its French-made products in Japan.
Of course, the American news media generally have sided with Tokyo authorities in presenting the Japanese market as basically open. Supposedly the only thing that has ever stopped the Detroit companies is their alleged perennial incompetence. In the view of some commentators, to even suggest that the Japanese market is protected is politically incorrect, if not downright racist.
Another factor that has worn Detroit down is an unrealistically high dollar. Again, the problems go back decades.
Ever since the late 1960s, when U.S. trade first showed signs of weakness, American policymakers have consistently resisted dollar devaluation until it has been too late. As far back as the early 1980s, the American car industry lost its so-called incumbent’s advantage — its historic position of productivity leadership based on being first into the business. This development resulted largely from being worn down by years of unfair trade. Thereafter the only way Detroit could hope to fight back was with lower wages than the Japanese competition (as well as, of course, a fair world market).
And the only realistic way to lower its wage costs — and those of other deeply troubled U.S. manufacturers in everything from electronics to steel — was through a drastic dollar devaluation. American manufacturers’ pleas for a lower dollar have gone unheard, however, in part because the prevailing wisdom among American opinion makers was that manufacturing did not matter (and, even more absurdly, trade deficits did not matter).
A high dollar reduced the United States’ trade deficits in the short term, because it lowered the cost of essential imports. It also pleased those in the American elite who wanted to travel abroad. The result in the long term, however, has been the desperately weakened manufacturing sector we see today.
So, yes, the U.S. car industry’s fate reflects in large measure American incompetence — but the main source of this incompetence has not been the engineers of Detroit but the opinion makers of New York and Washington.
EAMONN FINGLETON is an author based in Tokyo. Contact him via his Web site ENDCEwww.unsustainable.org or by e-mail at [email protected].