Cars and Government: Bad Mix
The former Car Czar of Romania, writing in the WSJ, talks about his experience in trying to manufacture cars under socialism. He extends his analysis to the Jaguar in Britain to show how governments in capitalist countries can't do it either. His analysis centers on two features of car socialism: the technical ignorance of the planners and the inevitable politicization of design and distribution plans.
These factors are enough to doom the attempt but I think Mises himself would go further. Let's stipulate perfect technical expertise and a complete absence of political bias in planning. Can car socialism work under these conditions? Mises would say no, and for one reason: an absence of truth-telling market prices for inputs and distortion of prices on outputs means that one cannot trust the accounting ledger to reveal the least wasteful, most productive path for production. Without accurate price signals revealing profits and losses, planners end up feeling their way in the dark. Production becomes economically irrational.
In the market, the possibility for any firm to completely vanish from the planet has to be an ever-present prospect. But by intervening to become a 60% owner, government has already ruled out that eventuality, which means that it is going to forever waste resources avoiding what would otherwise have been the market's judgement on GM's quality and the impossible burdens that government itself has placed on the enterprise. You can bet that Obama and Co. will not let the new GM fail, and by ruling that possibility out, it guarantees a future of waste and irrationality that will not be entirely unlike the Romanian experience.
Comments (16)
Richard
"Attlee nationalized the automobile, trucking and coal industries"
The British car industry wasn't nationalised until 1975, although in 1968 the socialists forced private car companies to amalgamate into one big private company, the infamous British Leyland.
Published: June 2, 2009 9:50 AM
Richard
I should really correct myself and point out that it was only British Leyland that was nationalised in 1975. We still had a private car industry (mostly foreign-owned like Ford) although that was being shafted by constant striking and absurd wage demands.
Published: June 2, 2009 10:01 AM
Current
Richard is correct about that.
The writer is correct about the other nationalizations though. The road haulage industry was privatized some time in the 1950s I think.
Published: June 2, 2009 10:02 AM
Dennis
The issue of whether governments operating in largely market economies can utilize economic calculation has been raised in a number of postings over the years. I believe that the distinction must be made between this situation and a true socialist economy in which the government owns all the non-labor factors of production. Mises irrefutably demonstrated that in a true socialist economy economic calculation is logically impossible due to the absence of a pricing mechanism.
However, I believe that Mises argued that governments functioning in a largely market economy can calculate because they parasitically utilize the pricing framework established by the market economy. The fact that government-owned enterprises operating in generally market economies consistently show operating losses indicates that they are calculating, again by parasitically utilizing the pricing framework established by the market. The economic problem with government enterprise in a mixed economy is rampant inefficiency since there is no possibility that governments will suffer capital losses due to their inefficient operations. With private enterprise, operating losses translate into a loss of owners capital and this possibility of capital loss is what drives privately-owned companies to profitably operate. The possibility of capital loss does not exist for government-owned operations, and it is this factor that prevents them from being run efficiently, not their inability to calculate.
I believed Mises most fully discussed these issues regarding government management of a business enterprise in his book "Bureaucracy."
Published: June 2, 2009 11:23 AM
Current
Dennis, I think you are mainly right. However, the problems you mention _bring about_ the calculation problem.
For example, how can the capital equipment of a private car plant be properly assessed if it is competing against the state?
The state can only use the price system to determine it's own prices if it is a minor actor. The state demand for telephones, for example, probably makes little difference to telephone prices. Similarly, if the state owned a small manufacturer of telephones it wouldn't make much of a difference. However, if the state owned 70% of the telephone market it would.
Published: June 2, 2009 11:32 AM
Tyler S
I am an American in staying in Romania. One thing I clearly remember when I first arrived is wondering how ugly and aesthetically displeasing the old Dacias are. Old cars from the U.S. are often considered "ugly" by our modern standards, but it is not difficult to see their appeal to prior automobile consumers. I can not see, however, how one of these older Dacias was ever pleasing to anyone.
Published: June 2, 2009 11:43 AM
Dennis
Current,
You are correct. I was referring to instances in which government operates in a predominantly market framework. The larger the government's ownership share of the factors of production, the closer the economy functions to a pure socialist economy. While I usually do not like the use of biological analogies in economics, this one may be appropriate: at some point, the growth of the parasite will kill the host.
Published: June 2, 2009 12:11 PM
Walt D.
GM - bankruptcy lawyer bonanza,
The GM chairman was interviewed by Greta Van Susteren (herself a former trial lawyer) on Fox News. She asked the GM chairman the following question how much they were paying the bankruptcy attorneys per hour. After about six tries to get him to give her an answer,she gave up.
I called a friend - he said that they charge over $1000 an hour (for filling in boiler plate in most cases.). Greta, who as a $400 an hour trial-lawyer, knew this also asked whether this was appropriate, given that it was being paid for by the taxpayer. Again, she received an evasive answer.
Published: June 2, 2009 2:03 PM
Tiffany
"Good enough for the idiots," Ceausescu decided, showing what he thought of the Romanian people.
Replace the tyrant above with "Obama".
Published: June 2, 2009 3:39 PM
Briggs Armstrong
The Austin Allegro manufactured by British Leyland (nationalized) was rated the worst car in British history.
It boasted a square steering wheel and was more aerodynamic going backwards than forwards.
The production inefficiencies were also legendary.
Published: June 2, 2009 4:08 PM
Peter Surda
During communism, our family used to have a Trabant. I miss it ..... NOT!
Published: June 2, 2009 5:13 PM
Tudor
The article is incomplete! Communist Romanian car plants have built only one model from scratch, called Lastun. It was a tiny economical car intended for the new comunist man. A sort of plighted Smart. Lastun was a product, all right, but not something to carry people around. In comparison, the East German Trabant was resilient and funny in its way and it could carry one's family of four to the other side of the country (although it souded like a lawn mower). Ok, I have learned to drive in a Trabant and may be slightly biased :)
What was Lastun for, then? Well, with not much to do after the work-day, the proletarian head of family could very well sink to his elbows for several hours under its hood or could use a cardboard and crawl belly-up under the Lastun, trying to fix its interminable problems. A passtime fit for the new industrail man, to keep him covered in used oil from dawn till dusk.
Dacia and Oltcit, bad as they were, resembled rather a destitute noble-man than a communist new breed.
So mark Mises' words: without parasiting in one way or another on a calculated order socialism sinks like a stone.
Published: June 2, 2009 5:29 PM
Bruce Koerber
Apolitical Political Commentary!
Tuesday, June 2, 2009
Are The "Green" Automobiles Made In The U.S. Ethical?
With the peaceful civil disobedience of Martin Luther King, Jr. (and of Gandhi) directed at refusing to buy government-made (lemons) cars - then failure is unavoidable.
No one should be fooled by the 'green' push. This is simply a devise for the government to use to try to mandate that people buy their stupidly manufactured 'bads' by continually tightening constraints so that only the excrement that spews out of their production (unproductive production) process is permitted.
How foolish are these ego-driven interventionists! They are oblivious of the omnipotence of the market!
Oh yeah, these car companies will fail all right! That is a certainty. When is the only unknown!
Published: June 2, 2009 8:04 PM
Peter
It boasted a square steering wheel and was more aerodynamic going backwards than forwards.
According to Wikipedia, the "square" steering wheel (not actually square) was supposed to increase driver leg-room, but was dropped within a year (the car was produced from 1973 to 1983), and "[a] commonly-given example of the Allegro's poor design is that it is more aerodynamic when travelling backwards than it is when going forwards. While this is true, the Allegro is far from unique in this respect. Most hatchbacks of the era (especially those designed before wind tunnel testing became extensive), with a sloping rear end containing the rear window and boot lid and a flat front holding a radiator grille and headlamps, have the same property."
Published: June 2, 2009 10:31 PM
Michael E. Lawrence
I own a GM car. I can only imagine what it's going to be like to try to get replacement parts in this whole mess. Will "Government Motors" deliberately make it difficult to repair older cars such as mine in order to "encourage" consumers to buy newer cars preferred by the enviro-fascists? They will, after all, have no incentive to respond to real consumer demands.
Published: June 3, 2009 2:36 AM
Current
Re: Austin Allegros...
When these came out they were quite reasonable cars. However BL made them for years and hardly changed them. They were antiquated by the 1980s, as were most other BL cars.
Published: June 3, 2009 4:03 AM