Heads Firmly in Sand, Motor City Chairmen Speak Out

General Motors Chairman Rick Wagoner asks why U.S. automobile manufacturers are doing so poorly when foreign ones are doing so well in the December 6, 2005 Wall Street Journal editorial A Portrait of My Industry.
“Despite public perception, the answer is not that foreign auto makers are more productive or offer better-quality or more fuel-efficient vehicles” says Chairman Wagoner, and continues to tout GM’s quality and performance while blaming external factors. Sadly, it appears the hole needs to be dug a bit deeper before GM will be able to crawl out of it.
This sentiment seems to be blowing about Detroit lately. Dr. Womack eloquently takes issue with Ford Motor Chairman Bill Ford in a December 4, 2005 opinion in the Washington Post titled Mr. Ford’s Wrong Turn.
During a speech in Washington D.C. on November 22, 2005 Chairman Ford asked the legislature to “dramatically increase” tax credits for R&D of alternative vehicles as well as for tax incentives to help US manufacturers modernize factories. The Ford Chairman also said to the National Press Club “With the right investments, America and American manufacturing can win, but we can’t get there alone” and then that Ford “can compete with Toyota, but we can’t compete with Japan.”
Part of this is politics. Ford is lobbying to raise emissions standards so that they will benefit from their new push to hybrids. By appealing to the media and the public that there is a case for unfair competition due to subsidies by the Japanese government, U.S. politicians may be more inclined to act to please their constituent voters. Is it working? Chairman Ford’s statement that Ford can compete with Toyota, but not with Japan, has been the source of howls from various quarters.
One outspoken blogger says “No, you can’t even compete with Toyota.” and goes into detail why. Quite a number of liberal blogs and watchdog groups are taking Chairman Ford to task for the request for federal support. Among others, corporate watchdog group Reclaim Democracy is calling Ford’s request for help a bailout.
It was unfortunate that Chairman Ford coupled the request for increased federal R&D support with the claim that Ford can compete with Toyota. There is certainly a strong case for increased industrial R&D spending. The U.S. government should aid not just Ford, or the automotive industry, or manufacturing, but a wide range of strategic industries in the private sector through policies and research and development subsidy.
Ford can’t compete with Toyota because of the huge gap between the Toyota operational model and the Ford operational model. Ford has to work on that. Ford can’t compete without good U.S. government policy to provide cover. The Japanese government has helped Toyota, and other Japanese manufacturers, for years with their policies. Fair or unfair is not the question. That’s all in the past. “What’s the way forward?” is the question.
Here I’ll put my taxes to work by relying on our friends at the Central Intelligence Agency for research facts on the U.S. economy.
“The US has the largest and most technologically powerful economy in the world… In this market-oriented economy, private individuals and business firms make most of the decisions… US business firms enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products… they face higher barriers to entry in their rivals’ home markets than the barriers to entry of foreign firms in US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a “two-tier labor market” in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits… Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups.”
This is a clear-headed assessment of the strengths, weaknesses, opportunities and threats to the U.S. economy.
What does CIA research tell us about the Japanese economy?
“Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically-powerful economy in the world after the US and third-largest economy after the US and China, measured on a purchasing power parity (PPP) basis. One notable characteristic of the economy is the working together of manufacturers, suppliers, and distributors in closely-knit groups called keiretsu. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding.”
Here again, are a few hints. When giants like GM and Ford start to wobble, it’s partly because they are not Lean and well-balanced, and it’s partly because the ground they are standing on is not as stable as that of certain foreign auto companies. A healthy industrial policy for the U.S. would look at their biggest competitor, for instance Japan, and figure out how to align policies so that key U.S. industries stayed ahead.
Something else that caught my eye in the U.S.A. page of the CIA Factbook is the “NA” (as in “Not Applicable”) entry under “Political Pressure Groups”. Pressure groups are defined as organizations with leaders involved in politics, but not standing for legislative election. This is less than a clear-headed characterization. But lobbyists and other pressure groups who gain political clout without standing for legislative election already have the influence to prevent the CIA from listing them as such. But I will step off of that soap box for now.
On the National Science Foundation website, under the Science and Engineering Indicators section, on a page titled International R&D Trends and Comparisons there is a quote that outlines the importance of R&D to innovation, competitiveness and the strength of a nation’s economy:
“Increasingly, the international competitiveness of a modern economy is defined by its ability to generate, absorb, and commercialize knowledge. Most nations have accepted that economic policy should focus not only on improving quality and efficiency but also on promoting innovation. Absolute levels of R&D expenditures are important indicators of a nation’s innovative capacity and are a harbinger of future growth and productivity. Indeed, investments in the R&D enterprise strengthen the technological base on which economic prosperity increasingly depends worldwide. The relative strength of a particular country’s current and future economy and the specific scientific and technological areas in which a country excels are further revealed through comparison with other major R&D-performing countries.”
Finland, Ireland, South Korea, Canada, Sweden and Japan all spend more than the United States on manufacturing R&D according to NSF statistics. So when a major industrialist such as Chairman Ford requests government support or R&D and innovation, I tend to agree. The cries of “bailout” need to be addressed separately through better accountability of corporate subsidies, pork and corporate governance. It doesn’t change the fact that the U.S. is not investing as much in the in the future as other countries, when it comes to manufacturing.
Some politicians get the idea. A December 8, 2005 article in the Florence, South Carolina Morning News
interviews Senator Jim DeMint after a factory tour and he says “It’s the way we tax, the way we regulate, the cost of health care and the cost of litigation,” and also “I’ve had people tell me they can build a plant in China before they can even break ground in the U.S. for a plant because of permitting and regulations.” He says he is pushing for a “lean government” regulatory process that helps industries build plants in the United States more quickly.
“Japan isn’t his problem; Toyota is.” says Dr. Womack. I would say the failure of the U.S. government to prioritize broad policies of industrial development and manufacturing R&D is the problem. Government may not be the solution for GM and Ford. For many of the rest of us, Toyota is not the problem. Toyota is the solution.

1 Comment

  1. Chuck Yorke

    December 14, 2005 - 7:25 am

    Someone once told me, “When you find yourself in a hole, the least you can do is stop digging.”