Wednesday, November 12, 2008

Too Big To Fail?

I know the argument about the big three automakers being worth saving, not because the corporations themselves are so valuable, but because of all of the jobs they provide and the subsidiary businesses they support. I’m not sure that I really quite buy all of that in its entirety.

If, say, GM suddenly quits making cars are that many fewer cars suddenly going to be sold in this country? Or will that many cars of other makes be sold? If the latter, don’t a significant number of ex-GM workers get put to work at the manufacturing plants of other car makers? Maybe they don’t, but a similar number of laid-off workers at those plants get rehired. Same result, the number of jobs decreases, perhaps, because of efficiency issues, but not nearly by as much as the doomsayers forecast.

Same with parts suppliers; the demand for GM parts is gone, but demand for Ford, Toyota and Chrysler parts is up. The GM dealerships close, but more employees are needed at other dealerships.

My point is that employment is driven by the market, not by employers. Employment rises and falls as demand for the products provided by that employment rises and falls, not as new manufacturers decide to start up or as old ones fail.

When the market declines, the manufacturers who survive are going to be those who are best managed and who have the best products. That’s not free market thinking, that’s just common sense. If the government wants to help the manufacturing sector, I suspect it should focus on measures that would improve demand for the product, rather than pouring money into those firms who have demonstrated the poorest judgement.

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