Tuesday, 18 November 2008

Bail outs for car giants

The big news today is the big American car giants are tapping the US government for loans. These are big companies with big problems and they need big money. I forget the numbers even though I listened to it with great attention on the radio only this morning. But frankly, once it gets beyond billions it doesn't really register anyway. It is worth taking a step back to think about how these companies got into this state. American industrial strength was not the result of a quirk of history or uniquely favourable natural conditions on the North American continent. It goes back to the country's puritan roots.

From the days of its first settlement the Americans have been uniquely well organised, success orientated and probably most important of all hard working. The great corporations of the twentieth century that made the country great and bestrode the globe like colossi were above all great feats of management and organisation. Where did it go wrong? I think it was when they lost sight of the meaning of what the organisations were actually doing. Managers who understood the products were replaced with management scientists from the big universities. The top leaders became financial whizzes who understood money but not the actual products they were making. At first it didn't matter because the financiers understood the balance sheets. In fact they seemed, on paper, to be doing an even better job.

They started to become reliant on borrowed money. It went fine when things were going well in the economy. But it doesn't look so good when things turn down. Once again, debt is behind the destruction of wealth. Not maybe on the scale of the banking crisis, but the same principle is in play. Fortunately there is probably something to be salvaged from the wreck. There are still car plants, engineers and a skilled pool of workers that can be turned to some good purpose. It will probably turn out to be what you would least expect. But Ford and GM as organisations? They have had a great past but it is hard to see what keeping them alive is achieving.

If I were the next US president I would let them go as quickly as I could. 

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