Economic Crisis or Economic Squeeze?

The slimy politics behind the credit crunch

As the world appears to slide toward recession, or perhaps even a depression, there is a common view that everyone is feeling the pain from the credit crunch. In reality, however, some are taking advantage of the situation and are making a lot of money. While the practice of short selling on the stock market (put in another way, betting that the price of a share will go down) is the most vivid example, there are other ways in which big business is making a lot of money from the present financial crisis. A case in point is with the so-called embattled automobile industry.

The corporate media view -- one in which we are all supposed to uncritically believe in -- is that the automobile industry is hurting deeply because of the present economic turmoil. Statistics supposedly reinforce this view: leading automakers have shown a decline in sales of over 30%. Of course, what is rarely mentioned is that this decline started well before the onset of the credit crunch.

For two economies in particular, the declining fortunes of the car industry has been having a significant political as well as economic impact. Both Germany and the US are heavily reliant on the automotive industry. Hence, the threat of a massive decline in this sector has many politicians deeply worried. Many regions within these two countries have already been hollowed out by deindustrialization. Auto industry bankruptcies, therefore, would be a crushing blow.

As a result, it seems quite strange that in the US the Congress had taken such a hard line against the three leading car manufacturers when they went to Washington to ask for assistance. Indeed, the disparity in treatment for the auto industry and Wall Street is quite striking. Government agencies have thrown literally trillions of dollars at the financial sector, with very light conditions, and virtually no discussion of industry salary structures (aside from limited restraints on top executive compensation). By contrast, there has been endless talk about supposedly excessively generous wages for unionized auto workers, and much more severe financial and oversight conditions proposed for an industry bailout.

Without a doubt, the image of three executives from three major companies begging for assistance flies in the face of what American capitalism is all about. On the other hand, considering that the US government had already approved massive bailout packages for the financial sector that was many times more than what the car industry was asking for, the sudden hard line attitude of Congress does seem a little strange. As Robert Weissman, editor of the Washington, D.C.-based Multinational Monitor recently pointed out, "it is startling to witness the casual way in which many policy makers and opinion leaders suggest the U.S. auto companies should be allowed to go bankrupt."

On the other hand, the seemingly hard line position that the US Congress has taken is not all that strange when viewed from a strict economic point of view. The present financial crisis provides a perfect cover for companies wishing to drive down wages and cut labour costs. Public opposition is more likely to be muted, and concessions can be exacted as people are subjected to what is no less than a form of economic terrorism.

Along these lines the present stance of the US Congress with regards to the auto industry kills two birds with one stone: first, it makes it look as if the government is not simply providing corporate welfare (which in fact, it is) and, second, it is able to help auto manufacturers push through an anti-union and anti-blue collar agenda which was previously unthinkable. As Weissman writes:

Combination of economic terrorism with the illusion of high labour costs

In the US and many other industrial countries of the western world, the economic terrorism that people are under is very real indeed. According to the non-profit Center for Automotive Research, if the American car industry were to collapse an estimated 3 million jobs would be lost -- about 240,000 employees of the various car companies, a million supplier jobs, and 1.7 million jobs lost from the overall economic effect. The federal government, meanwhile, would lose about $60 billion in tax revenues and other costs in the first year alone. Given these costs, the fact that the automotive industry was asking for only $25 billion dollars as a bailout (this has since gone up to $34 billion) makes the stance of the US Congress appear all the more inexplicable.

What may come as a surprise is that all this is nothing new. For years corporate media in the US has been harping on the line that the problem with the Big Three automakers is that high labour costs have made them unable to compete with others on the world market. Rarely mentioned, however, is that the financial woes of US carmakers are foremost due to bad management decisions as opposed to the high costs of labour. If the problem with the US car industry was confronted honestly and in a progressive manner, then it wouldn't be blue collar jobs under threat but that of upper management.

It once was true that auto industry jobs paid well. Yet concessions by the unions over the years have seen these advantages gradually eroded. With the present financial crisis, the unions will no doubt be prepared to make even further concessions. This is despite the fact that wages and salaries don't contribute much to the cost of a car. Total labour costs make up approximately less than 10 percent of the list price.

Not only this, the notion that foreign car manufactures (notably those in Asia) pay a lot less and are not as affected by the financial crisis is unfounded. As Weissman points out, Japanese plants in the United States (also known as "transplants") generally pay wages comparable to those at unionized US facilities. Furthermore, while it may be true that Japanese companies have a stronger base and are better prepared to weather the storm, the storm is nevertheless pouring rain on everyone.

The illusion remains, however, that unionized car workers in the US receive exorbitant wages, and thus puts American auto companies at a competitive disadvantage. The reason for this is that by combining economic terrorism with the illusion of high labour costs the auto industry is able to circumvent the unions and drive down wages. As American carmakers appear unable to offer a better product, namely in terms of fuel efficiency, their strategy appears to be aimed at cutting costs in order to offer cheaper cars while at the same time preserve profit margins.

Thanks to the financial crisis, environmental concerns have been put on the back burner

Aside from driving down wages, the present financial crisis has been a godsend for the car industry in other ways, namely in staving off the application of green technologies. The car industry -- especially in the US -- has been dragged kicking and screaming down the road of fuel efficiency and zero carbon emissions.

Now, thanks to the financial crisis, environmental concerns have been put on the back burner. Even the likes of Weissman and others see that it's not the time to press car manufacturers to adopt fuel efficiency and zero carbon emission technologies as this would limit their flexibility and make it much harder for them to make expensive, long-term investment decisions. "This is particularly true while oil prices are depressed," writes Weissman. "Things were different six months ago (and likely will be again in the not-distant future), but right now the market signals are wrong for investments in energy efficiency."

Sadly, this line of reasoning has already been adopted in Europe. The European Commission recently outlined its future plan for the fuel efficiency of cars in Europe which in the end turned out to be nothing more than a watered down version of previous commitments. Drastic cuts in emissions were not as forthcoming as car companies were given more time and certain exceptions. Meanwhile, governments such as Germany are looking at ways to encourage people to buy more cars when it is already clear that the problem the world faces is not only the emissions from individual vehicles, but that there are simply too many cars on the road.

In the final analysis, this is the ultimate tragedy that the world now faces. Instead of seizing the opportunity that the financial crisis provides in addressing environmental concerns, people and governments are running in the opposite direction. The fundamental problem with the consumer society is consumerism; in its present form, it is a human activity which is in no way sustainable.

It is ironic to see how government leaders around the world have suddenly become home-grown versions of George W. Bush. One of the first acts of the Bush administration when it assumed office in 2000 was that it refused to ratify the Kyoto Treaty on economic grounds. Then leaders around the world chastised the American president for putting economics ahead of the environment. Yet now, it's these exact same leaders which are doing the same thing in order to mitigate the effects of the global recession. Unfortunately, what these leaders fail to realise that is that an economic recession is much more preferable to an environmental catastrophe.

http://www.heise.de/tp/artikel/29/29290/1.html