Markets and Cars

Economists and businessmen should get honest with us. They don’t really believe in markets, they believe in state-capitalism.

Free trade is supposed to be based on market theory. I won’t get into the complicated theory of comparative advantage by David Ricardo. See Herman Daly’s “fun” critique of that to see how delusional free trade theorists are. I’m going to stick with what I consider the most fundamental aspect of markets: no player is so large as to affect the market, be it either a seller or a buyer.

If a player is that big, then there are likely to be several big players, and you have an oligopoly. If there is no collusion, either explicit or tacit, oligopoly can quickly become monopoly. In the current crisis in automobile production, an already concentrated oligopoly will become even more centralized. Economists are saying this is necessary; how else can we compete against Toyota and Honda? One economist has proposed saving GM by selling it to Toyota. While that is not state capitalism, it is stupid. Toyota does not care about maintaining jobs in the United States. Neither does GM, but at least we can make the CEO nervous in front of Congress.

What if you really wanted actual markets in car production? You shatter the Big Three. You make them small enough so that they have to compete against each other. Remember the explosion of innovation when we shattered Ma Bell? We even have laws that say we are supposed to do this: antitrust legislation.

My students had the obvious critique to this strategy—the big international companies will destroy them! Solution: trade barriers. We don’t have to allow them to compete in our markets. This is, of course, protectionism. Evil, bad, short-sighted protectionism. It’s also how every developed country managed to develop, by protecting their industries.

But, said my class, people wouldn’t want to buy bad American cars. They’ve shown that they prefer foreign models. OK, let’s nationalize Toyota of America, and then privatize it. They make Toyotas in the US. They make Nissans in the US. We’ll just turn them into American companies, call them Smiths and Johnsons.  (Or even Rodriguezes.  Hey!  Why be xenophobic!  Japanese-Americans have been here a long time!  Let them be Toyotas!)  Just as food should be produced locally, why not produce cars locally? Our markets are large enough to easily attain the necessary economies of scale.

Paul Baran and Paul Sweezy wrote Monopoly Capital in 1966, arguing that unfettered markets inexorably lead to oligopoly and monopoly. The only way to preserve free markets is to have the state intervene. You can’t have a free market without state intervention, regulation, and institutions to oversee it. We should have learned that from the reckless advice we gave to the Soviet Union.  (By the way critics from the right, everyone gets to vote for your government, but not for corporate CEOs.)

Or, forgetaboutit! What are cars? Transportation. Rather than try to save the car, try to improve transportation, or our cities so we can walk. Paul Krugman sees our car companies as destined to fail. Thomas Friedman see our future in new technologies. Put those ideas together and create a new form of transportation that is not susceptible to monopoly.

This is the focus of Amory Lovins and the Rocky Mountain Institute. There are current technologies that can be produced locally, and should be for maximum efficiency. What has kept these advances from happening are the perverse subsidies and policies that oligopolies have lobbied for over the years. Witness the fact that the Big Three spent millions lobbying against the very policies that Congress is now shoving down their throats. This is delicious!

That is the reason this crisis is an opportunity. The great industrial behemoths are humbled and crawling to the government for a boon. Combine that with the move left to more progressive policies once universal health care is established and we have a real opportunity. This is not, as my conservative student from Texas says, “a bunch of handouts to lazy people,” but rational planning combining private with public institutions to do the right thing, and not just things that make rich people richer.