The Germans and the French are at it, and therefore, goes the argument, so should we. France has long been busy building new Maginot lines of business. As for Germany, right now it seems that only Angela Merkel can decide the fate of Opel.
Meanwhile, the British government is getting a slating. It is not doing enough. It has to save Vauxhall. It has to safeguard British jobs. The truth is, this is a sorry tale, and surely illustrates all that is wrong with the economy.
Apparently it is not just the jobs of Vauxhall workers which are on the line, it is the supply chain also. There’s 5,000 jobs at Ellesmere Port and Luton, but there could be around another 15,000 jobs which are dependent on these factories.
Then there’s Formula 1. You no doubt know, many of the top Formula 1 teams are based in the UK. There’s Red Bull in Milton Keynes; the Ross Brawn team, which boasts the driving talents of Jenson Button, in Brackley. Then there’s the likes of McLaren and Williams. Apparently the UK has got all this expertise related to R&D, and yet if Vauxhall goes all these clever ideas generated in the UK’s racing teams will be wasted.
Furthermore, goes the argument, if it wasn’t for Mrs Thatcher, the UK would still have a manufacturing base, and right now we would be booming, like Germany.
Setting aside that the UK still boasts the sixth largest manufacturing sector in the world, and that Germany is in even more dire straits than the UK, isn’t there another argument here?
Mrs Thatcher’s core belief was that government was in no position to decide which companies should survive and which should be allowed to go. Rather, she felt the markets were the best judge.
It wasn’t Mrs T who let British manufacturing go, it was the markets. Although, North Sea oil didn’t help, since this pushed sterling up, putting UK manufacturers at a disadvantage. The same argument could be made for the City today.
It does seem that the global motor manufacturing industry has too much capacity. Even during the boom, the Detroit three GM, Ford and Chrysler were losing money faster than a BMW down the autobahn. But European and Japanese companies all had their fair share of problems.
The true issue seems to be this. The British auto industry has got some fine expertise; it is being helped by the low pound, but hindered by the fall in international trade. But it is also at a disadvantage because it is competing against other countries which subsidise their own car industries.
The argument then, in favour of giving the UK industry a helping hand, is that this action does no more than even the playing field.
In other words, the auto industry is riven by protectionism. The companies which survive are not necessarily the ones with the best products or manufacturing process, they are the ones which enjoy the biggest handouts.
Such a system stinks. It can only lead to an industry that stumbles from one crisis to the next.
The UK government is in a difficult spot, but maybe it could do more to point out this appalling case of government interference.
It is just that the free market has lost credibility. For decades free markets underpinned extraordinary wealth creation, and then for a few years they got it wrong, so now we are being told that this is the death of the free market.
We are told to look forward instead to a new era of corporatism.
The economist Joseph Schumpeter coined the phrase “great gales of creative destruction” to describe one of the key elements of economic evolution. He also predicted the inevitable rise of “corporatism”, in which companies are not allowed to fail, and the result is a static economy of mediocrity.
The single biggest risk for this economic crisis is that, from its ashes, corporatism rises, whereas the phoenix we really need is to allow the economy to evolve naturally, with successful businesses expanding into the vacuum left by the businesses that have been living off past glories.
© Investment & Business News 2013