Is America turning socialist?

John McCain’s worse nightmare about America turning socialist is coming true. But he cannot blame Barack Obama for it. It is happening in the tail end of George W. Bush’s term. The big banks got government money to boost their capital because “they are too big to fail.” And by the end of the week, agreement could be reached for a lot more of the American taxpayer’s money to be risked in the badly ailing American car industry.

Whatever happened to market forces determining who survives and who goes bankrupt? Is General Motors claiming again that what’s good for GM is good for America? It is obvious the American car companies are simply uncompetitive. They can’t make a car in North America of the quality and cost that can match the Japanese and the Koreans.

In short, Toyota, Honda and maybe even Hyundai beat GM, Ford and Chrysler in the free market. Government is not supposed to come in and bail out the losers under the rules of the free market system America supposedly stands for. That kind of nanny economy went out with the demise of the Soviet Union.

From the preaching we have all been given by the Americans, government is not supposed to intervene in the workings of the market. Of course one can say that today’s conditions are extreme. But it can also be said that things became extreme because of the abuse to the system by the very companies and institutions that are now being bailed out by Uncle Sam. Yet, it seems the bailout being contemplated for the car companies only buys a few more months of forestalling the inevitable.

Of course it can be said that millions of American families depend on the car industry and a demise of the car companies would also bruise the collective American ego. All that may be true. But if you were an ordinary American taxpayer who can’t afford health insurance and are now being told to subsidize the American autoworkers and retirees who enjoy health benefits far beyond your dreams, you would feel an injustice… specially if your hourly wage is way below that of the Detroit auto worker too.

This isn’t even socialism because socialism is supposed to be fair. This is power politics… something the American car industry and their labor unions are very good at. That was how they got into the mess they are in now. They are victims of their arrogance, their preference to lobby Washington through the years instead of competing by delivering products consumers like and by being environmentally responsible.

The Japanese and to some extent the Koreans were able to beat the American car companies on their own turf… building quality cars on American soil and using American labor. Toyota, Honda, etc. cannot be accused of using third world sweatshops to build cars that are at least $2,000 cheaper than GM, Ford or Chrysler. Toyota and the other Japanese car companies spent the last 30 years building more than a dozen plants inside the US.

On the other hand, I understand Ford, GM and Chrysler have spent the last 30 years moving factories out of the US, claiming they can’t make money paying American wages. Maybe they are right about that because GM and Ford are making money in many markets outside the US. But in North America, Toyota makes billions of dollars in profits while Ford, GM and Chrysler have been racking up billions of dollars in losses. The Detroit bosses are still scratching their heads and collecting bonuses up until lately, when they had to make the PR gesture of reducing CEO salaries to $1 a year as they went to Congress to beg for a bailout.

Now, the Americans don’t have much of a choice. Dubya must be so glad that he is out of the White House in a month. As a conservative Republican, he will not have to preside over this unpalatable drift from the free market system. The car industry may actually need something as shattering as going into bankruptcy to reform the system by starting all over again. But the politics of it ensure that’s not going to happen.

Here’s how Kimberly Amadeo, writing in About.com Guide to US Economy, explained the whole thing:

“In 1953, former General Motors President Charles Wilson said ‘What’s good for our country was good for General Motors, and vice versa.’ However, that statement is no longer true.

“The $34-billion auto industry bailout will really only make a difference for GM, since many analysts see that Chrysler will either be sold off or go bankrupt, anyway, and Ford doesn’t really need the cash. With or without the bailout, GM will cut production, jobs and dealerships, as it should have done years ago. Ford, Toyota and Honda will pick up market share and increase factories and jobs in the US once the recession is over.

“The loss of GM will be like the loss of Pan Am, TWA and other companies that had a strong American heritage, but lost their competiveness — perhaps a tug on the heartstrings of America, but not really bad for the economy.”

According to former Gov. Mitt Romney, whose family is rooted in the Detroit car industry, “a managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs.”

A bailout that does not seek a restructuring of the business model merely postpones the inevitable. But it doesn’t seem like the Americans have the balls to bite the bullet and fix everything from scratch as they should, even if the compromise aid bill is ostensibly trying to do that.

At least we are not going to hear any more lectures from Washington on speeding up our privatization efforts. But normalization of the world economy could be delayed in the process. All the new dollars they are printing to save everyone who had been naughty all these years will impact on the world economy too. Their problem is also ours, unfortunately.

Canoe race

Here’s a joke going around on the Internet.

A Japanese company (Toyota) and an American company (Ford, GM and Chrysler, take your pick) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was the Japanese had eight people rowing and one person steering, while the American team had seven people steering and two people rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion. They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team’s management structure was totally reorganized to four steering supervisors, two area steering superintendents and one assistant superintendent steering manager.

They also implemented a new performance system that would give the two people rowing the boat greater incentive to work harder. It was called the ‘Rowing Team Quality First Program,’ with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The pension program was trimmed to ‘equal the competition’ and some of the resultant savings were channeled into morale boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid-off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the senior executives as bonuses.

The following year, try as he might, the lone designated rower was unable to even finish the race (having no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year’s racing team was out-sourced to India. They then went to the US government for a “bailout.”

Boo Chanco’s e-mail address is [email protected]