Wednesday, November 26, 2008

Too Big To Fail

The US auto industry has been performing badly for decades now, with no sign of improvement on the horizon. Honda, on the other hand, runs car manufacturing plants in this country quite successfully (as do several other foreign car companies). Honda uses several sneaky, magical, unfair, possibly underhanded tricks like designing an assembly line that can be used to make more than one model of car. Gee, how did they think of that? (and why didn't Ford, GM or Chrysler?)

But the point isn't the importance of flexibility in assembly line design. The point is that big isn't necessarily good, and every time I hear the Big Three (or various financial institutions) described as "too big to fail," I am reminded of E.F. Schumacher's amazing book Small Is Beautiful. If you haven't read it, now would be a very good time to do so.

There's something tragically wrong with building entities that are "too big to fail," if only because everything fails eventually. Nothing lasts forever, so when 3 million jobs rely on the survival of a single company, um... that's a bad idea.

We already have laws that prevent monopolies, because monopolies are bad for the economy. Why not a law that limits the size of a company, for the same reason? And the more I think about it, the more convinced I am that allowing the company to fail is less bad than not allowing it to fail. Yes, the current economic situation might justify keeping these huge companies artificially afloat for awhile... but then again, maybe not.

[Also - if a foreign-owned company builds cars in this country, are they really "foreign" cars? The jobs are American, right?]


Tori said...

I've been really struggling trying to figure out where I stand on this issue. I am not sure where I stand on the banks bailout, either.
It seems to me that the Republicans who initially supported the banks bailout (but do not support the auto industry's) are hypocrites... they base their platform on a free economy and little or no social spending... until suddenly their own wallets could be impacted.

How is bailing out any company for any reason truly capitalism? A bailout is just social spending where corporations and their employees benefit. Our conservative politicians only believe in laissez-faire when capitalism is working?!

On the other hand, I do believe in social spending, for education, health care, etc --- and that's where I get confused on this issue. I'm not sure for me where "etc" stops. I have friends in the auto industry, who believe the bailout should happen so that all those people won't go hungry. When I look at it that way, as bailing out the PEOPLE who are impacted, I have to ask myself how different that is from my belief that there should be universal health care. Yet each of us takes a risk when we take a job in any given industry. There is inherent risk in the freedom that we so value in the US.

So where does the "social spending" stop? Where does it even really start?

Mark said...

November 10, 2011

Dear Mr. Ward,

Thank you for submitting your recent manuscript "The Boomer Sisters in Outer Space". Unfortunately, based on the popularity of the previous books in this series, we can no longer accept another "Boomer Sisters" title from you and remain in compliance with the new Federal regulations regarding company size. You see, to meet the anticipated demand for this next volume, we would need to expand our printing facilities beyond our alloted economic footprint.

We are sure you understand, and we do appreciate your interest. Attached is a list of contacts outside of the USA who may be able to handle your project.

Best regards,

In all seriousness, I think the Big 3 should be allowed to fail, but not because of their size. They are not at the point of failure because they are too big, rather they are too big because they have not been allowed to fail. And at least part of the blame goes to the unions involved who put artificial constraints on how the companies can manage themselves.

More later.... ?

The Dan Ward said...

Good point, Mark. I think it's true they probably got too big because they weren't allowed to fail (and they probably should be allowed to fail now).

Your rejection letter from Lulu made me laugh and think at the same time.

I imagine the actual rejection letter would go something like this: "Since we now employ a million people, we're spinning off a portion of the company into a smaller, independent entity which will be known as They'll be handling your work from now on..."

And great questions, Tori! It seems to me that the market is generally efficient, but it's also insane and schizophrenic. The balance between regulation and openness is tough. As a society, we do indeed have a responsibility to help people (and it's in our own best interest to do so). At the same time, we really shouldn't artificially force a company to persist when the market is clearly saying "Die, die, die!"