How US Protected Detroit to Death

During my brief visit to the Us a couple of years ago, I was on the watch for the kind of cars that were most available. The reason being that I had made crude comparisons and even after adjusting for PPP, determined that petroleum is incredibly cheap in the US as compared to Europe. I noted that there was a large and growing number of Japanese models side by side with the impressive looking but fuel guzzling SUVs.

I found this fascinating because the connection between the addiction to oil and security has been eloquently made by Thomas Friedman. Writing this piece in the NYT, he extends the theme by showing how the three main car manufacturers in the US relied on connections in congress to ensure that they would not adjust to Japanese competition and to provide more fuel-efficient vehicles. In spite of the heavy protection received from some congressmen, it is clear that the rise in petroleum prices has shifted demand away from the models that GM, Chrysler and Ford presently produce almost irreversibly. The managers of these corporations are compelled to plead for government subvention to ensure their survival. In essence, the car manufacturers are close to being nationalized.

The moral of the story is that government should not contemplate protectionism to begin with because it builds the power of corporations to ask for more help later. As their world unraveled, the corporations were so confident of their ability to manipulate congress that they refused to back a health care plan that would have substantially reduced their wage costs. In the writer's reckoning, the Detroit corporations now need an equivalent of or the real Steve Jobs and more competition from Japanese manufacturers. I would welcome an icar too.