From the TUC

The motor industry: a test of left-of-centre economics

18 Jun 2009, by in Economics

In these troubled times, the last thing we really need is a dose of Thatcherism, yet that is what we are offered in today’s FT. John Reed, in ‘Back on the road’, an article about the state of the motor industry, uses a full page when a paragraph would have sufficed. His argument boils down to this:

There is massive over capacity in the automotive sector. The economic downturn was a once-in-a-generation opportunity to slash production – and jobs – to bring the industry down to a more realistic size. But that opportunity has been missed as governments from across Europe and, to a lesser extent, the US, opted for bail-outs or indirect state aid, such as scrappage schemes, instead.

The trouble is, what are set out in the article as excuses for special treatment offered by car makers are actually very powerful arguments. Motor companies are “some of their country’s biggest employers and exporters”. The industry has a big multiplier effect, meaning that “for every job created or lost, about six to eight downstream positions at suppliers come or go too”.

Am I missing something? Are Gordon Brown, Nicolas Sarkozy, Angela Merkel or Barack Obama expected to cheerfully watch while some of their “biggest exporters and employers” go to the wall? Would the people of manufacturing regions, such as the West Midlands here in the UK, applaud this not-so-sensible economic management by their Government?

So on the subject of missed opportunities, what John Reed could have done was to set out the dilemma faced by these politicians. Journalists don’t like dilemmas. They like to present one side of an argument and then criticise a politician for not addressing it, knowing full well that if that politician did so, the problems created by the other side of the argument would emerge (for which those same journalists would go on to lambast that very same politician).

In this case, we know what would happen if motor companies were allowed to simply crash. Higher unemployment, more skills lost, more home repossessions and more communities blighted for generations to come (as happened to mining communities, to give just one example, in the 1980s).

That is not an argument for feather-bedding the motor industry, or any other sector. It is an argument for a modern industrial strategy, focusing on high value industries where the UK has the capacity to succeed. Where large industries, dominating entire communities, are under threat, it means long-term regional and national strategies to nurture new industries in those communities. But that takes time and a scorched earth policy in the meantime would make it impossible.

One high value sector where the UK could compete in the future is green technology, which brings us back to cars, as the need for ever higher environmental performance from the cars we drive is a pressing issue for our entire planet – and was part of the rationale for the scrappage schemes derided in John Reed’s article.

Government intervention in the economy is not only legitimate, it is essential. The debate should focus on how that happens and the limits to be placed upon it. In its policy of industrial activism, the Government has entered into this debate, which will form a major part of discussions about left-of-centre economics up to the next election and beyond.

One Response to The motor industry: a test of left-of-centre economics

  1. Charlie Marks
    Jun 19th 2009, 1:50 am

    Great post Tim. We let Rover go when a joint venture with the Chinese could have been set up, we can’t afford to let the car industry go under.

    I’m interested in how the government could not only intervene to save the car industry and ensure it develops in a green direction, but also secure long-term production in the UK by helping car workers to get some ownership of the enterprise.