A few days ago I posted an article from the FT by Richard
Tomkins, ECONOMIC PROGRESS WAS QUITE NICE WHILE IT LASTED. In it he made
the point that without new ideas and consequent consumer goods, economic
growth couldn't take place -- and that there seems to be precious few
signs that there are any new ideas on the horizon.
I think Richard Tomkins is quite right on both counts. There is also the
fact, as Prof Fred Hirsch pointed out in the 60s in his book "The
Social Limits to Growth", that there are also intangible constraints
to economic growth in adddition to possible material resources. For
example, there's a limited amount of beautiful scenery and countryside
for tourists to go to. There's a limited amount of time available to many
people in order to learn how to use new products. The next obvious step
up from the automobile is a small private aeroplane -- and there is an
article in this weeks' New Scientist showing that there are any number of
innovatgors waiting to supply us with one at a reasonable price. However,
there's no room in the sky for more than, say one person in a thousands
being able to buy such a vehicle, so that's out.
I think that the matter is a great deal more serious than Richard Tomkins
says. I believe that we have an insatiable need for novelty, and if
that's denied us then the economic machine falters. A superb example of
this is given by the automobile market in America right now. Sales were
sagging but customers took to the new novelty products such as SAVs and
pick-up trucks. In a minority of cases, these were of great usefulness,
but for many (such as some of the young businessmen who live along our
street) it was a bit of fun to drive round in one of these instead of
buying a boring second car. It was these novelties that saved America's
economy during 2002. I wonder what will be the next novelty? If someone
doesn't invent one soon then unemplpoyment will continue to mount and
it's just conceivable that Bush won't get in next time.
I' ve topped and tailed the leading editorial in this week's
Economist.
Keith Hudson
EXTINCTION OF THE CAR GIANTS
Why America's car industry is an endangered species
Motown is celebrating. One hundred years ago Henry Ford set up in
business, and America's love affair with the autopmobile began. Ford is
staging a party that would not have disgraced Jay Gatsby. And why not?
The American car market has been roaring, with annual vehicle sales over
16 million. It could be close to 20 million in a decade's time, with
another 26 million young Americans clamouring for their first set of
wheels. Yet the ride is not going to be smooth: it will be more like
cruising in a Ford Thunderbird while ignoring a nasty rumble from its
mighty V8 engine. For all the signs are that things are going badly awry
in Detroit. Unless something changes, the industry could go broke -- with
Ford, the most troubled of the big three carmakers, leading the way (see
page 75). The100th birthday party could swiftly be followed by a
wake.
Been there, done that
This quintessential American industry has, admittedly, been written off
before, only to bounce back. Chrysler entered the 1980s thanks to a
federal bail-out; Ford narrowly escaped bankruptcy around the same time.
Washington also came to the industry's aid with restrictions on Japanese
imports. Even so, Chrysler nearly came to grief again in the early 1990s,
before it was sold to Daimler-Benz. In 1991, the combined losses of the
big three topped $7 billion. General Motors (GM) was said to be within an
hour of going bust in 1992, with its bosses staring at the fax machine as
they waited for a credit-rating downgrade that would have pushed the
company over the edge. The downgrade never came, and GM
recovered.
Over the 1990s, modernisation and imitation of Japanese techniques helped
to raise Detroit's game. But the saviour of the industry was America's
growing appetite for sport utility vehicles (SUVs), minivans and pick-up
trucks. For years these chunky vehicles have enjoyed such success that
Detroit has made most of its profits from them. Today they account for
every other passenger vehicle sold in America. Competing Japanese
products, where they existed, faced import tariffs. But now Toyota,
Nissan and Honda have developed their own competitors in this market --
and they are making them where it matters, in America's southern states,
far from the citadel of union power that is Detroit. Also in the 1990s,
the industry benefited from a booming stockmarket that lightened the car
makers' growing pension burden as they shed workers in an effort to
become more efficient. There is no sign of any such deus ex machina
now.
. . . . .
Delayed impact
Can Detroit escape the grim reaper a third time? The odds look poor. In
the past seven years Detroit's share of the American market has slid from
73% to barely 63%. If SUVs, pick-ups and the like are excluded, the big
three's share of the passenger-car market is already under half. The
backlash against gas-guzzling vehicles can only be bad for Detroit. And
the Japanese and German car companies have begun to produce models that
compete head-on with such American icons as Ford's F-150 truck. If the
Japanese repeat their success with smaller cars, the big three's last
profitable redoubt will be overrun. The extinction of America's car
giants is no longer just a bad dream: it is coming closer to
reality.
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