Layoff Economics

November 19, 2008
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A quote attributed to Stalin said ” The death of one man is a tragedy , that of a million is statistics.” I was reminded of this while watching the unemployement numbers in the United States which numbers now in millions, and as lawmakers grilled auto makers for their high wages, inefficiency in return for […]

A quote attributed to Stalin said ” The death of one man is a tragedy , that of a million is statistics.” I was reminded of this while watching the unemployement numbers in the United States which numbers now in millions, and as lawmakers grilled auto makers for their high wages, inefficiency in return for a bailout.

 

The contrast between the white collar bailout for financial services and blue collar (predominantly) automobile industry. The same law makers ( then with more Republicans ) had not argued so much while handing out 700 Billion for a now dis credited plan to buy up toxic assets. The next  plan for cash infusion in return for equity was usurped by the financial services industry with little trcikle down credit unfreezing. The financial services industry has long been accused of exorbitant pay, bonus mentality and the culpabilty in selling toxic derivatives with huge amout of over leverage is clear, including the speculation in commodities.

 

Yet the automobile industry which has millions of jobs , much lower pay has been steadily downsizing as it faces aggresive competiton and is now even more regulated than the financial services industry was – they have to burn and plead while asking for one fifteenth of the amount.Both GM and Ford sold off their stakes in Suzuki and Mazda respectively, so it can be said they are purely domestic manufacturers.It  is almost a catch 22 situation with the interwined and inter dined interests of politicians , union leaders, auto mobile manufacturers.

 

Why the current US administration cannot pick up stakes in the auto mobile giants is beyond me. They can look at the Indian government’s successful efforts to create a domestic auto industry by first creating a partnership with Suzuki , and then steadily divesting it to the public.Even the five year 5 % loan facilty can be given.

 

The good news is companies like GM have cars like the GM Volt ready, which are extremely good from a mileage perspective. The loan to these manufacturers can be made conditional to accelerating environmental regualtions and mileage conditions they have to meet. If they dont meet it, they can be penalised by extra rates of interests.

The default of auto manufacturers especially in the bonds issued ( the equity stakes have dwindled to very little value) will have an impact on the financial services world too.

The layoff of one man is a tragedy , especially when he gathers his family around the dinner table. Daddy wont be bringing home the bacon any more ,as he looks into the bright eyes of his adoring kids and wife.

The layoffs of millions of men due to shoddy economic thinking and lack of follow through in strategic impact of these actions , will be statistics. Just like Stalin said.

 

What can the average American do ? Pick up that phone, and make the call to your elected leaders to support your fellow citizens.Election time may be over , but there are still campaigns to be done.

 

(* The Author has worked with leading auto mobile manufacturers as well as with financial services companies in the past. The views expressed here are his own).

 

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