Monday, February 19, 2007

Driving Performance

- a conservative conspiracy in Detroit
My latest "Speculator Column" from
Investor Relations magazine

The New Year is not just a time for making Resolutions on the lines "Aggh, I'll never mix rum and champagne again." It is also a time to look back so that we can inform our future through the lessons of the past.

As the old year shuffled off two of the free market's biggest proponents resurfaced when British Prime Minister Margaret Thatcher praised her recently dead chum Augusto Pinochet, self appointed President of Chile.

These two were of course the grand panjandrums of privatization, Pinochet famously privatized the Chilean pension system and Thatcher, in the oft-repeated erroneous words of the New York Times, "privatized the loss making state industries."
But Pinochet's military and police resolutely refused to have their own pension schemes privatized, which, since they were running the country which could have been taken as a wink and nudge by the wise. And most of the state owned industries that Thatcher sold were making huge profits, which is why everyone was so eager to buy them. In those days, BP, originally nationalized by that firebrand socialist Winston Churchill, not only made big money for the British Treasury, it did so without blowing up Texas and leaking on Alaska.

The afterlives of the biggest projects of Thatcher and Pinochet also returned for a quick haunt at the end of the year.

First, the New York Times had an editorial warning that the Chile's pension schemes were facing disaster, because half or more of them could not promise their prospective pensioners even the minimum living standards.

Across the Atlantic, the UK's staunchly conservative Daily Telegraph lamented how business investment in Britain was at risk because of the poor state of British utilities: electricity, gas, telephone and water connections were inefficient, businessmen complained. The Telegraph did not mention that these were the first industries that Mrs T had privatized, nor that they were now celebrating their first quarter century of profit-taking lack of infrastructural investment.

But she was never the free market ideologue that was claimed. Rather she was a ruthless and accomplished politician who was trying to lock in her party's victory. By selling deeply discounted shares in state industries to consumers, and selling off municipal housing to its tenants, she raised a pot of capital that let her hold off on tax increases-and, she hoped, created a whole constituency of anti-socialist working class voters.

Selling off the state industries was a move to break the power of the unions, because, not only were they a source of opposition, which she never took kindly to, but because they bankrolled the Labour Party, which she wanted to cripple.

Of course, in the US, the strongest unions in the private sector are the autoworkers, who fund the Democrats. One can only speculate, but is it possible that long term GOP coddling of the big three in Detroit has a similar agenda inspired by Thatcher's example?

By giving huge tax breaks to Detroit to build gas-guzzling SUV's, they have been locked immovably into heavy capital investment in truck-beds that have all the commercial future of a dinosaur squinting at a plummeting meteor. Any analyst can see where fuel prices were going, but Congress has held back on any stringent MPG restrictions. Foreign car makers, where the unions do not have a stranglehold, are coming into the US and making smaller, more efficient and sellable vehicles.

Could the misguiding coddling of Detroit be intended to lead to the US auto industry to auto destruct, taking with it the UAW funding for the Democrats?

Not for reproduction without permission from Cross Border Publications

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