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Auto industry's woes hurt Michigan

Published: Sat, October 21, 2006 @ 12:00 a.m.

Michigan is a troubled state these days. As the U.S. economy booms, the Michigan economy sputters. Unemployment standing at 7.1 percent is almost double the national rate.
The state economy is the main thing on the minds of Michigan's voters. How they size up the way the two candidates for governor -- incumbent Gov. Jennifer Granholm and Republican challenger Dick DeVos -- will handle these economic problems will drive the outcome of the election next month.
Of course, when we're talking about the economy of Michigan, we're talking about the automobile industry. And herein lies the problem. GM and Ford are hemorrhaging and hence major job losses are occurring in the state.
What to do?
Granholm's answer is her own brand of central and industrial planning. She has cooked up a program of hundreds of millions of dollars in tax breaks and subsidies for corporations, designed to act as a tourniquet to stem the bleeding.
But this approach has never worked and won't work now. Distributing goodies, paid for by taxpayers (where else would the money come from?), may work well in the short term for the benefit of the politician making the handout.
However, the extent to which underlying economic realities and challenges are not addressed at their roots, and are obscured by government administered anesthesia, the problems not only don't get solved, but become worse.
Think about it this way.
After Eisenhower was elected president, he nominated the then CEO of General Motors, Charles Wilson, to be his Secretary of Defense.
GM's standing
Wilson gained notoriety at his confirmation hearings because he initially resisted divesting his GM stock. When he was asked if he thought there might be a conflict of interest, Wilson replied with the famous quote (although not exactly how he said it), "What's good for General Motors is good for the country."
Back then, Wilson's observation was not unreasonable. GM was a pillar and defining barometer of the U.S. economy.
In 1955, the first year that the Fortune 500 list was published, GM was number one, the largest and most profitable corporation in the United States. It had more than 50 percent market share of the U.S. automobile market.
The vitality of General Motors and the vitality of the U.S. economy were mirror images of each other.
However, today the link between GM and the national economy is tenuous, to the point of not existing.
On the Fortune 500 list of 2006, GM is a distant third, two-thirds the size of Wal-Mart in sales. Rather than being the nation's most profitable corporation, it is reporting billions in losses. GM's share of the U.S. auto market has dropped from half to a quarter. More than one in three cars sold in the United States today have brands of either Japanese or Korean manufacturers.
Yet, the U.S. economy is booming, the Dow Jones Industrial Average has just reached an all time record high, and the national unemployment rate is lower than the average of the last forty years.
One hint at what is going on may be gleaned by scanning over the top 20 companies on the Fortune 500 list in 1955 and comparing them to 2006. In 1955, the top 20 were practically all manufacturing and natural resource firms. In 2006, the 20 are filled with retailers, banks, insurance companies, and technology firms.
We're now in a different world driven by global markets, services, and technology.
Granholm is doing neither the automobile industry, nor the citizens of her state, a favor by constructing a taxpayer financed government cocoon to try and preserve the remnants of the world of the 1950's in the 21st century.
Limited government
Contrary to Granholm's moves toward government central planning, Michigan needs neutral and limited government and across the board slashing of taxes and regulation. The job of the state government is to provide basic services and protections and to get out of the way and put the responsibility of jobs and growth in the hands of entrepreneurs.
Star Parker is president of CURE, Coalition on Urban Renewal and Education and author of "White Ghetto: How Middle Class America Reflects Inner City Decay".

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