Blog: Dave LeggettThe state of modern capitalism

Dave Leggett | 5 December 2008

There were more grim statistics on the UK vehicle market yesterday, with November's car sales down by over a third on last year.

The French certainly don't mess about when it comes to government support and a scrappage scheme has just been announced.

Scrappage schemes bring forward sales and that sounds like a simple policy instrument that deserves serious consideration as a low-cost goverment support option (that also helps to clean up the parc). Is the UK's government taking note? Does a 2.5% reduction in VAT really make much difference to anything? (If you're going to cut VAT why not cut it by much more and maybe create a smaller window - imagine if they had said that just for the month of December VAT would be 0% and the consumer spending lift that would have resulted in...)

And massive interest rate reductions don't make much difference if there's no new lending going on anyway. In fact, they probably send the message that the authorities are in panic mode and lacking any creativity in terms of policy response to the looming recession. A run on the pound can't be far off.

How does a depleted car market hit aftersales? Badly, and the effects could last for the long-term according to a study by Trend Tracker. The warranty cash-cow that garages adore will necessarily be smaller in future years due to lower car markets.

I see Honda is pulling out of Formula One, which has always been an expensive hobby for carmakers. Will anyone else follow? (Actually, with the hybrid tech allowed in for the 2009 season - that should provide a power boost when overtaking - it might be an interesting season ahead.)

Over in Washington, it's interesting to see the debate unfolding over a loans package for the Detroit 3. Great theatre, but a bit uncomfortable to watch given the stakes. Which way is it swinging? I think it may be going towards a view that something needs to happen; it's loans with an overseeing czar or maybe a 'pre-packaged' Chapter 11 if necessary to try and manage the process - though it is surely a prospect that will still be viewed with alarm by many.

But recessions are notable for post-event rationalisation and much finger pointing. So, we get the politicians making hay over what's gone wrong with Detroit and how culpable the car firms' managers have been. They tap into a crude populist view that Detroit is all screwed up and now needs to get what's coming. I find that distasteful as well as wrong-headed. 

And it's the same finger pointing going on with the bankers here in England where the 'City' has all gone a bit wrong. Those bankers with their big bonuses and fancy suits (and cars) are a self-serving and irresponsible bunch who need to be controlled, the politicians moan. Maybe there's more than a grain of truth in that, but five minutes ago, before all this brown stuff hit the fan, those same bankers were being feted and fawned over and the politicians didn't want to regulate them for fear of upsetting the goose that lays golden eggs.

It's the politicians that really bug me, but I guess, as someone said, we get the politicians we deserve.

One thing I think this recession should do is cause everyone to question how modern capitalism functions and who the economy really serves. That might be a debate that is well overdue. There's a local authority in England (Essex) in the news for providing loans to local businesses that can't get funding because of the credit squeeze. That's popular, more popular than blokes in high-vis jackets endlessly resurfacing roads anyway. Perhaps fundamentals like the role of the public sector will come in for re-evaluation.

In a sense, the underlying state of modern capitalism is a consideration as pertinent to the 'bailout' (let's please not get hung up on the term, it is public money made available as a soft loan so the term isn't totally erroneous) hearings taking place in Washington as it is in the investment banks in London where security guards are issuing black plastic bags and escorting people who have done no wrong off the premises. In Detroit and London and all over the world, there are countless innocent victims out there.

What is a car company? Is it simply an economic entity that creates, through the convenient marriage of capital and labour, a product for sale in the market? Is it to be considered disspassionately as such? Or is it something more...

Myself and Mark Bursa were chatting about the situation for Detroit the other day. I found myself putting the case for the defence and we got some thoughts down on paper (below link). Well, no, not on paper exactly, but you know what I mean.

Other weighty issues compete for attention. What the heck is the bloke who played Mr Sulu in Star Trek doing in a sick-making reality TV show over here? Why'd he have to go and do that? And just what is the point of Robert Kilroy-Silk (the guy is supposed to be sitting as an elected representative in Brussels rather than eating spiders on the telly for our 'entertainment')? If ever there was a point to the perma-tanned pillock, it got up and left the room a long time ago. 

Plenty to mull over on this fine winter's morn.   

TALKING POINT: Should Congress approve a Big Three bailout?


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