gjk@talcott.UUCP (Greg Kuperberg) (02/14/85)
It appears that Tim Sevener is a strong opponent of capitalism. As best I
can tell, he feels that even with the current anti-trust laws, large
corporations tend to form oligopolies and effectively control the market
anyway. Lastly, rather than suggesting some way to strengthen the anti-
trust laws, he feels that meaningful competition is inherently unattainable
in the private sector, and that socialism is the right answer.
Although he feels that these criticisms still apply today, Mr. Sevener's
favorite example is Standard Oil. Of course, this company was no longer a
monopoly after the anti-trust laws at the beginning of this century.
Neverthless, he offers the oligopoly, or "conspiracy" theory, as an
explanation for unemployment today, especially in the auto industry. He
maintains that because there is too little competition, cars are overpriced
(to maximize profit) and therefore undersold, thus lowering the demand for
labor in the automobile industry.
So, the question remains, are GM, Ford, and Chrysler in cahootz with each
other? And are cars really undersold in the US? I maintain that the
answer is a clear no.
First, the automobile market in the US is clearly saturated. There is more
than one car for every two people in the US, one of the highest figures in
the world, and even one of the highest figures in the wealthy West. If
US cars are overpriced, then Americans will buy Japanese or West German cars
instead, as they are indeed doing in increasing numbers. Therefore raising
the price of US cars hurts US companies, and big time.
Secondly, in a monopolized or oligopolized market, there is not much need
for advertising, since advertising is a sign of heavy competition. A quick
glance at the boob tube should convince anyone that advertising, auto
advertising in particular, is going strong. A quick look at an Almanac
shows that GM, Ford, and Chrysler indeed spend lots of money on
advertising.
Finally, in a monopolized market, companies make large profits, and have
little fear of going bankrupt, especially since the market is more
predictable and stable. Well, surely Mr. Sevener remembers a certain
above-mentioned auto company which was on the brink of bankruptcy until a
certain government bailed it out. Surely if an auto company cannot prevent
itself from going broke, it is not part of an oligopoly.
So why do we have unemployment in the auto industry? And why are American
cars overpriced? Well, let's look at the price breakdown of a the average
small car:
Costs per Small Car
Ford GM Toyota Nissan
Labor $1848 $1826 $ 620 $ 593
Purchased Components
and Material 3650 3405 2858 2858
Other Manufacturing Costs 650 730 350 350
Nonmanufacturing Costs* 350 325 1100 1200
Total 6498 6286 4928 5001
*Nonmanufacturing costs include ocean freight for Japanese cars.
Source: Industrial Renaissance, by William J. Abernathy, Kim B. Clark, and
Alan Kantrow
So, our big disadvantage is due to labor costs. One might argue that
American plants are much more inefficient and therefore that American cars
require more labor than Japanese cars. Let's look at how much labor is
needed for each car for the same four companies:
Employee hours per Small Car 84 83 53 51
At first glance, the argument is correct: Our plants are less efficient
than Japanese plants. But wait! While hours worked per small car is 50%
higher for U.S. firms than it is for Japanese companies, total labor costs
are THREE TIMES as high in the U.S. Let's zero in on employee wages:
U.S. Japan
Standard Wage
(base-pay, vaction pay, etc.) $22210 $10349
Bonus --- 4820
Allowances & Overtime 1306 3517
Fringe Benefits 8884 2177
Total $32400 $20863
Average Hours worked per Year 1620 1850
Total Cost Per Hour Worked $20.00 $11.28
So the fact of the matter is that American workers get paid a hell of a lot
more than Japenese workers. Ah, but wait! There is in fact an institution
specifically devoted getting higher pay and more fringe benefits for
American workers. Lo and behold, it's a monopoly! Not just an oligopoly,
not some behind-the-scenes conspiracy, but a genuine, legal, monopoly!
Thus the explanation for unemployment is the old-fashioned, obvious one:
Labor isn't being bought because it costs too much. One could at this
point argue that even though unions are a problem, the fact remains that
our factories are less efficient. But I challenge that also. If unions
have been this successful in increases wages, are they not also successful
in lowering demands on workers, i.e. lowering worker productivity? Is it
not possible that not only are our workers more greedy, but also more lazy?
In short, there is a monopoly in Detroit, and it is main cause of the
plight of our auto industry. But its name is not GM, Ford, or Chrysler.
---
Greg Kuperberg
harvard!talcott!gjk
"I believe that Ronald Reagan can make this country what it once was: an
Arctic wasteland, covered with ice." -Steve Martin