Tag Archives: Krugman

Borrow from Tomorrow: The Big Three

The first economic issue since the American election that caught the attention is the first issue to measure what “change” is about. I first wondered if I sensed an attitude which, given the promise and expectations, looks almost defeatist: risk management. Obama has expressed that he wishes the Big Three to be saved.

I guess his motivation is based on the impact the disappearance of the American-owned automobile industry would have on the people whose livelihood is directly linked, estimated to be 3 million, rather than on any amount of faith in the ability of the industry’s managers to turn things around. Does this mean that Obama is in principle willing to spend a lot more to keep them going? It’s widely accepted that a multiple of the amounts currently discussed would be required to ensure their survival.

The size of the Big Three automakers and its dependant economy was grown and maintained by another debt cycle. Car companies created or joined with financing bodies and engaged in lending practices similar to the sub-prime markets to keep the demand going: selling cars to people who could not really afford them by offering risky, high-interest loans. Now, with the trickle of money dwindling, this business model is not sustainable. Not surprisingly the car markers presented the common strategy to adjust when prompted by the US Congress: efficiency improvements and product modernisation. Only, wasn’t that what they’ve tried in the past? Why would anybody trust them to achieve it now in an even tougher environment?

Surely Obama must understand that. Still, he thinks they should be saved? Paul Krugman offers some insight: he thinks the currently discussed package should be approved, giving time to figure out what do with this industry. That sounds all very reasonable, but only makes sense if there really is something that can be done to maintain the industry.

I really didn’t expect that any proposal from the car executives would offer a solution, because they are neither capable nor positioned to make systemic changes. As far as the US auto industry is concerned, business as usual is over. They can lament the unfortunate circumstances all they want, but investment in the old vision would at best allow them to play catch up with their more successful competition. The best vision they could come up with was “me too”: they too can now produce hybrids. They cannot see beyond to the next transformational step and therefore will lose that race as well.

So what for should we keep them going? Obama hasn’t said yet, but he will have to answer. So meanwhile, I am looking for my own answer. To just keep the industry going could cost in the region of $100 billion per year (they ask now for something around 25 and experts estimate that’ll last 3 months). This changes the question to “What should be done with the money?”.

My answer: Transform large scale personal transportation.

Car companies sell us a transportation ideology. It’s personal: I own my car, allowing me to go where I want to go and when I want to go. It’s individual: hundreds of models to choose from, equipped with mod-cons making it the mobile room of my home. Driving even offers social, yet anonymous experience: I let you join my lane. I can overtake you. Yet, I never have to know you.

Now the vision has started to pale: an hour in chockablock traffic to do 20 miles trying to get to the office on time; feeling guilty knowing that you’re puffing pollutants into the atmosphere; paying through your nose for taxes, rising maintenance costs and being yo-yoed by the oil price. To top it all, it can actually be quite dangerous. The longer we continue with this philosophy of transportation, the negatives will get worse. A good time to rethink the issue.

Classical solutions to mass transportation (buses, trains, etc.) work well enough in urban and suburban areas, but they are very limited in their ability to fulfil personal requirements, hence the success of cars. Thankfully, there is a way to combine the two. The proponents of RUF (Rapid Urban Flexible) envision a system where we still own cars, but cars with the ability to join together to build small train-like units that then can travel on fast rail-like “guideways”. The advantages that this system provides are overwhelming. The car becomes your transportation unit. You still own one and you can accessorise it to your liking. Where co-ordinated mass transportation is not efficient, it allows you simply to drive. But whenever you join real traffic, you connect to other units forming a train and being guided efficiently close to your destination. There you leave the guideway and drive your car the remaining way.

The system requires a lot of new stuff! Cars will have to have the ability to be “guided”, completely controlled by automatic means, while also providing those controls to the driver. For “train rides” an electric motor is needed – not far off a hybrid. Guideways have to be built and then, the probably hardest part of it all, creating the physical controls and guidance software that ensures the system is efficient and safe.

It would be really cool though! You drive yourself where it’s fun: where there is no or little traffic. But in traffic, where it’s boring to drive, you hand over controls. Read email, watch news, last night’s soap episode, have a coffee, chat with a friend, work even if you must. Meanwhile, you no longer pollute, your car battery gets charged and you’re quicker to boot!

To realise this vision requires government-scale investment and strategic policies, that and a large-scale industry starved for something to do. So how big do you want your change to be, Mr. Obama?


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