We were in the middle of nowhere, but all around our little town, land was being chewed up to build golf courses that offered memberships primarily to businessmen from Okayama and Osaka, cities that were each a multi-hour ferry and train ride away. The cost of membership ran in the hundreds of thousands of dollars, and there was a long waiting list.
It didn't last.
The trouble with the Japanese miracle was that its basis wasn't management superiority -- though the country had some of the most admired companies in the world, including Toyota(NYSE: TM) and Sony (NYSE: SNE). Rather, the miracle in Japan was based upon over-loaning from the government to industrial conglomerates, which led, inevitably, to a bubble.
Unfortunately, the aftereffects of the Japanese bubble persist to this day, and they have deep implications as the American government considers making bailout loans to the Big Three:General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler.
Why Japan continues to fail?
In late 1989 the Nikkei 225, Japan's leading stock index, hit an intraday high of 38,957. Today, 19 years later, it's at 8,800. This multi-decade loss speaks to two things -- one, just how out of control Japan's asset bubble was, and two, for the sake of maintaining jobs, the Japanese government has not made the hard decisions that would have allowed the country to grow.
In the aftermath of the bubble, Japan's government rushed in to prop up its banking system, which was teetering under the weight of nonperforming loans. Rather than letting businesses fail, this has had the effect of propping them up to continue operating. To this day the scope of the problem is still not known.
Without this information, investors both in Japan and outside have made a logical conclusion -- to take their investment dollars elsewhere. Japan's industrial sector has failed to meet its cost of capital over the last 20 years, in large measure because the government has allowed capital-destroying companies to continue to operate. Had these companies been allowed to fail, Japan long ago could have flushed out its system and gotten back on the road to economic health. In the name of protecting jobs, Japan's economy has continued to sputter, punctuated by spectacular bankruptcies in cases where the facade could not hold up. The cost of propping them up has been much, much more economic pain. Japanese call the long economic downturn ushinawareta junen, the lost decade.
Sure, but it's not your job we're talking about.
As I look at the pressure being placed on the U.S. government to bail out or even nationalize American auto manufacturers, I see the same faulty logic being used. So desperate is the government to protect these jobs and these massive companies that it is willing to spend taxpayer money to keep Detroit afloat. It might be a good use of capital if the Big Three were thriving companies that had simply suffered from exogenous events that they'd reacted to improperly. But they aren't. These companies are sick and dying, and they have not generated a positive capital return in decades.
It's not as if this were an unpredictable outcome, as I noted in 2003 when GM raised $13 billion in debt to shore up its pension system. To what end would we bail out these companies? To keep them from collapsing? Wake up -- they have already collapsed.
The "end," of course, would be to keep thousands of jobs, particularly in Michigan and Indiana, from disappearing, to keep pensioners from being mauled at a point in their lives when they cannot afford it. These are loyal, good company people. What is happening at the Big Three affects them deeply, and it is both unfair and cruel. To think otherwise would be inhumane. I have some experience here, as my own grandfather's pension withered away as the textile company he devoted his life to collapsed, in no small part because it refused to relocate its factories to cheaper places.
But economic growth only comes when capital is allowed to flow to its most productive uses. I am very sorry, but propping up Detroit's dinosaurs is not productive. They have destroyed capital for a generation. They have too much debt, they have above-market labor costs, they have shown minimal aptitude at developing automobiles that people want to buy at prices that allow the companies to turn a profit. They are losing to Toyota and Honda (NYSE: HMC). Their parts suppliers are, as a group, collapsing, with Dana Holding Corporation (NYSE:DAN) and Visteon (NYSE: VC) teetering on the precipice.
Pain delayed is not pain avoided.
There are no good answers here -- none at all. Whichever way we go, there is going to be substantial pain in the American auto industry. But a government bailout of recidivist capital destroyers is a particularly bad idea, as it perpetuates the destruction, and delays capital formation for more productive uses. It is a bitter, bitter pill. Better to let the Big Three take their medicine, attempt to reorganize in bankruptcy and attempt to emerge anew as smaller, more nimble competitors.
At a minimum, it helps keep the Japan scenario off the table. It's been easy to see that the political decisions made in Japan to protect companies and jobs have been destructive. I've often thought that one of the reasons American capitalism is superior is our willingness to allow companies to fail. Now I'm not so sure.
發表於 2009-3-21 15:24:18