Wednesday, November 26, 2008

American Free Enterprise: RIP

It matters little what's taught in college anymore, free enterprise and capitalism haven't existed in the United States for years. Not in the sense that businesses are allowed to compete and survive in the market strictly on their own merits, creativity, and ability to compete for consumer dollars.

You don't need to be a professor or fellow at an ivy league university or institute to appreciate the demise of free enterprise. You can see the effects of government interference right in Ferndale.
City Council, at the behest of the DDA, spent valuable time June 23 considering then passing ordinances regulating the size, shape, and fees permitting a potential health risk to civilians: sandwich boards. You know, those little signs shops put on the sidewalk hoping to catch your eye with their lunch menu, specials, promotions and sales.

I'm unsure how Ferndale has survived this long without rigorous standards for sandwich boards. This must be the blight and rejuvenation the state legislature was thinking about when it wrote the laws authorizing DDAs to micro-manage.
Between this and other ordinances, millages, expanding the district to tax more business, eventually the DDA will transform Ferndale's character to be as unique and appealing as the inside of Oakland Mall.

Would the car sticking out of the second story at Wetmore's be allowed if the DDA had anything to do with it? I think not. I credit Steffie Loveless, publisher of Ferndale Friends, with the observation that the DDA is slowly removing everything that was once "authentic" Ferndale.

But back to the Big Three,
the bailouts requested from GM, Ford, Chrysler, and the UAW is a small part of the expense to government for interfering with the markets in the first place. In addition to CAFE standards, where the government tried to force manufacturers to build cars the public doesn't want to buy, there are numerous safety standards that perhaps the public ought to have voted for with their purchases rather than legislated.

Every large corporation is also a welfare agency of its own--employing people that if they weren't for fear of discrimination lawsuits would have been let-go a long time go. The same goes for minority suppliers--for fear of more government intervention and bad press from Jesse Jackson's Rainbow Coalition, the big three could have spent less time propping-up weak suppliers with preferential price and payment terms than with established suppliers.
As part of the bailout, the big three should hold a Survivor-like tribunal to vote some of its staff off the island--including management.

When I worked at Comerica there were people we all knew were unproductive by virtue of laziness or incompetence that wouldn't make it to the second episode.
The reality is such a thing isn't possible because public opinon wouldn't allow it. The only time such a move might be tolerated would be during bankruptcy--which might be one of the opportunities the big three may exploit--along with the elimination of suppliers that require too much hand-holding. The result would be a stronger staff and a stronger supply-chain.

Wonder if government interference influences the price of things or free enterprise? Ethanol is cheaper to produce from sugar cane than corn, but those quantities of sugar cane are more likely to come from Brazil than midwest corn farmers. So to make corn-based ethanol more attractive (and not just to congressmen and senators) the government subsidizes it.
And because the government doesn't think consumers are willing to pay for electronic cars at prices that reflect the cost to make them, they're offering a $7800 tax incentive to new owners.

I've already gone on record as believing embryonic stem cell (ESC) research shouldn't be illegal, but I strongly oppose any public funding for it. If ESC therapies are really as promising as its supporters claim it to be, then some entreprenurial capitalist should be funding their own development of the technology so they may profit from their patents, treatments, and medicines. Adult stem cell therapies have already proven successful without hype. Where ESC is all promise, hope, lobbying, grants, government funding and sympathetic advertisements, adult stem cells are helping people today.

One last example while I'm thinking about it. If Ferndale residents had to pay the whole cost of the totem pole at Woodward and Cambourne, would we have paid the $100,000 cost? No, but since government grants picked-up much of the cost not only did we get fragile monument for only $30,000 but we contributed to earmarks, pork, and wasteful government spending.

So, as citizens, if we think government intervention and social engineering is a good thing in commercial markets, that minimum wage should be set by law and not the market, that the government should manipulate credit-worthiness through Fredie and Fannie whether borrowers have a job or income, then we should applaud the bailouts and be anxious for more of them--because bailouts are the price we're willing to pay for feel-good public policy in commerce than free-enterprise.


  1. Sandwich boards? This threat to the aesthetic sensibilities of our rulers is an outrage up with which we cannot put!

    Good to see up, Everyone.

    Jack McHugh

  2. As to the Big Three: Capitalism without bankruptcy is like Christianity without hell. Frank Borman

    Michigan's addiction to the Auto Industry is very similar to drug addiction. The addict has lived with the addiction so long he/she cannot imagine life with out it. It doesn't matter that they always feel sick. How can we survive without it?
    Pennsylvania asked the same question with the collapse of big steel in the 60's / 70's. It was painful!!! Yes! AND that state now has a more diversified economy and stability than it had under big steel.
    Michigan is at the same point. To poor more money into several business'es at the expense of all other capitol investments in this state is lunacy. Monies that could and will grow new business and jobs. But that will never happen as long as we continue to feed the DEAD ELEPHANT in the room at everyone elses expense.
    And on a personal note, why should I subsidize UAW retirees health benifits when I can barely pay my own? Sorry guys. The UAW is a corporate interest and we should never forget that. They, like the Big 3 have outlived their business usefulness. 1 out of 3 job descriptions in the Dept. of Labor did NOT exist 25 years ago. Those jobs came into creation because of innovation and demand. Subsidizing the Big 3 is a formula for negative job growth in Michigan.
    As to the City of Ferndale. The DDA looks increasing like Robert Moses.
    "Robert Moses wasn't elected to anything. We're taught that in a democracy power comes from being elected. He had more power than anyone, and he held it for 48 years." Robert Caro
    If you don't know who he is see the Wikipedia article about him.
    Keep up the good work Tom.
    Warren Westfall

  3. Jack, here's the introduction to the sandwich board ordinance. It reminds me of Justice Potter Stewart's comment regarding the definition of pornography, "I'll know it when I see it."

    One last thing before I include the ordinance's introduction from the June 23 packet. There's a misnomer about constitutionally protected free-speech. The constitution protects citizens from congress passing laws--not Ferndale. The correct reference should have been Article 1 section III of Michigan's constitution. I was reminded of this recently while reading James Fenimore Cooper's The American Democrat.

    A. The intent of this Ordinance is to regulate the location, size, construction, repair, maintenance, and manner of display of signs and to minimize visual clutter in order to protect the public health, safety, and welfare. The requirements contained herein are intended to be content neutral.
    B. These objectives are accomplished by establishing the minimum number of regulations necessary concerning the size, placement, construction, illumination, and other aspects of
    signs in the City so as to:
    1. Recognize that the proliferation of signs is unduly distracting to motorists and nonmotorized travelers, reduces the effectiveness of signs directing and warning the public, causes confusion, reduces desired uniform traffic flow, and creates potential for accidents.
    2. Prevent signs that are potentially dangerous to the public due to structural deficiencies or disrepair.
    3. Reduce visual pollution and physical obstructions caused by a proliferation of signs which would diminish the City's image, property values and quality of life.
    4. Recognize that the principal intent of signs, to meet the purpose of these standards and serve the public interest, should be for identification of an establishment or product on the premises.
    5. Enable the public to locate goods, services and facilities without excessive difficulty and confusion by restricting the number and placement of signs.
    6. Prevent placement of signs which will conceal or obscure signs of adjacent uses.
    7. Protect the public right to receive messages, including religious, political, economic, social, philosophical and other types of information protected by the
    First Amendment of the U.S. Constitution.
    8. Prevent billboard and off-premise signs from conflicting with other allowed land uses.
    9. Maintain and improve the image of the City by encouraging signs of consistent size which are compatible with and complementary to related buildings and uses, and harmonious with their surroundings.
    10. Minimize abundance and size of signs to reduce visual clutter, motorist
    distraction, and loss of visibility.
    11. Promote public convenience.
    12. Enhance the aesthetic appearance of the City.

  4. Thank you, Warren, for your comparison of Ferndale's DDA to Robert Moses.

    If capitalism alone were at work I would heartily agree with you. But the auto companies (as in other industries) are hardly free to succeed or fail based on their own merit.

    Don't misunderstand me. Management agreed to those contracts. In retrospect the money they're losing now (though not all the UAW's fault) is far greater than what they would have lost if they simply endured the strikes back in the 70s and 80s and held-out for lower wages, flexibility, and insurance that wasn't gold-plated.

    The boards of directors of these companies are equally culpable--as are the board members of the other institutions requiring bailouts.

    I agree that from a personal perspective you can never be too rich, this perspective does not work for directors. Directors need to be engaged. One way of creating engagement, I think, would be to have directors that aren't so wealthy that their success or failure is more closely entwined with their companies'.

    For instance, if Ford represents >= 20% of my personal portfolio its success or failure has a real impact on my personal fortune. If it's only 2% of my portfolio I'm less impacted by its demise and certainly less motivated by its successes.

  5. Darn it, Warren. If forgot to post a link to an article that addressed our discussion.

    In Media Fails to Connect Dots on Bailout, Dan Kennedy writes:

    In all the reporting on the auto industry’s ills, little is said about the government as the chief cause. Politicians holler at auto executives in hearings and beat their chests in interviews, but never mention Corporate Average Fuel Economy (CAFE) mileage standards. Just like unaffordable union contracts (mentioned incredibly often by the same politicians who now wish to give the unions expanded), unchecked power wreaks the same destruction in other industries via the Employee Free Choice Act (which steals away free choice).

    Of course there is way more interference than that--both foreign and domestic. Tariffs and government support for competitors among them.