Wilberne Persaud, Financial Gleaner Columnist

Less than a month ago, James Farley, Ford Motor Company's vice-president for sales and communications, was not worried about the falling demand that United States (US) automakers faced.

Ford was not, he said, targeting 'never, never' customers for its hottest selling vehicle, the F150.

What did he mean by 'never, never' customer - drivers who have never hauled, never towed anything with their truck, the macho driver buying the muscle image the big vehicle generates, but creating no tangible value or output through its use?

Ford was buoyed by the idea that true contractors, plum-bers, painters, car-penters and mechanics would maintain demand for their trucks. They after all need the vehicle to accomplish tasks, work and earn their living. This might be true, but what of the impact of the con-tracting economy? Who hires them?

All-time low

GM stock this week hit an all-time low of less that $3 per share. Ford's was of the same order. Leaked information about President-elect Barack Obama's private conversation with President Bush suggests the new administration currently favours support for the US auto industry.

Failure would mean millions of jobs lost and guarantee a recession that would run deep.

Another alarming number reported by the BBC came to light today - the daily rate for use of containerised shipping fell from $234,000 to $4,000 per day. This rate is associated with shipping raw materials.

The bottom has dropped out of the market.

There are hardly any indicators, what economists call 'autonomous' positive signs, in the international economy. Autonomous is used in this context to denote decisions made in the private economy based on expectations of benefit from those decisions in and of themselves - ultimately, expected profits.

Government bail-out

The positive signs all come from governments' attempts at containing the deluge.

Among these are Washington's decision to bail out Wall Street, Nancy Pelosi's and Harry Reid's intent to support US automakers, Gordon Brown and the United Kingdom (UK) Parliament's decision to purchase preferred shares in British banks, China's decision to provide US$586 billion to support domestic demand.

These policy decisions are all necessary to avoid global depression. Should they be improperly implemented, however, they will do long-term harm to the global economy and perhaps even fail to achieve their lofty objective.

Why? Take for instance the problem of the US auto industry. Its perilous state can be dropped at the door of misguided short-term policies aimed at sup-porting the industry itself.

Detroit spent enormous sums lobbying to forestall fuel efficiency standards that propped up demand for gas-guzzlers, ensuring a profitable, but doomed business model.

Effectively, this was an attempt to defeat the process of innovation that must remain at the centre of capitalist growth.

Business model changes

If US congressional sup-port for the industry simply provides cash and main-taining the current business model, the effect will merely postpone the inevitable and will fail in the near term. If, on the other hand, support requires fundamental change based on innovation, it will succeed. The way to achieve this is, therefore, to provide support with the requirement that the business model changes.

Relative to the financial bailout some disturbing facts have recently emerged. Tax rules were altered in late September, says the Washington Post's Amit Paley, by the US Treasury Department's issue of a "five-sentence notice that attracted almost no public attention".

Stretching public confidence

It had the effect of giving "American banks a windfall of as much as US$140 billion. The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bail-out bill. When they found out, some legislators were furious."

Actions like these stretch public confidence at a time that is most inappropriate. Some congressional staff members also privately argue that the notice was illegal.

This has now been followed by Secretary of the Treasury Henry Paulson indicating that the bail-out will no longer be centred on buying up toxic debt, but rather shares in the institutions. This is the UK solution and perhaps the best structure to make the desired impact with equity for the taxpayer.

Regardless of the quality of spin placed upon it, government intervention in these high-powered centres of the real and financial economy is necessary. The question is how this government 'financial power' will be used.

The rule should be 'stabilise, rehabilitate and evacuate!' While all this is being done Wall Street's regulatory system must be revamped. So too must international monetary arrangements rendered obsolete by developments.

What of Jamaica in all this? How do we deal with the gas-guzzlers moving one man at nine miles to the gallon? How about our international debt in face of shrinkage in what used to be buoyant capital flows seeking higher rates? What of those goals of expanded employment? Hard choices beckon, unhappily not from afar.

A September 16, 2008 file photo shows General Motors Renaissance Center headquarters building in Detroit, Michigan. President-elect Obama, when he met with President Bush at the White House on Monday, November 10, urged Bush to support aid for struggling automakers and lawmakers have begun drafting legislation that would give General Motors, Ford and Chrysler access to US$25 billion. - AP

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