Virtually no one doubts that the U.S. automobile industry is in
the deepest of trouble.
All three Detroit behemoths--General Motors, Ford, and
Chrysler--are failing badly. The fact that GM's shares are now at
their lowest since 1943 underlines its desperate plight.
Against this background, it is no surprise that politicians,
industry big guns, and lobbyists have all waded into the debate
over whether billions of taxpayers' dollars should be spent in
order to save a key industry.
It is instructive to consider the experience of other
industrialized countries that have faced similar problems of major
industries falling on hard times, along with the serious impact on
local employment levels. In particular, Britain's experience with
two major industries--shipbuilding and automobiles--shows why
governments should hesitate to provide heavy subsidies in an effort
to "save" firms with serious management and commercial problems. It
also shows that the best way to turn around areas dependent on a
crumbling industry can be to limit subsidies and encourage new
U.K. Experience with "Lame Ducks"
In the U.K., financial problems of major employers dominated the
1960s and the 1970s as many old industries, including the
automobile industry, faced profound problems. Dreadful labor
relations were one obvious element.
Political opinions were firmly split as to the way forward. Many
Conservative Party members of Parliament opposed saving the
so-called "lame ducks" (a term that a Conservative government
industry minister, John Davies, effectively patented).
In contrast, leading Labour Party members of Parliament, many of
whom represented seats directly affected, were strongly in favor of
financial support for these lame ducks.
The scenario was best demonstrated in the city of Glasgow, then
famous for its long history of shipbuilding. On the downside, 1960s
Glasgow had some of the most appalling housing in the U.K. as well
as widespread areas of dereliction, so there was great concern when
high labor costs and changes in world demand for ships threatened
the future of the city's major industry.
In 1968, five of Glasgow's leading shipbuilders--John Brown,
Charles Connell, Fairfield, Alexander Stepney, and Yarrow--were
combined into one consortium, Upper Clyde Shipbuilders (UCS).
Three years later, UCS collapsed, and the Conservative
government initially refused to bail it out. With 15,000 jobs at
stake and much media interest, ship workers staged a "work-in" that
lasted for 14 months--essentially coming to work each day even
though there was little or nothing to do.
Perhaps not surprisingly, political realities finally kicked in.
In what became an infamous U-turn, the then-Conservative government
provided £35 million (in 1972 money) in order to finance
Govan Shipbuilders, the part-successor to UCS.
And under strong government driving and financial support,
Texas-based Marathon Manufacturing Company was also prevailed upon
to buy the Clydebank shipyard.
Thatcher Weans Industry off
However, the U.K. commercial shipbuilding industry remained very
uncompetitive, especially against Far Eastern shipbuilders in Japan
and South Korea.
Faced with the prospect of providing continual subsidies to prop
up commercial shipbuilding, the new Conservative government of
Margaret Thatcher, elected in 1979, decided enough was enough.
Consequently, commercial shipbuilding was allowed to "wither on
the vine" (as some described the policy of refusing substantial
The result? Thirty-six years after the UCS work-in and following
11 years of Thatcherism, Glasgow has become a different city.
Employment is now far more services-orientated, with nearby
Silicon Glen--host to Scotland's IT industry--epitomizing the
pronounced shift in employment. Many skilled workers in the
shipyards left to work in new, growing firms, many of which were
involved in the expanding oil industry. Consequently, the city
embarked on a remarkable commercial turnaround.
The Notoriety of British Leyland
British Leyland (BL), which was the result of industry
consolidation during the 1960s, became the most famous of the
U.K.'s lame ducks with a seemingly endless need for public
From its volume production plant at Longbridge in Birmingham,
the birthplace of the U.K. motor industry, BL supported many
thousands of industry suppliers. But its products could not
effectively compete with those of Japan and other foreign
Like the automakers in Detroit, the claim was that with just a
little more government support, BL would turn the corner. But it
never did. Eventually, the BL empire, which received about
£1.4 billion of government equity between 1979 and 1983
alone, was dismembered; much of the infamous Longbridge site has
subsequently become derelict.
The payback for taxpayers from BL has been miserable, with
little of the industry remaining. Yet just as in Glasgow, the
impact on the local city turned out to be smaller than expected,
despite the ominous predictions. Modern Birmingham, now less
dependent upon the motor industry, is more diversified--and more
capable of absorbing today's major economic setbacks.
Detroit's DeLorean at Dunmurry
Equally high profile in the late 1970s were the efforts of
successive governments to create a motor industry in Northern
Ireland, when the sectarian disputes between Catholics and
Protestants were near their height and exacerbating the industrial
problems of the area.
A flamboyant former GM executive, the late John DeLorean,
promised to bring his revolutionary winged car design to Northern
Ireland, where a new factory at Dunmurry would provide some 2,000
As the hype ran seriously ahead of the reality, DeLorean's
vision crumbled, with just 9,000 cars--and many dissatisfied
customers--being produced. The whole DeLorean episode cost the U.K.
government an estimated £80 million (in 1981 money).
Detroit Awaits Key Decisions
It is against this background that key decisions will have to be
made regarding the bailing out of the Detroit-based automakers.
Certainly, the short-term case for aid seems powerful to many
people, as politicians have continuously emphasized. But major
assistance? Even if an electric car can eventually become a viable
product for mass consumption, the evidence for using large sums of
public money for long-term sector gains is less persuasive.
Indeed, in a rapidly changing world, there is a stronger case to
be made for developing and nurturing, through such policies as low
taxation and a light regulatory hand, the industries of tomorrow,
not the "lame ducks" of America's past. In the longer run, such
policies will leave the American economy better off.
Nigel Hawkins is a Director of Nigel Hawkins
Associates, a British-based policy research organization, and a
Senior Fellow of the Adam Smith Institute.