Mandelson’s car industry plan: the case for joined up Keynesianism

Posted on Wednesday 28 January, 2009
Filed Under Economics

 


IF YOU want one statistic that neatly summarises the impact of the credit crunch on the non-banking classes, try this one; the number of new car sales in Britain last month was down 47.5% on December 2007.

Few people can stump up the money to buy a vehicle without access to finance, and loans are increasingly hard to come by. Anyone who has read a basic economics textbook knows what happens next. When aggregate demand declines, so does production and so does investment, with the impact of the reduced spending dramatically increased through the multiplier effect.

Little wonder, then, that the UK car industry is trouble. Jaguar Land Rover, Vauxhall, Honda, Toyota, Nissan, Bentley, Mini and Ford; all have been forced to cut output, reduce working time, and in some cases axe jobs. Components manufacturer GKN has laid off thousands.

Cue the government’s lifeline package for the sector, unveiled yesterday. After the tens of billions so readily made available to prop up the banks, the first point to note is its extraordinarily small scale of the endeavour, which renders it almost pointless.

Lord Mandelson is insistent that the move should not been seen as a bailout – very Old Labour word, that – and he is certainly right there. Essentially, the bulk of the £2.3bn headline figure is not even cash up front, but comes in the form of guaranteeing that amount in loans from the European Investment Bank and others.

That will at least provide liquidity, and hopefully help with the development of more eco-friendly vehicles. Good. But it still leaves motor manufacturers with the basic problem that they are producing products that not enough people can afford to buy. This is, in other words, a clear manifestation of what Marxists rightly call a crisis of overproduction.

Thanks for the gesture, Mandy, but – at less than one-tenth of what was spent on the £25bn rescue of Northern Rock this time last year – a gesture is all the move can rightly be said to constitute.

No wonder Tony Woodley of Unite, the main union in motor manufacturing, spoke of the ‘massive disappointment to the tens of thousands of workers employed in or dependent on this vital industry.’

Obviously it is not the left’s job to demand freebie state handouts for private capitalist companies. Any loans should be paid back, and if cash is to be injected, at the very least it should be in return for an equity stake.

But to limit government intervention to supply side measures, as the business secretary has effectively done in this instance, is clearly hopeless. Instead of coming up with a series of piecemeal as-and-when assistance plans, sector by sector, the priority should be to deliver a co-ordinated massive fiscal stimulus across the entire UK economy.

If the government is going to do Keynesianism – and any responsible government of any party should be doing Keynesianism in the current situation – it should at least do joined up Keynesianism.


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Comments

8 Responses to “Mandelson’s car industry plan: the case for joined up Keynesianism”

  1. CharlieMcmenamin
    on January 28th, 2009 at 17:48

    Well, OK, yes to all that. But isn’t the Left’s own cupboard a bit bare at the moment in terms of immediate, practical policies?

    “Joined up Keynesianism?” Yeah, I’d be up for that. But the only half way coherent programme on offer seems to be the so called Green New Deal promoted by NEF, and even that is basically simply an outline as far as I can see.9 which certainly isn’t to say it should be tried – just that there’s an awful lot of detail to work out….)

    In any case, finding the political imagination and strength of purpose to properly carry out a full hearted reflationary Keynesian programme is surely only a third of the problem in hand. A second, just as important, question is how to restructure the national economy so that we move away from our disastrous dependency on the financial sector. What is it we’re all going to do for work now our role as Wall St’s semi-regulated shadow banking ‘offshore island’ seem to be coming to an end?

    & whilst I agree the depth of the crisis means any responsible government would take steps to prop up the car industry at this point in the long long, surely, we must be aiming to downsize it on ecological grounds? So the third key issue of industrial and economic policy must be finding a way of promoting a ‘just transition’ to a lower carbon economy.

    Oh – and I’d like better funded public services, workplace democracy and greater social and financial equality as well.

  2. Sue R
    on January 28th, 2009 at 20:15

    Is there a defence fund for your libel case?

  3. Lola
    on January 28th, 2009 at 23:48

    Do Keynsianism and you get inflation. Get inflation and you get wealth destruction. Get wealth destruction and you get unemployment. Are you sure you want Kenynes?

    BTW very sympathetic with the court case thingy. Anything I can do?

  4. Idle Pen Pusher
    on January 29th, 2009 at 03:02

    Could someone kindly explain to my why my purchasing power should be reduced in order to part-fund someone else’s car purchase? (plus any administration costs the government needs to administer it)

  5. Richard Harris
    on January 29th, 2009 at 10:51

    “BTW very sympathetic with the court case thingy. Anything I can do?”

    Me too David ~ you shouldn’t have to put up with that carp for stating the b.obvious and your blog is required reading…even if I do shout at you at times!

    KEEP US ALL INFORMED.

    VERY BEST ~ Richard Harris,Wales ~ Land of Coltrane.

  6. John Meredith
    on January 29th, 2009 at 11:20

    Are car loans really getting harder to find? I am being bombarded with loan offers and I am far from wealthy. In fact I have been in debt more or less for the last ten years. Also, car makers offer loans on expensive terms which are easy enough to get, if you are employed. Isn’t it more likely that people are holding off because they don’t want to make such a large financial commitment in such uncertain times? That won’t be helped by Kenseyianism.

  7. john
    on January 29th, 2009 at 12:12

    Lola,

    ”Do Keynsianism and you get inflation.”

    The biggest problem we face at the moment is DEFLATION and possibly a DEPRESSION.!

    Dave, all the best in your court case, if you do set up a defence fund I will throw in a few quid.

  8. Guano
    on January 29th, 2009 at 12:52

    The car industry is producing a product that doesn’t have a future, but there are many useful skills involved in the industry. Letting the industry go to the wall could mean the loss of those skills. Supporting the industry could mean the continued production of products that don’t have a future (and the owners of the industry would probably prefer to find ways of persuading us to buy and support a product that doesn’t have a future rather than using those skills for society’s future needs. Discussing the pros and cons of Keynsianism doesn’t take us any further forward with these issues.