We are faced with a choice between two alternative ways for shaping the automobile of 1990. One will place primary reliance on government industry planning. The other will rely on the dynamics of a world market.
Government-industry planning, if this is the chosen path, will be upon us by 1985. Let's assume that, by then, various regulatory programs have become mired in red tape, delay, frustration and hopeless haggling between industry and government and among the agencies themselves. Foreign car sales have grown to the point that American manufactuers and unions demand more protection. The remaianing U.S. auto manufacturers clamor for additional loan guarantees. And American auto research and development has declined to such an extent that politicians call for public investment to "reinvent the American automobile."
In consequence of all this, the president declares that the automobile crisis is the moral equivalent of war. He announces that he is sending to Congress legislation to establish an Auto Mobilization Board, made up of the chief executive officers of the remaining U.S. auto manufacturers, labor union representatives and public representatives.
The board is empowered to raise funds by issuing tax-free bonds. It uses those funds to underwrite basic automotive research, to guarantee loans to the U.S. auto industry and to promote sales of American cars abroad. The board also supersedes all regulatory agencies that deal with the automobile. It has sole authority to issue new regulations affecting auto safety, emissions, fuel economy and consumer protection. Under this authority, the board develops a coordinated 10-year plan for phasing in various standards, based upon an assessment of their overall costs and benefits, technical feasibility and the trade-offs among them. The board has authority to suspend the antitrust laws so that the auto companies can pool their resources and know-how. Finally, the board is authorized to impose import restrictions, tariffs and quotas on automobiles and parts manufactured abroad, to protect American manufacturers and workers.
By 1988 to Auto Mobilization Board is effectively managing the industry. It approves new auto designs. It acts as a central banker for the industry. It sets industry wages, hours and working conditions. It subsidizes U.S. sales abroad and protects companies against foreign competition at home.
By 1990, through its research and pooling arrangements, the board successfully launches a new model American car, incorporating the most advanced technology. Rolling down the highway on low-friction, all-plastic tires, its engine made of heat-resistant ceramic parts, achieving 100 miles per gallon on a mixture of acohol and biomass fuels, clean-burning and built for safety, with all parts fully warranted against defects, this 1990 product of government-industry planning is soon known affectionately around the world as the Uncle Samobile. It's a hot competitor in world markets and the U.S. auto industry thrives.
That's one scenario. Now for the other.
Instead of establishing the Auto Mobilization Board, the president tells the American people that the automobile crisis is no crisis at all, that they have nothing to fear but fear itself. The government will get out of the car business. No more bail-outs or loan guarantees. No import restrictions. And no additional regulations for safety, fuel economy or consumer protection. The government will, however, enforce the antitrust laws to ensure vigorous competition in the auto industry and in other related industries, such as insurance. And rather than mandate specific levels of auto emissions, the government will simply impose a sales tax on new models directly proportional to the dirtiness of the model's exhaust.
What's the result?
By 1985, with exorbitant oil prices, comsumers around the world clamor for fuel efficiency. They also demand safety, particularly because the premiums they're charged for health and liability insurance (by a newly competitive insurance industry) depend on how safely teir cars are designed. Consumers also want clean-burning cars, since the sales tax is proportional to the dirtiness of the model's exhaust emissions. And after decades of complaints about warranty performance, consumers want full warranties and inexpensive means of resolving warranty disputes.
These demands are met by an industry that looks quite different from that of today. More than three-fourths of the automobiles sold in the United States contain parts that are manufactured abroad. And at least three-fourths of the cars sold in the rest of the world contain parts manufactured in the United States. In fact, it has become meaningless to speak of an "American" or a "Japanese" automobile. That's because manufacturers with plants and equipment all over the world produce metric compatible components according to where they can be manufactured most cheaply. Workers, shareholders and customers of each company are spread over the globe.
These world manufacturers compete vigorously. Each of them has invested heavily in engineering and research and development. And these investments are beginning to pay off. Various 1990 models roll down the highways of the world on low-friction, all-plastic tires, with engines made of heat-resistant ceramic parts, achieving 100 miles per gallon on a mixture of alcohol and biomass fuels, clean-burning and built for safety, and with all parts fully warranted against defects.
Sales are brisk. New auto markets have opened in Africa and Asia; European and American markets are exanding. The U.S. auto industry, producing assorted parts and developing particular technology for all the world auto companies, thrives.
You'll note a certain similarity in outcome in those two scenarios. This is not to suggest that the choice between national planning and multinational marketing is inconsequential, but only that the "best" solution to balancing social costs and benefits of the automobile of the future is likely to be similar whether it's the government or the market doing the balancing.
The choice of process is important because it suggests radically different market organizations and political roles, each of which has consequences extending beyond the automobile industry. The choice of national planning or multinational marketing will help shape our furture attitudes toward government and nation, because each is premised on different assumptions about the proper role of government within national and international markets and about the significance of national boundaries. The choice will also have consequences for our legal rights and duties, in a manner no less profound than the way in which regulation of the automobile industry during the decade now ending has conditioned legal relationships between sellers and consumers and between the industry and the government. Finally, the choice will have important implications for tens of thousands of employees who will find themselves working for either a large, national public bureacracy or a large international private one.
I don't presume to offer guidance about which choice is preferable or what is the best mix between the two. I am sure, however, that we should undertake the choice conscientiously and carefully. And we should understand that every choice along the way -- such as whether to provide public loan guarantees for an ailing auto manufacturer -- is a firm step in one direction.