Business | Shipping
Laissez-faire hit a bumpy road
That screeching noise is Japan's big three carmakers slamming on the brakes. Toyota, the biggest, slashed global production by 17 per cent last month. Nissan and Honda made about 5 per cent fewer vehicles in August. Given the climate, it is no wonder carmakers are cutting back.
- Financial Times
- Published: 23:56 September 28, 2008
That screeching noise is Japan's big three carmakers slamming on the brakes. Toyota, the biggest, slashed global production by 17 per cent last month. Nissan and Honda made about 5 per cent fewer vehicles in August. Given the climate, it is no wonder carmakers are cutting back.
Tight credit markets, dented consumer confidence and high gas prices all conspire to reduce demand. The US, which contributes the bulk of Japanese carmakers' profit, is obviously the worst hit. But the more recent surge in emerging markets is also looking fragile.
China, forecast to overtake the US as the biggest car market by 2015, registered a rare drop in sales last month. Investors are bailing out: Toyota's share price has lost 22 per cent year-to-date, in line with the broader market, while Nissan is down 38 per cent. Some sense of perspective is needed.
Japan's manufacturers are in nowhere near as bad a position as their US peers, with none of the associated legacy costs, and are certainly in no need of state largesse.
Incentives
The Japanese have joined their peers in offering incentives. Higher provisions taken against the falling value of leased cars coming back to dealers are an additional burden. Taken together, there is a strong possibility that full-year earnings will be whittled back. Even at current levels, it would take a brave investor to jump aboard the Japanese carmakers. End of laissez-faire?
England, commented John Stuart Mill, the father of British liberalism, "is the ballast of Europe, France is its sail". If that were true today, then Europe would be headed towards the end of laissez faire capitalism.
Take Nicolas Sarkozy, the latest leader to toll the bell on principles that have delivered, over the past 30 years, unparalleled global prosperity - and now a tremendous bust. "The all-powerful market which is always right is finished," Sarkozy said. Even Hank Paulson has said "raw capitalism is a dead end".
Before everyone dons Mao suits, let it be noted that it is not clear how raw this all-powerful capitalism really was. The market was fuelled by the central bank-filled punchbowl of cheap credit and underwritten by the existence of the Greenspan "put". This promise of rate cuts in an emergency has now crystallised into a systemic bailout.
Financial industries
The Paulson plan is not "trickle-down communism", as some critics on the right suggest. No country has ever managed a serious banking crisis without government intervention. Even with a few nationalisations and creeping government by fiat, property rights remain largely secure. Still, the financial industries of London and New York will inevitably shrink. The leverage - and profits - needed to sustain them have gone. But that does not mean financial capitalism is itself dead or that Sarkozy, dirigiste by nature, should be seen as an impartial commentator.
The French state's role in the economy was hardly waning in the run-up to the credit crunch: the country's budget deficit is again set to bust its Maastricht limits. We have been here before. F. Scott Fitzgerald described the 1929 crash as "the most expensive orgy in history".
Yet, two years later, his belt pulled tight, Fitzgerald felt nostalgic for the Jazz Age when people lived with the "insouciance of Grand Dukes and the morality of call girls". It was 50 years before financial capitalism fully returned. The doctrine of laissez-faire has survived worse and will again.
No wonder Silvio Berlusconi has retreated to a beauty farm in the Umbrian hills. Both Air France and Lufthansa appear interested in taking a minority stake of Alitalia. Sadly, the pilots still refuse to sign on. Full marks to them for consistency: zero for realism.
- Financial Times
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