Thursday, June 4, 2009

Engineering and Freedom, Part 4

click here to read part 1 
click here to read part 2 
click here to read part 3 

The motorcar, universally emblematic of freedom, is in fact a very subtle form of social control. 

The automobile could not have achieved its dominance over society and culture without the active intervention of the state in the free market. The industry was pioneered in Detroit, U.S.A., without government assistance, but most auto companies have required direct subsidy or indirect intervention (such as trade tariffs) by the state to keep afloat, and this includes present-day American automobile makers. 

The state also subsidizes the automobile market through road and traffic infrastructure, policing, health care, insurance, and so on. The car industry thrived under the command economy, as much as the capitalist; the Lada, Trabant, Yugo and other Eastern bloc models were reputed as unreliable deathtraps, but this was true also of many of the automobiles produced in capitalist Detroit (ie. the Ford Pinto). 

In the 1970s and ‘80s, the best-quality cars came out of Japan, where the state intervened massively in the civil economy. If motorists in the United States, Europe, Japan or anywhere else, were required to pay for the actual costs of motor transport, including the expense of road infrastructure and insurance from accident, theft and so on, very few people would be able to afford an automobile. 

For decades, economists have been talking about “over-capacity” in the automobile industry, which is to say, there have long been too many cars produced for what is demanded. 

Nevertheless, dirigiste states have viewed the automobile sector as a strategic for trade and “multiplier effects” on other heavy industry. This view prevailed even in the “free market” U.S., where the federal government stepped in to save Chrysler corporation from bankruptcy in the late 1970s (and has, of course, done so again in the last year for General Motors - and Chrysler again). 

There is, no question, a mass market for automobiles, but one which could not exist without the support of the state and “society” for any length of time. In many jurisdictions, the cost of insurance for driving is directly or indirectly subsidized by the state, which entails statutory restrictions upon damage rewards in case of accidental death and injury, in order to make it affordable to many or most drivers. 

Without this subsidy, and associated legal exemptions, the expense of insurance alone would make driving prohibitive to most people. In every country, mass automobile ownership is a result of state planning and intervention. 

Automobile-manufacture is a very precarious for-profit venture, as the fate of hundreds of now-defunct car companies attests. It is estimated that in the early twentieth century in the United States, there were more than hundred automobile makers. A few years later, there were just four. Many auto firms which exist today have faced bankruptcy more than once, and would not be in business without the “charity” of government loans or straight nationalization. 

Car-making is very capital intensive, and requires economies-of-scale in order to be profitable. But this output is met with disappointing sales over even a short period of time, insolvency is inevitable. 

Due to the great operating expenses, bankruptcy can be the fate even of car companies with “popular” models, especially those considered of “good quality”, which are naturally more expensive to produce. 

Auto companies have introduced yearly “models” and invested heavily in advertising, to encourage obsolescence and “trading-up”, to keep sales artificially high. Car ownership itself is a very expensive proposition. There is not only the cost of the vehicle itself, potentially tens of thousands of dollars in the present day. There is also the cost of gasoline, insurance (even if subsidized), maintenance, and of course, depreciation, which renders the machine quite useless and need of replacement in a short few years. 

People bear these burdens, not because they can reliably use the car for its stated purpose, getting from here to there (which is in fact reliably frustrated by traffic gridlock and breakdown), but because it is a necessary prosthetic for living in the modern, engineered society. Such is the rationalization of the environment and people’s lives, that the costs of car use (and much else) is assumed as a staple expense. 

The automobile demonstrates how engineering is often inimical to social and economic liberalism. The automobile could not have reached dominant status without regulation of the market and of society by the state. It diverts material resources, both from the household and from society, that could be more use economically elsewhere. 

In fact, very few of the modern, sophisticated media of communication are economical in terms of liberal supply-and-demand theory. Joseph D’Cruz, a respected analyst of the airline industry at the University of Toronto, has said that as a business proposition, an air carrier is too risky for the rational investor. According to D’Cruz, most airline entrepreneurs have been motivated not by riches, but by a love of flight. Recently, it was calculated that, in the aggregate, the global airline industry has never made a profit

There have been profitable air carriers, but the number of unprofitable airlines has been greater. Thus, the airline industry is as massive as it is for one reason: public subsidy. Governments have chosen either to provide grants and “loans” to private airlines, or formed their own state airlines, because it is believed strategic or prestigious to have a “national carrier.” 

The airline industry is the perfect example of what is properly known as corporatism or state-capitalism. Airline entrepreneurs could rarely hope to maintain themselves as going concerns, were not governments willing to underwrite some or much of the cost of airlines for their own purposes. 

Consumers were happy, in turn, to be provided a mode of communication, the fastest yet available to humans, that only a relatively few of them could afford, if airlines were actually run like any other business. As airlines, under government ownership or protection, expanded routes, so too did a large, professional workforce develop around it. 

This workforce became unionized at every level relatively quickly, and as such, the airline pilots’, mechanics’, flight-attendants’, air-traffic controllers’ (and other) unions provided an effective lobby for the continued state subsidy of the industry itself. 

Certainly, in the last twenty years, governments throughout the world have sold off their interest in airlines, or desisted from subsidizing carriers’ business operations. Historically, the airline industry demonstrates that subsidies create their own demand, a market that can be sustained through the continued application of the subsidies. 

Unlike most sorts of economic demand, consumers of markets created by state-subsidy tend to become politicized, seeking to preserve state support by organized lobbying. Thus, airline unions throughout the world have always stood against the privatization and deregulation of airlines. The ostensive reason for this is a professed interest in public safety or technological progress. 

In fact, airline unions (like all other unions) prefer to deal with monopolistic or duopolistic concerns, which are easier to negotiate with, or taken action against, than are markets with a large number of competing players. Unions are themselves a form of monopoly, so that workforces in the markets created by the ultimate monopoly, the state, are everywhere unionized in far greater proportion than workforces in the commercial marketplace. 

If, in the past, governments had always practised laissez-faire with regard to the airline industry, there would scarcely have been an industry — beyond a few heavily populated world centres — extant today. It wasn’t that there was no demand for air travel. 

Rather, the cost of air travel itself would have been too great for most, for the convenience of moving across land and sea at a fraction of the time of any other mode of transport. Airlines are services that are also vast technological complexes, requiring the industrial-style coordination of large numbers of flying machines. As such, the great expense of operating an air carrier can easily cause it veer into unprofitability, debt and insolvency, even where business remains brisk (as was the case with Pan-American airlines of the U.S. during the 1990s, and more recently, Swiss Air). 

The airline industry stands as an exception to the rule that scale leads to cost-economies. Both Pan-Am and SA were global air carriers, and doubtless, at least several other airlines (such as American and United airlines in the U.S.) their size would also go bankrupt if all government supports were removed from them, too. On the other hand, regional airlines have been more profitable than not. 

For example, WestJet, which operates out of Calgary, Alberta, has always turned a good profit. Regional airlines tend to get into trouble when they attempt to become national or international carriers. This happened to the former Canadian Pacific airline, also headquartered in Calgary, when it transformed itself into Canadian in the 1980s, to take on Air Canada as a cross-country airline. Consumers benefited from the ruinous competition between the two airlines — until they merged, after which the ticket prices for Air Canada skyrocketed. 

Even profitable global airlines, such as British Airways, make relatively poor profits (especially when compared to their capital expenditures), and not rarely do they lose money. Airplanes are a means of global communication, but it seems that the greater in size do airlines become, the less economic sense they make. 

It is worth pondering the advice given, with regard to the aviation industry, by Warren Buffett, the “sage of Omaha” whose holding company, Berkshire Hathaway, trades stock worth hundreds of dollars more than the stock of most companies it invests in. 

Buffet said not merely that a prudent investor should have ignored the first airplane flight: he said the whole idea of air travel should have been shot down. The aircraft industry, in Buffett’s view, is not merely a bad investment. Its progress has actually destroyed capital. 

This is why the aviation industry has always been dependent on government subsidy, in one form or another. Aircraft technology itself underwent innovation, as it was used to fight both world wars. All sides had by the second World War, developed prototype jet aircraft, which underwent further development during the Cold War. Most airlines started life as government corporations. 

In the United States, airlines were not government concerns, but nevertheless depended on government subsidy in one form or another. Pan-American airlines, which started life in 1927 as a small Florida carrier, became a national concern through a monopoly charter to deliver U.S. air mail. After it became a passenger service, Pan-Am petitioned Congress for years, unsuccessfully, to be granted exclusive rights to all overseas travel from the U.S. Its main competitor, Trans-World Airlines (for years operated by the whacked-out mogul Howard Hughes) fought against such a move, but it too was dependent upon government subsidy, selling materiel to the U.S. defence department. 

The U.S. airline industry was deregulated in the 1970s, allowing foreign carriers into the American market. After not many years, both Pan-Am and T.W.A. went bankrupt — in each case, in the aftermath of an terrorist attack or catastrophic accident. Pan-American chief Juan Trippe (an aviation buff and Great War flying ace) was correct, if self-serving, to argue that competition in the airline business would be ruinous. 

In any event, aviation technology continues to be dependent on government largess, in the United States (where the main manufacturer, Boeing, has lucrative contracts with the defence establishment), and Europe, where government subsidies are not in the least controversial. 

Boeing and Airbus have designed and constructed “super-airliners” that can seat hundreds, but that have no market due to the costs involved in operating them (part of the recent economizing of the airline industry, as noted by the New Yorker, involves reducing the not only number of aircraft, but their size as well). 

The progress of the passenger aircraft into faster-than-sound travel, was entirely dependent on government subsidy, in its basic research and development (for military jet-aircraft), onto its commercial operation with the Concorde. 

Early on, the Concorde (a British-French concern) was prohibited from flying between American destinations, due to worries that the high-flying craft would damage the ozone layer, and more particularly because most U.S. airports did not have adequate runways to handle supersonic craft, and also because American aerospace firms were not as advanced as the Europeans in passenger-supersonics. In any case, the Concorde was never a successful commercial venture. 

Being too expensive for too little utility (going across the Atlantic in two hours instead of five or more), it remained luxury-symbol of the super-rich. Concorde, too, went bust after an accident in Paris in 2000. In the present day, regular air travel stands accused of contributing to the greenhouse effect, not the least by the eco-chic jet-set. Environmentalists are wont to blame free-market capitalism for pollution and global-warming. 

With the airplane, as with so many other engineered networks that cause pollution, the active intervention of the state was necessary for the technology to be developed. Politicians, reflecting public concern, have proposed taxes on air travel, as a way of discouraging “excessive” flights. That is, they intend to tax a service that people have already paid for through taxes. 

The airplane was developed mainly in order to literally destroy capital — in the two Great Wars and many others. But even in peacetime, the airplane had the effect of destroying capital, both private and public in origin, by the fact that it has never paid as a business proposition. 

Part Five of Engineering and Freedom 

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