Thursday, November 20, 2008

The Business of Business is Business

So the Big Three car manufacturers flew their private jets to Washington to ask for a handout. It may seem like delicious irony, highlighting the excesses of these corporate fat cats and condemning the notions of capitalism to a long overdue death.

But it isn't. These companies, car manufacturers in the US, Malaysia, Australia etc. have not been businesses for a long time. They are work for the dole schemes in massive scale, they are completely protectionist in their business model.

Basically capatalism works thus -

1. You identify a need of society - transport.
2. You refine the need into your nieche market - automobile.
3. You determine a competitive advantage - price, product, promotion or placement.
4. You obtain suppliers and negotiate price - cost of goods sold (cogs)
5. You rent or purchase or construct a premisis - factory overheads
6. You hire the labour necessary to get the job done - workers
7. You create a good or service - the car
8. You sell it at a price that reflects the value your product provides to society - gross profit.
9. The government comes and takes a share of your efforts - net profit.

That's business. When you have a business where you sell your goods to society at a price that does not generate a gross profit, you aren't a business you are a financial black hole.
Now some of the shit, like building a factory is a fixed cost that will diminish in significance to the profits over time but may result upfront in large losses.
But to have that ongoing means that society on the whole just doesn't value your product that much.
You aren't fulfilling a need that is sufficient to to get your customers to cough up the dough that you need to make a living.
Society may value the good you produce, they may just not value the fact that you are producing it.
Much like people may really need and value heart surgery. But they aren't going to pay ME to do it for them. Infact they might insist that someone like ME is thrown in jail if I try to perform heart surgery.

The repurcussions of manufacturing job losses will hurt, for awhile. It's a bigger problem because of structural unemployment, which incidentally is why it's so hard for someone from a poor country to migrate here with no real qualifications. It is hypocritical of our government in fact to 'support' manufacturing jobs domestically but not want more manufacturing workers.
Maybe I could accept an answer that was like 'We will bail you out, on the condition that you don't hire any new people.' that way they can avert job losses, and in ten years there may be no people left to lose their jobs.
The problem of saying a company has 12 years to get financially viable is because it encourages the notion that it is acceptable for our citizens to seek these unsustainable and currently unviable jobs.

If the Australian tax payer really valued Australian manufacturing jobs, they would happily pay the premium for Australian manufactured cars. So instead of asking for government hand outs, put your fucking prices up and let consumers vote with their feet.

Some quotes on the issue:

Henry Ford - 'every time I ask for a pair of hands it comes with a brain attached'
Alfred P. Sloan Jr. - 'The business of business is business.'
Lee Iacocca - 'Boys, there ain't no free lunches in this country. And don't go spending your whole life commiserating that you got the raw deals. You've got to say, I think that if I keep working at this and want it bad enough I can have it. It's called perseverance.'

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