As I watch the news of Detroit’s CEOs begging for billions more from Uncle Sam, I wondered how many people remember the automotive bailouts of yesteryear that failed. I remember as a child watching Lee Iacocca beg bureaucrats successfully for $1.5B. Apparently this original bail out didn’t work as they’re now asking for even more handouts. Iacocca, now refusing most interviews is apparently somewhat embarrassed by the fact that his original hand-out turned into welfare for Germany’s Daimler-Benz, who purchased Chrysler, and then spun them off, now asking for more government dole. I’m not terribly fond of conservative publications, but it turns out that in 1983, The Heritage Foundation seems to agree that the original Chrysler bailout failed. It seems that only a rich country with attention-deficit-disorder (ADD) could proceed shamelessly to ignore the failed bailouts of the past and chase good money after bad.
I recently took a trip to India. Every trip to a developing country like India reminds me just how distorted are our US and European mental models of labor. Low quality, poor design and high wages from Detroit are certainly a part of their woes. For example, the UAW’s typical worker in 2006 earned $32/hour, artificially inflated by Unions backed by the Government’s Department of Labor. We’ve grown up in government schools, and our careers shaped by companies in labor markets that are anything but free. This is the case even where Unions aren’t involved. The various US or EU barriers to skilled people traversing borders increases labor costs far above what they would otherwise be in a free market.
The Indian example provides poignant lessons. In just a few years, India will have more people available for work than any other country. Thousands have become successful business people in Silicon Valley, both in San Jose (US) and Bangalore (India). Let’s consider educated Indians in a different industry that is also hampered by US regulations and red tape. Americans, so dissatisfied with the state of US education, are already outsourcing their tutoring to Indian teachers, like TutorVista, according to the New York Times. Tutorvista charges $25/week for tutoring, or $800 for an entire year, with unlimited sessions with expert teachers. These Indian educators speak english, and the going wage rate for an entry-level High School teacher in India, according to the compensation website payscale.com, was 120,000 Rupees, which in US dollars is less than 3,000 per year, using yahoo’s currency converter. Indian teachers of primary schools start at even less – 96,000 Rupees. Indian teachers are mobile, and starting to migrate to the US, where they’re able to start making $27,000 to $35,000 US dollars (1.6 Million Ruppees). Sure, the cost of living is higher in the US, but it begs the question – if it weren’t for government barriers to good teachers coming to the US, we could have a significantly larger supply of good teachers willing to work for less. I’m sure not all Indian teachers are fully effective, but what if we could screen teachers like we do others, and hire the best at a wage premium to Indian labor rates? In a frail economy, where US education is poor by global standards, increasing the supply of low-cost, high quality teachers seems like it should be a good thing – to increase investments in human capital that will pay off future dividends. But I’m sure that’s not politically popular with the powerful Teachers Unions.
Let’s go back to the automotive industry. India’s Tata motors famously is now producing a $2,000 car for global sales. They did this without Indian government bailouts, but have had their own fair share of Union and political barriers to initially launching their operations in West Bengal, and now Gujarat. Do you think Tata could have done that with UAW’s wage rates, and restrictive work rules? When will our governments, unions and other power-mongers get out of the way of free people who just want to make a better life for themselves, help children get better educations; and allow poor people to buy an affordable car?