The Opel/GM Crisis as Pars pro Toto

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The current international economic-financial crisis has not indiscriminately flattened out macroeconomic and manufacturing conditions across the globe. Crisis conditions differ and the pathways for recovery out of crisis will differ in national economies and regional combines. American “stimulus” policies are certainly no model for the rest of the world. The traffic signs on the road to recovery are policies based on concerted state and private efforts for technological innovation, science and education, and modernizing hard and soft infrastructures.
By Michael Liebig


Along the river Rhine, the carnival season is over. Not surprisingly, the bankers were the prime target of the carnivalists’ derision. And, as in every carnival season, people did enjoy themselves. But, the economic situation is sobering: Germany is in a recession. So far, unemployment (8%) has only mildly increased, but an estimated 400.000 people are on “short work”.

Some 20 kilometer from the carnival stronghold Mainz, the town of Ruesselsheim is located. In effect, Ruesselsheim “is” Opel with 25.000 employees. In 1929, Opel was about to go bankrupt when it was bought up by General Motors. Now, 80 years later, it is the other way around. GM is about to go bankrupt with a net loss of $31 billion in 2008, in spite of a $14 billion capital injection by the US government.

If Opel is to survive, it has to be separated from GM. Opel is, essentially, in a healthy condition. Opel has world-class automotive engineering capabilities and makes competitive small and medium-sized cars, which also sell. GM depends on Opel’s technology and sells Opel-designed cars under different brand names all over the world. To illustrate the GM-Opel relationship: GM has transferred all Opel patents to a shell company in the United States, forcing Opel to pay license fees for Opel-made technologies.

On February 26, there was mass rally of Opel workers in Ruesselsheim. Their central demand was: Opel must “decouple” from GM and become an independent European firm. The rally was addressed by leaders of the IG Metall trade union and Foreign Minister Steinmeier who is also the socialdemocratic candidate for the office of Chancellor for the German parliamentary (Bundestag) elections next September.

On February 27, the GM-appointed Opel management announced that GM is willing to transform Opel into an European corporation and to sell 50% of its capital stock. National and regional governments in Germany and in other countries where Opel plants are located have signalled that theiy are interested to become stakeholders in a new, European Opel firm, the same goes for the Association of European Opel Dealers. But they will only do so if New Opel will be independent and GM’s role will be limited to a minority stake.

Pars pro Toto

The case of GM/Opel demonstrates that even within a “globalized”, transnational corporation “things are not the same everywhere.” And, of course, the same is true for the world economy – under both “boom” and “bust” conditions. During the past 15 years or so, globalization has not been the “great equalizer”: While some economies were shrinking, others were growing stronger. And the current international economic-financial crisis is not indiscriminately flattening out macroeconomic and manufacturing disparities across the globe.

This should be taken into account when looking at the Anglo-American and European media lumping together the quite different conditions of leading economies across the globe. According to the media narrative, the crisis is a priori a global one, allgedly “erupting” simultanously all over the world. No place to run, no place to hide. To squash simmering doubts, a daily staccato of economic horror news from all corners of the globe is being spread around. Happily, we are being told, the Obama administration in the United States has taken the lead against the global economic by taking “aggressive actions” to stimulate the American economy and to consolidate the US financial system.

Of course, the narrative of an a-priori “global crisis” is an attempt to deflect from the actual origins and causes of the crisis in the United States. This is the attempt to protect the “US stewardship for the global economy,” as Admiral Denis Blair, the new Director of National Intelligence (DNI) put it on February 13. And it is an attempt to line up the rest of the world behind a blurred and misguided “stimulus” policy in Washington.

The American “stimulus” policy, translating into a $1,750 billion budget deficit for 2009, has no clear focus on strengthening the manufacturing sector and its symbiotic services. The “stimulus” package is not focussed on scienctific-technological innovation and infrastructure modernisation. Its main purpose is to slow down job losses which amounted to 3.572 million between January 2008 and January 2009 – and to contain a dramatic slump in consumer spending. Since October 2008, the US government has allocated $950 billion for the US banking sector. At the same time, the Federal Reserve has already become the “bad bank” for the US banking sector. During the past three months, the Fed bought more than a trillion dollar of toxic – illiquid or worthless – “assets” from the banks.

Certainly, this “stimulus” policy should not be a model to be followed by the rest of the world. Crisis conditions differ and the pathways of recovery from the crisis will differ in various national economies and regional combines. An all-embracing “one-size-fits-all” approach for recovery of the world economy won’t happen – and it wouldn’t work.

The Case of China.

In the January 24, 2009 Letter from the Rhine, I mentioned an article by Neue Zuercher Zeitung’s Tokyo correspondent, Urs Schoettli, on the role of the Anglo-American “merchants of hysteria” in the current crisis. He wrote: “As few Anglo-American media dominate public opinion globally, the question arises whether the bush fire of the financial crisis is being fueled by one-sided media coverage?” The Anglo-American media assert that “today, Asia and the other continents are sitting in the same boat with the USA, where the crisis has its origin.” On February 21, 2009, Secretary of State Hillary Clinton gave an interview during her visit to China. She said that in the current global crisis, “we [China and the USA] are truly going to rise or fall together; we are sitting in the same boat.” In particular, China must “continu[e] to support American treasury instruments”, which finance the “drastic measures” stimulating the US economy, said Clinton.

Of course, China has no interest in a collapse of the American economy or financial system. Noone does. But China is pursuing its own options for recovery: Reorienting its economy towards internal development and reducing its export dependency on the US market. Furthermore, China is telling the USA that it will not “continue to support American treasury instruments” financing a military budget which is larger than the combined defense budgets of the rest of the world. And China will use its vast currency reserves to acquire raw materials, energy and technology assets internationally, like buying up a 20% stake in the world’s third-largest mining company, the British-Australian Rio Tinto.

On February 25, a high-level Chinese delegation, led by China’s Trade Minister, Chen Deming, arrived in Berlin. Chen said he plans to spend $11 billion in contracts with some 30 German technology firms – in industry and SMEs. The trade package was arranged when Chinese Prime Minister Wen Jiabao met with Chancellor Merkel in Berlin four weeks ago.

Recovery Options for the European Union?

The “European economy” as a whole has gone into recession, but economic conditions in the European Union are not at all uniform. Focussing on short-term indicators tends to miss the underlying strengths and weaknesses in the 27 countries. It is the relative weight and the competiveness of the manufacturing sector – industry and SMEs – in the total economy which really determine the power to resist the crisis. Large financial sectors and dependency on foreign capital inflows have the opposite effect. With this metric, we can easily see why the economic situation in Britain, Ireland, the Baltic states, Hungary or Spain is indeed very bad.

For Europe, and Germany in particular, there are realistic options for recovery: Strengthening further technological competiveness and capacity for innovation in the manufacturing sector (and its symbiotic services) by concerted state and private efforts. Investing state funds in education, science, and advanced technology plus modernizing infrastructure. And addressing the demographic crisis through creating conditions for the extension of productive working life, improving the compatibility of family and job and enhancing the qualification of migrants. Such policies must not be enacted after the crisis, but in the crisis, because they are the means for overcoming the crisis.

And there are some encouraging signs in this directionality in Europe: Sweden has dumped its anti-nuclear policy, and so has Italy. Together with France, Italy will build four nuclear power plants. France just struck a deal with India for the construction of six nuclear power stations in India. Siemens is in advanced negotiations with Russia’s Rosatom/Atomenergoprom for a joint venture on nuclear technology. In a non-public meeting with German business leaders on February 15 , Chancellor Merkel welcomed the Siemens-Rosatom partnership. According to an article in Frankfurter Allgemeine Zeitung, Merkel said that Germany’s “nuclear phaseout” policy was “absurd” and that after the next Bundestag elections nuclear policy will shift.

On February 23, former Chancellor Schroeder, a member of the board of Gazprom, visited Teheran. His visit has to be seen on the background of a real big energy deal in the making, involving the EU, Russia, Turkey and Iran: The Nabucco gas pipeline from Turkey to Europe will be buildt, but most of the gas will not come from Central Asia bypassing Russia. The gas for Nabucco will be supplied by Iran, and also Quatar and Egypt.

The Berlin Communique on Financial Infrastrucure

In order to go ahead with such an innovation-focussed “stimulus”, a credit crunch for the real economy must be prevented. As 75% of the German banking system is public, the unwinding and long-term liquidation of toxic assets without a state-run “bad bank” is doable.

The one area where concerted international efforts are indeed most urgently required, is the realm of international finance. On February 22, the heads of government of France, Italy, Britain, the Netherlands Spain, the Czech Republic and Germany met in Berlin. They all, including Britain, agreed upon a common position for the G 20 summit on April 2 in London. Chancellor Merkel summed up the results of the meeting:

„All financial markets, products and actors must be submitted to adequate supervision and regulation – with no loopholes and irrespective of their location. This applies in particular to hedge funds and other private financial institutions from which systemic risks can emanate. We demand an adequate supervision and regulation of these sectors in order to prevent excessive risk taking. We also agree that rating agencies must be submitted to registration and and obligatory supervision.”

This European position on reforming the international financial architecture will be crucial test for the Obama adminstration. If implemented, such an international financial architecture will provide the framework in which nations and regional combines can enact recovery policies based on concerted state and private efforts for technological innovation, science and education, and modernizing hard and soft infrastructures.

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