SOMETIMES, crises are the best way to force through change. Take what has happened to the US car industry. I wish the US government hadn’t bailed out General Motors; governments should not be in the business of helping individual firms in this way. The assistance helped GM’s remaining employees but it unfairly put other companies at a competitive disadvantage, including Ford, Toyota and others who had done all the hard work to put their own houses in order.
Putting that crucial point aside, however, at least GM was transformed during its bankruptcy phase, with factories shut and ridiculously generous union-negotiated wage and pension costs cut to more realistic levels. The firm now makes money on every car it sells, rather than losing a packet.
The IPO values GM at about $63bn. Roughly $23.1bn will have been raised, the biggest public offering in history, eclipsing the $22.1bn raked in by Agricultural Bank of China in July. This is an astonishing turnaround from GM’s near-death experience in 2008. Its rescue left the US Treasury with a 61 per cent stake, cut to 33 per cent yesterday. At $33 a share, the partial sale represents a loss of $9bn on taxpayers’ original investments; however, the soaring share price means that they could still quite easily break even on the deal over time. GM’s transformation – it has, of course, still a long way to go – is a perfect case study of how a crisis can transform a seemingly untransformable organisation and thus end up being beneficial.
In a similar fashion, the British government ought to have made use of the Irish crisis to push through real change in the EU and force a renegotiation of the Treaties to allow the UK to extricate itself of those bits that it doesn’t like. Prior to the election, the Tories said they wanted to repatriate some powers from Brussels to Westminster, including on social policy. Depressingly, the trend since the election has been entirely the other way, with European institutions cracking down on the City like never before. The government has blown a once-in-a-decade opportunity to reverse this nonsense. Eurorealist Tories have been defeated by unthinkingly pro-EU elements within the coalition.
One change which the crisis mustn’t trigger is the abolition of Ireland’s 12.5 per cent rate of corporation tax. Competition between nations for capital, labour and corporate HQs is a good thing. The French and Germans hate it, because they want to keep taxes higher; they would rather create a cartel of high-tax nations. If Ireland were forced to give up what is one of its few successful policies, it is finished as an economy. Hiking corporation tax wouldn’t even raise any money. Firms that have relocated to Dublin would simply up sticks again and move somewhere else; they won’t return to high tax countries. There are more low tax jurisdictions than ever, not least the up and coming global financial centre that is Singapore.
The Eurozone’s existential crisis won’t end with Ireland’s bailout. It will be merely delayed. Ireland can be saved. This may not be true of some other Eurozone countries; their day-to-day non-banking budget deficit are much larger and their economies less competitive. Another bailout of another small country a few months down the line would start to stretch the EU and IMF’s ability to cope. The real worry is whether Spain or Italy will eventually lose the markets’ confidence. Britain desperately needs to turn this crisis to its advantage.