Leif Pagrotsky on Bailing Out the Big Three

Paying retirement benefits forward is a fatal flaw in the auto industry and the American economy as a whole Leif Pagrotsky believes.
  • Transcript


Pagrotsky: I think the US automakers are so big and so important it’s very difficult for a government to just stay idly by and watch them die. But I think it’s very important to learn for the future what were the mistakes and how do we avoid them, what are the systemic lessons we can learn. And I think one extremely important aspect is the legacy cost. Today, every car sold is burdened not only by the cost to produce it, the steel, the labor put into it, but the price tag must also include costs for those 70- and 80-year-old people who worked in those industries 10, 20, 30 years ago. And those costs were not paid by those who bought cars at that time. They are paid by the people who buy cars today. And the reason is that in the United States, you have chosen to have corporate-based social security in practice. I think that is old fashioned. It’s unmodern. It is a hinder for flexibility, a hinder for growth, and it is a very bad burden on competitiveness. And I believe this is the most important lesson of this crisis in the car industry to do something about for the future. That cannot be addressed in the short term, but it’s a systemic negative element in the American economy. And it tells me that the story about the American economy being so flexible, that that story is if not a myth, it is at least grossly exaggerated. This is something that locks up labor in individual companies. It makes movement between different industries more difficult. And in today’s globalized economy, change is the key to success, flexibility, rapid adoption to changed competitive pressures, changed technologies, and that’s extremely important for me.