What is an "American" car? Fallacies of Obamaian exhortation.

http://tinyurl.com/oz2v9c
President Obama's recent soundbites suggest an uncompetitive auto industry. By MATTHEW J. SLAUGHTER
... President Barack Obama and other government leaders were dispensing advice to the auto industry.... advice ignores the dynamism of today's global economy.... from Mr. Obama... "I'm not an auto engineer. . . . But I know that if the Japanese can design an affordable, well-designed hybrid, then doggone it the American people should be able to do the same." Actually, doggone it, no. The economic principle of comparative advantage,,,,tells us that hard-working Americans are not going to excel at everything. Comparative advantage says each country should concentrate its time and talent on the particular goods and services it is productive at relative to the rest of the world. It should then export those items abroad and in exchange import the goods and services at which other countries are relatively more productive.
Countries cannot have a comparative advantage at everything. That's okay. Tiger Woods is better off spending his time playing golf, not painting his house. Similarly, imports from overseas do not represent failure. They raise standards of living. Do American workers have a comparative advantage in the emerging technology of plug-in hybrids? I don't know. But neither does the president nor anyone else just yet. For America to benefit from globalization, important questions like these need to be left to the market.
****This part of the article is actually incorrect without vitiating the subsequent thrust of debunking Obamaian chauvinism and (possibly illegal) protectionism.Professor Slaughter's important message should not be diluted by a common, if fundamental, mistake. Ricardo's principle of comparative advantage does not refer to competitive advantage which seems to be confused with it by the author. It is actually possible for one country to have competitive advantages among a whole slew of products ( e.g. the Chinese, as the Japanese before them, have low-cost labor, skilled engineers, Deming-class quality control, easy regulations, global --often American--design, and a cheap currency; this gives them a competitive advantage in most manufactured products.)
The principle of comparative advantage is not so intuitive but says that, nevertheless, ANY country is well-advised to export those products for which its disadvantage is least (i.e. COMPARATIVELY best )and import those for which it is greatest (or COMPARATIVELY worst) and that even the more competitive country is, likewise, better off by exporting its most competitive products and importing its least even if it has an ABSOLUTE competitive advantage in all. It does, indeed, say that "each country should concentrate its time and talent on the ... it is productive at relative to" NOT "the rest of the world," necessarily ( that would be obvious ), but "relative to itself." Read "competitive" for "comparative" in the article ( except for the principle ) and all will be well.****

Last Thursday, when announcing the bankruptcy of Chrysler, Mr. Obama advised: "If you are considering buying a car, I hope it will be an American car." What exactly makes a car "American?" Does it mean a car made by a U.S.-headquartered company? If so, then it is important to understand that any future success of the Big Three will depend a lot on their ability to make -- and sell -- cars outside the United States, not in it. A big reason Chrysler has fallen bankrupt is its narrow U.S. focus. It has not boosted revenues by penetrating fast-growing markets such as China, India and Eastern Europe. Nor has it lowered costs by restructuring to access talent and production beyond North America.
On many measures the Big Three today are far less global than the most successful U.S.-headquartered companies. Today about two-thirds of IBM's revenue is earned outside the U.S. And what does it say on the back of every Apple iPod? "Designed by Apple in California, Assembled in China." Chrysler and GM will be stronger if they can become more global, not less so. This should benefit not just their bottom lines but their U.S. workers, too. Much research now shows that expansion abroad by U.S. companies tends to support jobs in America, not destroy them.
Or is an "American" car one made within U.S. borders? If so, then it is important to understand that America today has a robust automobile industry thanks to insourcing. In 2006, foreign-headquartered multinationals engaged in making and wholesaling motor vehicles and parts employed 402,800 Americans -- at an average annual compensation of $63,538 -- 20% above the national average. Amid the Big Three struggles of the past generation, insourcing companies like Toyota, Honda and Mercedes have greatly expanded automobile operations in the U.S. In fiscal year 2008, Toyota assembled 1.66 million motor vehicles in North America with production in seven U.S. states supported by research and development in three more.
Today, insourcing companies strengthen America's economy across all industries. In 2006, they employed more than 5.3 million Americans, conducted $34.3 billion in research and development, invested $160.2 billion in capital, and exported $195.3 billion in goods. If Chrysler partners with Italy's Fiat as the president hopes, it will join the ranks of these insourcing companies.
The broad goal of American economic policy should be to help all companies operating in the U.S. create and maintain good jobs at good wages. Translating this goal into sound public policy means rethinking recent sound bites, however. It means that the U.S. is not going to be great at everything. It means that U.S.-based companies need to be expanding abroad. And it means that some of the best companies in America are foreign-owned insourcing companies.
Chrysler and GM have long been struggling. They are now deeply enmeshed in U.S. politics as well. Government leaders should not make matters worse by handicapping them with antiquated policies that do not make sense in today's dynamic global economy.

Mr. Slaughter is associate dean and professor at the Tuck School of Business at Dartmouth, research associate at the National Bureau of Economic Research, and senior fellow at the Council on Foreign Relations. From 2005 to 2007 he served as a member on the Council of Economic Advisers.
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****Several thoughts come to mind. The President thinks Americans should be able to build cars as well as the Japanese but some years back I looked up some numbers for a speech on competitiveness. Although perhaps a bit out of date, the numbers were found to be that the Japanese had four times as many engineers per capita as Americans do while Americans had twenty-five times as many lawyers per capita as they did. I figured that this gave them an advantage of 100:1 in making cars. Since most of our legislators are lawyers, the qualitative competitive edge goes even further toward the Japanese but the effect is harder to quantify.Of course the Japanese advantage in lawyers diminishes as soon as the cars reach America's shores and tort system.

The only sensible definition of 'American', in the sense of recommending or not as chauvinistic government policy, is "value-added": what it is and where it occurs. Where does the labor occur to make the parts, where do the parts-makers pay taxes and source their inputs, where are the cars advertised, marketed and sold and the taxes paid on each step, where are the cars designed, assembled, etc.? The detail about where the car manufacturers are head-quartered is really irrelevant especially since management and ownership are global. When looked at inclusively, there isn't much difference between the contribution to American GDP of Toyota products and "domestic" (GM, Ford, Chrysler) cars except that, politically, domestic cars are assembled by members of the UAW. ( One used to use GNP, by the way, which doesn't correlate so well with votes.)

It could even be interesting to analyze and post the percentage of domestic-value-added for other products for those who might care.( Specific foreign value-added information might be even useful for those interested in boycotts. )*****