The fault lies within the system itself

The recall of fault-ridden products, which is spreading throughout industrial manufacturing, tells us much about the acute contradictions that permeate the global corporations within the capitalist drive to maximise profits.

Yesterday Nissan announced a recall of just over half a million vehicles, mostly in the US, because of problems with brake pedals and fuel gauges. Toyota leads the field with 8.5 million cars, trucks and sports utility vehicles recalled in the last few months. Toyota’s recalls are for faulty accelerator pedals, jamming floor mats, and braking problems. The pedals are supplied by CTS a US corporation.

General Motors has blamed the supplier JTEKT, a joint venture between Toyoda Machine Works and Koyo Seiko with five manufacturing plants in the US, for a faulty car part that led to the recall of 1.3m Chevrolet and Pontiac cars in North America. The fault in the cars’ power steering has been linked with 14 crashes. Last month Honda recalled 438,000 cars with faulty airbags.

The problem isn’t restricted to cars. On Monday, Sony told millions of PlayStation 3 users not to use their games consoles as it rushed to fix a bug. The warning appeared to be another blow to one of the biggest names in the electronics industry.

Last week Akio Toyoda, the Toyota chief executive whose family name appears on every one of the company’s products, appeared before the US House of Representatives Oversight Committee to explain and apologise. His simple explanation gets right to the heart of the problem. “I fear the pace at which we have grown may have been too quick,” he said.

Though it didn’t come out in the questioning, unpicking Toyoda’s simple statement gets us to the real cause of the crisis which has engulfed the interdependent worlds of finance and production. After World War II, US occupation forces introduced modern production control methods into Japan. These had been developed by it’s the US War Department.

Toyota adopted these as the basis for its development of the “kaizen” philosophy of continuous improvement. Kaizen is a process that, when done correctly, humanises the workplace, eliminates overly hard work ("muri"), teaches people how to perform experiments on their work using scientific methods and how to learn to spot and eliminate waste in business processes.

And it worked. Over the decades, Toyota grew to lead the world in quality, building cars with a reputation for durability and reliability. Other companies followed Toyota in their competition over quality and price.

So what went wrong? Akio Toyoda’s simple statement encompasses the consequences of decades of the fierce competition for profit which obliged Toyota, like all corporations, to globalise, to export production volumes to cheaper labour regions to cut costs. At the same time, the company led built highly-sophisticated vehicles dependent on ever more complex software and computer chips.

In the process it was obliged to outsource production of its components to companies over which it has little control, whilst all the time driving up productivity at a faster rate than its competitors. In the end, the complex, globalised supply chain was Toyota’s undoing and it engaged in a cover-up of mounting problems.

Toyota’s rush to expand simply added to a global saturation of the market, which is another inescapable feature of the capitalist system of production, one which is driving the present recession towards outright slump. Car sales are dropping off the cliff. In Europe they are expected to fall by 10-15% this year. GM is cutting European production by 20%. Europe has a production overcapacity of 6.5m vehicles.

The whole saga demonstrates beyond all argument that capitalism is simply not sustainable. Intense competition has meant the building of cars that are increasingly unsafe to drive, that add to carbon emissions and then lead to over-production with the consequent loss of jobs and pensions.

Gerry Gold
Economics editor

Capitalism heads for year zero

Barack Obama yesterday raised the spectre of an irreversible crisis, with the situation getting “dramatically worse”, if his spending plans to boost the US economy were delayed. Is he being alarmist? And will his plans for a $775 billion “shock therapy” package work? 

How can we assess the likely success of these and related measures being proposed by governments around the world? Estimates of the extent of the financial and economic crisis have varied widely, continuing to worsen since the sub-prime mortgage default problem first began to make its appearance in the spring of 2007, an early but ominous sign of something far deeper. 

One closely-watched indicator is the Bank of England’s base rate. Yesterday the BofE cut its rate yet again, one of the other strategies being deployed to prevent the rapidly deepening recession turning into an economic catastrophe. Now at 1½%, less than a third of its level only three months ago, the rate is lower than at any time since the Bank’s foundation in 1694. It is expected to go lower still. People with savings and pensions have already seen the income from their investments drop by more than half. 

On this measure, the turndown takes the economy back to the beginnings of the epoch of capitalist production. The nearer it gets to zero, the more certain is the resort to printing money, and a further devaluation of currencies already weakened by the implosion of fantasy finance. 

Another indicator is falling production. The collapse in September of the global financial services corporation Lehman Brothers - the largest bankruptcy in US history - marked a new phase of the financial crisis, and its impact on production has been dramatic.  With credit markets remaining frozen, the whole developed world is now characterised by a sudden slowdown in consumption and a virtual stop in industrial production, as we reported last week. 

Retail giants are shrinking and closing as sales dry up. The roll call of historic names lengthens day-by day. Nissan in Sunderland, widely regarded as the epitome of efficient modern car plants globally, announced a cut of 1,200 jobs, nearly one in four of its UK workforce. This is just a part of Nissan’s response to demand which has fallen by 25 to 30% already, pushing its stocks of unsold cars to 93,000 in Europe. Estimates put the knock-on effect locally as high as a further 20,000 jobs. 

Nissan’s workers will not trust Lord Mandelson’s pledge to help then find new jobs as quickly as possible. As for their union “leaders”, Unite union joint general secretary Derek Simpson’s offered no resistance, saying pathetically: "The economy will improve and, when it does, Nissan will need these workers' skills again.” Thank you and good night.

The lesson from Obama’s warning on one side of the Atlantic and the flurry of government activity on this side, together with the virtual elimination of interest rates, is that the system is broken at every level and it shows. The US government’s spending deficit is already running at $1 trillion, for example, even before the president-elect’s package is added on. There is, unsurprisingly, a growing reluctance by foreign investors to deposit funds in either the US or UK.  

If the banks can’t and won’t make credit available, if production is being slashed because consumers can’t and won’t buy unnecessary commodities, then clearly there is something fundamentally wrong. In this context, “stimulus packages” make no essential difference.

The alternative is to seize the banks and the corporations, keeping people in their jobs and homes, pending the reorganisation of the economy on rational, not-for-profit, co-operative lines, producing sustainable goods to satisfy social needs. At least we would then have a measure of control over events rather than being passive victims of the unravelling of the capitalist market economy. No one, of course, is suggesting Obama or Brown will do any such thing. They will use the capitalist state to try and save capitalism at our expense. Therein lies the political challenge.

Gerry Gold
Economics editor