Now, that title is a little iffy.  it could be read the politics of “bailouts gone bad”.  Or, it could be read “politics of bailouts” gone bad.  I love equivocating, it keeps people on their toes.  With what we are experiencing today, both would apply.

A couple of weeks I made my argument on why bailing out the big three automakers was a bad idea.  In that argument, my primary point was that bailing out the companies that relied on old technology would only postpone the inevitable.  I made the argument I’d prefer to “bailout” the up and coming companies pushing the new technology.  Leave it of course, to a media company that relies on old technology to criticize a carmaker relying on new technology for doing exactly what I suggested is best for the country.  Randall Stross of the New York Times thinks Tesla should not be allowed to borrow money because of who they sell their cars to.  That is so short-sighted it’s amazing.  Jason Calacanis takes Stross to task in a big way, line by line.  Calacanis has a stake in Tesla.  However, some people look at that is making an opinion biased.  To me they’re putting their money where their mouth is.  I don’t know what Stross’s influence is.

As Calacanis points out, and I agree, is that when I got into computers, a company making the decision to go computer based was a business changing decision to make, and not taken lightly.  Because the equipment was so expensive, a lot of them employed support staff for one computer.  The pool for that support staff was limited and therefore a lot of that very limited pool shopped themselves out to several businesses.  I did that for many years.  Over time, computers got cheaper.  A LOT cheaper.  What used to be a $5,000 investment for a piece of machinery that did what a glorified calculator/word processor would do, became a $200 machine that is only limited by a person’s imagination.  It has completely changed the world we live in.  People in far away lands now communicate with each other for free.  People are no longer tethered to an office, they can cloud compute from home or the local cafe.  And, rather than being a decision that used to be made very cautiously by a business, it is now expected when an employee shows up for work that not only will they have a computer, they will know how to use it.  For a long time, personal computers were considered a toy only for the rich.

For about 100 years, the standard office equipment was the typewriter.  People were taught to use a typewriter in school, and no clerical person could do their job without knowing how to operate one.  I was schooled in how to use a typewriter.  I wrote my first grants on typewriters.  by 1995, Smith Corona, who was a “big three” typewriter manufacturer, declared mankruptcy.  They got no bailouts, or loans, from the government.  They had moved their operations to Mexico and slashed their workforce tremendously.  If the US government had bailed them out, would that have changed things?  The answer is obvious.  The new technology was killing off the old and the traditional corporate bell curve was proving itself yet again.  A bailout would only have delayed the inevitable.  Smith, Royal, and the other typewriter manufacturers eventually adapted to the new environment by either going out of business, selling out to other companies, or adjusting their inventory.  The most notable adjustments were IBM and Brother.  Their product of the 70′s:

Became a product of the 21st century:

And, it was done with no bailouts. They either lived or died. They did what the free market told them to do.

So, bottom line, the auto world is changing. It is changing exactly as all business environments change over time. Detroit has been resisting that change, as Royal and Smith Corona did. Tesla is being born in this new environment, just like Microsoft was. Stross is making the argument that Microsoft was a bad idea because their original products were only for the rich. Sure, Microsoft didn’t need government help due to their specific circumstances. But, if they had needed help, and didn’t get any, would we be better off with Microsoft being somewhere else? It would have happened, it was just a matter of where.

So, we have three models of what can happen to Detroit.

They can go the way of Smith Corona and keep building and supporting what they are and become a niche company.
They can adapt as Brother did, which in the auto industry is incredibly expensive.
They can simply go bankrupt and let the up and comers fill their void, as Royal did.

It’s that simple. Personally, I’m much more in support of giving out my “bailout” loans to see more of this on the road:

As opposed to:

What say you, Stross?

Tags: bailout, big three automakers, carmaker, cars, corporate bell curve, ibm, jason calacanis, microsoft, new technology, new-york-times, old technology, pc, randall stross, rich, royal, smith corona, tesla, word processor