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This green subsidy for car makers is just a disguised corporate bail-out

Having long sabotaged eco-innovations, the motor industry is now demanding billions to cut its carbon emissions

While all eyes were fixed on the banking bail-out, a bucketload of public money was quietly sloshed into the pockets of another undeserving cause. Last week, George Bush agreed to lend $25bn to US car manufacturers. It's a soft loan, which will cost the government $7.5bn. Few people noticed; fewer fought it. The House of Representatives approved the measure by 370 votes to 58. The great corporate bail-out is spreading like the plague.

It has already crossed the Atlantic. Yesterday European car makers demanded that the EU hand them €40bn ($54bn) in cheap loans to match the US subsidy. Where will the public spending spree end?

The motor companies in both Europe and the US claim they need these loans to help them go green. They will invest the money in a new generation of environmental technologies, which will allow them to meet the efficiency standards their governments are setting. There is more joy in heaven over one sinner who repents ... but how strange this green enthusiasm seems, now that there's the smell of public money in the air. For the past 10 years the car manufacturers have driven every useful green initiative into the wall.

In 1998 European car makers promised to show that they could cut their greenhouse gases voluntarily. By the end of 2008, they pledged, they would reduce the average emissions produced by their cars from 190 grams of carbon dioxide per kilometre to 140. How well have they done? By the end of last year they had cut average pollution to 158g/km across Europe and 165g/km in the UK: they will miss their target by some 40%.

Discerning, only 10 years too late, that lobby groups' promises are worth as much as a share in Lehman Brothers, in 2006 the European commission announced that it would set compulsory standards: by 2012 all manufacturers would have to reduce their average CO2 emissions to 120g/km. It looked like progress, until you remembered that 120g was the target proposed by the EU in 1994, to be met by 2005. It was repeatedly delayed by industry lobbying.

Last year the 2012 target fell to the same forces. Angela Merkel, lobbying on behalf of companies such as DaimlerChrysler and BMW, demanded that the European commission put the brakes on. (Ironically it was Merkel, as the idealistic young German environment minister, who had first proposed the target of 120g/km by 2005.) The commission agreed to revise the figure to 130g, and to cover the gap by raising the contribution from biofuels. Since then we've seen hard evidence that most biofuels, as well as spreading starvation, produce more greenhouse gases than petrol; but the policy remains unchanged.

Now the pollutocrats are whingeing that they can't meet the 130g target either. A month ago they persuaded the European parliament's industry committee to take up their case: it proposed postponing the target until 2015, reducing the fines if they don't comply, and allowing manufacturers to offset eco-innovations against the target even if these don't actually reduce emissions. These invertebrates, in other words, proposed to grant official approval to industry greenwash. Fortunately this scam was rejected two weeks ago by the parliament's environment committee.

In the US, manufacturers have still not reached the standard (an average of 27.5 miles per gallon) that they were supposed to have met, under the Energy Policy Conservation Act, by 1985. The average car sold in the States today is less efficient than the 1908 Model T Ford.

What makes this dithering so frustrating is that to be talking, in 2008, about targets of 130 or 120g/km is a bit like discussing whether modern computers should have 10 rows of sliding beads or 100. In 1974 a stripped-down 1959 Opel T-1 managed 377 miles to the US gallon (160km/l), which equates to 15 grams of CO2 per kilometre. There is no technical reason why the maximum limit for mass-produced cars shouldn't be 50g/km.

Nor is there a good commercial reason. A poll by the Newspaper Marketing Agency shows that 80% of car buyers say economy is now more important to them than performance. The car industry's technological failure results entirely from lobbying by the companies now demanding public money to go green. They want to squeeze every last drop from existing technologies before switching to better models.

Their sabotage of green technology has been both subtle and comprehensive. The film Who Killed The Electric Car? shows how the manufacturers, working with oil companies and corrupt officials, sank California's attempt to change vehicle technologies. Having bumped off battery power, they persuaded the federal government to pour money instead into hydrogen vehicles, aware that the technological hurdles are so high that a cheap, mass-produced model might never be possible. Electric cars, by contrast, have been ready for the mass market for almost a century. The $1.2bn that the US government is spending on research and development for hydrogen cars - like the €2bn pledged to the same quest by the European Union - is a subsidy for avoiding technological change.

Now, after so much procrastination, the car makers have the flaming cheek to demand public money to pursue the policies they have spent 50 years and millions of dollars crushing. Of course, the "green loans" they are soliciting are nothing of the kind. Funding better environmental performance is simply an excuse for bailing out another failing industry. As a result of the credit crunch and high oil prices, new car registrations in the UK fell by 21% last month. In the US, sales by the major manufacturers have declined this year by between 20 and 35%.

There is no need to spend a penny of public money on greening the motor industry. As a recent report by the House of Commons environmental audit committee shows, you could achieve the same outcome by creating a bigger differential between vehicle tax bands: it proposes that people buying the least efficient cars should pay around £2,000 more per year than those buying the most efficient. This would kill the market for gas guzzlers and force the industry to make the changes it has long resisted.

But the government has taken all the flak a good tax policy would have generated for very little gain. Its controversial new vehicle tax banding will save a mere 0.16 million tonnes of CO2 per year: a drop in the acidifying ocean. At scarcely greater political cost it could have hammered emissions and generated much of the money it needs to revolutionise public transport. Again there has been a great historical slide: between 1920 and 1948 cars were taxed at £1 per horsepower: in real terms (and in some cases in nominal terms) a far higher rate for gas guzzlers than today's.

But subsidies are what governments pay when regulation doesn't happen. If you don't have the guts to force companies to do something, you must bribe them instead. It's a fair guess that European car makers will still fail to meet their environmental targets, even if they get the money they're demanding. The greenest thing governments could do is to allow these foot-dragging, planet-eating spongers to go under.

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Individual identity vs. the financial crisis

Most experts agree this is the worst financial meltdown since the Great Depression. The stock market is down almost 25 percent so far this year. Housing prices in the United States are off more than 20 per cent since their peak in 2006. Manufacturing output is falling and consumer confidence has slipped.

Martin Feldstein, former head of the National Bureau of Economic Research, past chairman of the Council of Economic Advisers and a Harvard economics professor - usually a voice of calming reassurance - wrote in The Wall Street Journal: “Sliding into recession, monetary policy already at maximum easing, and fiscal transfers impotent … an unenviable situation, to say the least, for any incoming president.”

All of this raises two fundamental questions: Where did this financial mess come from? And what does it mean?

The easy answer is to blame the housing market. People took out adjustable-rate mortgages and subprime loans offered with no down payment and easy terms by mortgage brokers who then resold them as securities. As the housing market has weakened and loans have reset, a growing number cannot repay and many more owe more on their mortgages than their homes are worth. Banks and financial institutions, so the story goes, are clogged with this bad debt, now dubbed toxic waste. This is the kind of thinking behind the U.S. financial bailout: Remove the toxicity and all will magically be well again.

The real reason is that the roots of the current crisis are tied to the fundamental nature of the postwar model of economic development called “Fordism.” That model drew a tight connection between assembly-line mass production and mass consumption - ultimately fueled by massive suburbanization.

After introducing the assembly line and making car production more efficient and cars cheaper, Henry Ford realized that a bigger market for his cars was needed - so he boosted workers’ wages by introducing the “five-dollar day.” But even that was not enough, and so North America and the world lapsed into the Great Depression.

Fordism emerged as a full-blown economic and social model during the 1930s, marked by president Franklin D. Roosevelt’s New Deal programs, and flourished after the Second World War, when government policies brought about the rise of longer-term mortgages and a new system organized under the now infamous Fannie Mae to purchase those mortgages and thus lubricate the system.

Add to that massive tax breaks for homeownership and gargantuan subsidies for highway construction and infrastructure, and a whole new model of suburban-fueled mass consumption was born - family after family purchased new homes, filling them with TVs, appliances and all manner of furnishings, while also purchasing record numbers of cars to get to and from work.

While Fordism looks stable on the surface, it suffers from a fatal flaw: It’s impossible for consumption to keep up with the ever-growing pace and efficiency of production. This is particularly true of recent times, when a great deal of production has been sent to China, India and other places where labour is cheaper. It’s hard for the working and middle classes to consume more when their wages are essentially stagnant. Low-wage workers in emerging economies do not have the income to fill the gap. And while the ranks of the rich have grown, the wealthy are a relatively small group that can buy only so many luxury cars, designer products, homes and yachts.

That’s where credit comes in. Those new fancy mortgage instruments were meant to turn homes into veritable “piggy banks” that could be used to finance bigger and better cars and homes and toys.

Almost a century ago, Austrian economist Rudolf Hilferding identified this basic contradiction of modern capitalism in his monumental work Finance Capital. Capitalist economic development stands on a shaky foundation, he argued - workers always produce more than they can consume, more even than society as a whole can consume.

As one leading blogger, Yves Smith at Naked Capitalism, recently put it: “Since consumption has come to depend on growth in indebtedness, a reversal, however painful, is necessary. Our excesses have been so great that there is no way out of this that does not lead to a general fall in living standards.”

There you have it. The financial crisis is in reality a much deeper crisis of our underlying economic model and our way of life. It’s a crisis of the way we have come to define ourselves.

If Fordist mass consumption had a catchphrase, it was “Keeping up with the Joneses” - and in the past decade it became a fearsome standard. So many of us came to define ourselves not through our work or creative endeavors, but through what we could purchase. We were fooled into believing that our identity and self-worth somehow depended on acquiring expensive or impressive belongings - much of it on credit.

Regardless of how or when the financial markets are restored, credit will be much harder to get - the age of the house as piggy bank is long gone.

How will we define ourselves when we can’t get a quick self-defining “makeover” at the dealership, the electronics store or the mall? How will we rebuild our way of life and our very identity? Those are the questions that many of us, and our society as a whole, will be confronting long after the financial markets have been restored.


Here is a major secret hint in how to live off of less to those hit hard by this economic downturn: Stop driving! Cars are extremely expensive and most of the costs to the owner are hidden (insurance, maintenance, fuel, ill-health) such that even with the high purchase price you don't know what you are getting into. The social costs (and subsidy) is even higher. Anyway, you will save a lot, have more time, and be able to do more (health, adventure, etc.) - if you drive less (ie don't own a car but maybe share one). This secret could solve widespread social problems if we all as a society changed direction, had lots of new jobs, worked on the environment as is needed, got more deeply local... But that wishful thinking is "backwards" thinking to too many people for it to be our chosen policy. Ah well, nature will force us -eventually- if we don't choose it.


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