Would you buy a car from these guys?
| Gabriel |
This week’s episode of EconTalk (host Russ Roberts, guest Mike Munger) discusses the relationship between GM and its local dealers. Car dealers are franchisees and in most states the manufacturer can only cancel the franchise agreement by buying out the dealer. Thus in the short to medium run it can be less costly to keep a brand going at a loss than to close it (and buy out the dealers). More broadly, the argument goes that under corporatism GM was making so much money that it didn’t mind rent-seeking from its stakeholders. However once GM started to face serious competition from the Japanese in the late 70s it was so constrained by these arrangements that it was unable to adapt. Probably the most curious case is the launch of the Saturn nameplate in the early 1990s, where GM seemed to have some good ideas about how to imitate Toyota, but rather than tackling the Herculean task of directly taking on its stakeholders by applying those ideas to, say, Chevy, GM tried to create a new nameplate that would escape the historical relations with its stakeholders. (It didn’t work).
Let me count the ways that I enjoyed this episode:
- It’s a nice respite from the many episodes they’ve had on macroeconomics over the last year.
- The guys are adopting a path dependency argument in that if you’re going to be a company operating in neoliberalism, there’s a huge difference between having been born under neoliberalism vs making a transition from corporatism. I thought this was interesting coming from EconTalk, which is usually skeptical of friction arguments.
- Mike Munger and Russ Roberts have great chemistry. This episode sounds like an ordinary conversation where they honestly don’t understand why the situation is turning out like this and are trying to tease it out. In some cases they note an argument seems plausible until you consider a piece of counter-evidence and table the issue as undecided. (This reflects Roberts’ trend over the last few months towards almost agnostic intellectual humility). In many older episodes with Munger, they have the didactic feel of Plato’s dialogues, or rather, what Plato’s dialogues would have sounded like if Socrates and Alcibiades continually riffed to see who can outdo the other in elaborate sarcastic imagery. (I’ve listened to their gouging conversation three times and I laugh every time).