Detroit's Big Three And the Comparitive Advantage

The case in chapter 1 tells us a fact that the foreign car companies have grabbed more than half of the American automobile market shares. The author also has a theory that the Big Three have such a big problem because of the large health-care costs and the heavy unfunded pension obligations which most of other countries do not have.

In my opinion, the problem Big Three is facing all started decades ago. In the 1970s, the United States began to be the leader of the Information Technology Revolution. A lot of companies like IBM, Apple, Microsoft and Intel were founded and became more and more powerful. It leads to the fact that lots of the resources in the States were shifted to the High-tech industries since then.

Based on the statement above, I think I could say that the falling of the auto industry in America has something to do with these comparative advantages. The United States has comparative advantages in High-tech products and services, so the market (the invisible hand) decide to support the IT industries rather than traditional car companies because it could make more profits.

Back to the case, I agree that companies in the States have more obligations and costs on health care and pensions. I also agree that it could help a little if the government pays a portion of the healthcare benefits to the auto industry. However, I do not agree that the government should do something like this. The first reason is the falling of the Detroit Big Three is caused by the comparative advantages which the government could do little about it. The second reason is paying portion of the benefits only to car companies is unfair to the other industries in the United States. The third reason is that this kind of action may result in international trade barrier between the U.S. and other countries.