News broke around the world yesterday of the “Volkswagon scandal”. Given the levels of hysteria and, it must be said, no small amount of relish from the media, anyone would think the company had been caught using pulped puppies as engine coolant. Ha! You see! Capitalism is evil!
In case you haven’t heard, VW found a way to cheat government emissions tests for its diesel cars, which means non-government-approved VW vehicles have been in circulation for some time now. A truly terrifying thought, I know, but fear not, the EPA (the Environmental Protection Agency) intends to keep the American public safe by forcing VW to recall 11 million cars and ‘fix’ them all. Phew!
What really happened here is that VW found a way to circumvent government controls and secretly (until now) give its customers the cars that profit and loss signals and consumer feedback suggested they wanted. Sure, they had to lie to do it, but this whole episode is not a scandal. If anything, it’s cause for a little celebration.
Back in the days of Prohibition in America, no doubt some bootleggers got hold of industrial alcohol that hadn’t been deliberately poisoned by government (yes, that really happened) and made some decent booze from it. I’m sure at the time the government and the media declared that a scandal and accused bootleggers of harming public health too. Whilst they were doing that, some grateful people were enjoying the chance to drink nice tasting booze that would just give them a hang over and not kill them (government poisoning of industrial alcohol during Prohibition lead to around 10,000 deaths, hard to believe but true).
The EPA is doing well out of this. It now appears to the world as a force for social good, the virtuous government agency that exposed a corporation’s antisocial behaviour. However, this is the same agency that only last month polluted the Animas River (part of the Colorado river system) with 3 million-gallons of toxic waste water (containing lead and arsenic) from an abandoned mine, endangering the health and harming the livelihoods of thousands of people.
So bad was the spill that the EPA had to declare a State emergency, but this didn’t make headline news around the world in the same way VW’s behaviour has or the way BP’s oil spill of 2010 did. Was the EPA fined tens of billions for its misdemeanor like BP was and like VW will be? No, it declined to fine itself. Two words: Sovereign immunity. Some people affected by the spill will probably get some compensation eventually, but because such outlays aren’t included in the EPA’s budget, the money will be taken from…? Yep, you guessed it, tax payers.
The problem, from VW’s perspective, was that its little white lie was, very publicly, found out. The current upwelling of anti-capitalist sentiment does them no favours either. Given this and that the general public tends to react to such events in the way the mainstream media tells them to, VW will no doubt experience lower profits for a period to come as car consumers indignantly turn their backs on the company for a while.
But how hard VW’s profits will be hit and for how long will depend on how much the majority of car consumers actually cared about whether their VW vehicle met government emissions standards or not, relative to how much they cared about every other aspect of VW’s cars. I suspect it is far less than the government and the environment lobby demand they do, and try to force them to. That’s why I think VW will pull through this. Assuming, that is, that the EPA doesn’t fine them out of existence.
VW did not simply break the law. It lied to its own customers. Many car owners want a car that pollutes less. They trusted VW and the company deceived them.
Every market needs clear and reliable information in order for it to run efficiently. While you may dislike the role of the EPA in laying down minimum standards, published data is necessary for markets to run fairly. This episode is a clear-cut case of a company breaking the law and the rules of the market in which it operates, and misrepresenting its products to its customers.
The good news is that the company has been found, is being forced to recall its mis-sold cars, and will hopefully be fined a large amount and any culpable executives prosecuted under the criminal law. The fair and lawful operation of the free market is essential, and we must never try to excuse those who threaten it, as VW has done. The people who did this bring Capitalism into disrepute and threaten all our freedoms.