When once asked what a focus group might indicate as the most pressing transportation need on the cusp of motor transportation more than a century ago, Ford exclaimed they’d insist on faster horses. 

Ford persevered in his vision to bring affordable vehicles to the nation and world. You can imagine the significance of such a disruptive technology on the way people and industry operated more than a century ago. The shift in technology created a boom in transportation, and decimated the manufacturing of horse-drawn coaches and buggy whips. Focus groups and bureaucrats rarely see the bigger picture.

We have seen profound changes in the way we interact with the world around us, but none were likely as powerful as the motor vehicle innovation. It was perhaps the best example of an economic theory called creative destruction - until now. 

We have discussed the significance of a transition to electric vehicles in columns past, but the United Auto Workers rolling strikes are early indicators of the reality of creative destruction, a concept coined by a Czech-Austrian Harvard economist named Joseph Schumpeter who lived through dramatic economic transformations in the first half of the 20th century. 

Schumpeter observed how water wheels replaced human and horse power, steam engines replaced water wheels and then motivated trains, cars and trucks replaced horses and buggies, and vacuum tubes enabled broadcasting and mass communications. He is associated with a view called evolutionary economics that is the commerce kin to Darwinism. Perhaps the term “survival of the fittest” has connotations that detract from Darwin’s central principle. A more clear-minded conclusion might be that modifications better adapted to an evolving ecosystem will tend to thrive and divert resources from less adapted processes. 

Within the economic system, innovations that better meet our needs or more efficiently employ our resources both thrive and sometimes spur even greater economic change. One cannot contain a better idea. Even if one can stuff back into the bottle such an economic Genie, another one will pop right out to occupy the space demanded by the evolving economy. 

This brings us to the disruptive innovation of electric vehicles. Perhaps you have contemplated yourself whether you would prefer to own an electric car. From a driving experience, they are no-brainers. They are quiet, comfortable, and responsive. They are also roomier because their drivetrain is compact, and handle very well because their weighty batteries are low to the ground. 

Instead, you may be concerned about cost, range, and charging convenience. Significant innovations have occurred to ameliorate these concerns, and should be much more substantially resolved by the end of this decade. 

That is from the demand side. The supply side is much more complex. 

With dramatic improvements in battery and electric motor efficiency and economy, prices are falling. No car company can afford to be left behind. Indeed, most have already indicated that they will sunset internal combustion vehicle production within a decade. Some, led by Tesla, have discovered that they can die cast entire chassis all in one piece out of molten aluminum in a matter of minutes. Four hundred or more parts are replaced by one. Motors are also light and much cheaper than their gas or diesel engine counterparts. And batteries are solving the remaining problems of weight, safety, and efficiency. 

These parts are also durable, and expected to perform almost maintenance free for hundreds of thousands of miles. This all sounds great - better, cheaper, more durable, and more efficient vehicles that last much longer - unless you are a car manufacturer or worker. 

The car manufacturers cannot afford to refuse to get with the program. If they find change difficult, they will surely find irrelevance even more painful. Stellantis, GM, and Ford get it. Ford has even noted it will need almost half as many workers once this inevitable transformation is complete. 

That is quite a statement. Just four decades ago one in a hundred American workers were employed by the (then) big four auto companies (remember the AMC Gremlin?). Now less than one in a thousand work to build cars. If Ford is correct, it will be down to one in two thousand. Yet, the car companies have little choice but to downsize even more. 

In 1962-3, Studebaker was trying to navigate a much more minor evolution in the auto industry. They were already on the ropes when their union chose to strike. The UAW strategy is usually to take on one of the auto manufacturers and then use that agreement as leverage in negotiations with the others. Studebaker management was in the weakest position, and hence most likely to capitulate. They agreed to terms with UAW and were bankrupt within the year. 

The stakes are even higher now for the UAW. There is absolutely no doubt that the union understands the stakes. Their membership may be slashed by almost half over the next decade. Already they are a minor rather than the major union in the country. They may well prefer the profits manufacturers are earning after consumers with holes burning in their pockets are willing to pay $5,000 more than the sticker price be diverted to union pockets rather than reinvested in retooling for electric vehicles. 

This surely explains why they are demanding a four day work week but with five days of pay. Their workers understandably don’t want a cut in pay, and there will soon be insufficient work to go around. But, the equivalent to a 25% increase in hourly costs, plus other wage and benefits concessions would put the Big Three at a competitive disadvantage to Tesla and Toyota. 

That cannot happen, unless we want a repeat of Studebaker. History often repeats itself, despite the economic evidence. The auto companies are operating in their own immediate interest, as is the union. But, the problem is bigger than any of them. 

Certainly an economy benefits when someone comes up with a better mousetrap. Economists rarely trouble themselves with the equity issues that arise as the discipline strives for greater efficiency. But, political economists recognize that politics can trump economics at times. If we are not responsive to transition costs, we may find unfortunate reactions akin to the Luddites who took the industrial revolution into their own hands by burning down the factories. 

Humans are tribal. The size of our tribes depend on the degree to which we feel threatened. When we are comfortable and secure, we enjoy participation in a big tribe. When our economic security is threatened, we retrench and we form smaller tribes of those more akin to our own circumstance. This transition understandably creates a strong union reaction because they feel threatened and are retrenching, as Luddite as that may appear. Their reaction is unfortunate, inevitable, understandable, and avoidable. The position of the car companies is equally inevitable and sound. Each makes sense from their narrow perspective.

It is not solely their fault, though. If the wider tribe does not acknowledge their reality, retrenchment and tribalism is inevitable. If we on the one hand subsidize consumers to buy electric cars and manufacturers to make them, but we ignore the plight of a fifty year old lifelong auto worker who may lose her livelihood, the larger tribe is partly responsible for increased tribalism. 

If we are to adopt a national industrial policy toward energy and economic sustainability, we must also provide the means for humans hurt in the Schumpeterian bargain to also sustain themselves. This may mean retraining and employment in good-paying jobs making windmills and installing solar panels. For every job lost in the transition, two are created. But, if we don’t directly ensure those who are hurt are also the first helped in the transition, we garner the gains of Schumpeter’s Hypothesis without addressing the problems it creates. 

We have the tools to solve the twin problems of a successful electric vehicle transition and the need to provide the infrastructure to create the sustainable energy it will demand. If only government could see the bigger picture and make lemonade out of some pretty tart lemons. Mind you, this is the same government that is only a week away from shutting down government for the 14th time in 42 years.