The sense of fairness is paranoid, the labor movement is strong and aggressive, and building cars in Latin America has become nonsense

Founded in 1955, Argentina's Caesar Industries (hereinafter referred to as IKA), which was sold to the French car manufacturer Renault in 1970 due to consecutive losses, no longer exists.

What's the big problem with IKA? Analysts will focus on various direct causes, but the ultimate cause is the feedback mechanism. It varies in different directions in different countries, but it is all related to animal spirits.

IKA was founded in 1955 with strong support from the government. In fact, the managers of IKA are not Argentines, but imported from the United States. The company was born because the Argentine government wanted to create an automobile industry. The Argentine government granted strong tariff protection to Henry Caesars, a U.S.-based automaker that had gone bankrupt, and the state of Codoba offered it a 10-year tax break.

Since it was a government project from the day it was created, IKA survived as a product of economic protection, and everyone knows it. Employees lack both a sense of mutual trust and a shared sense of mission.

In 1963, when IKA announced a one-week suspension of 9,000 employees, fairness became a fatal problem for the company. The workers "quickly rioted, occupied the factory building, and drove 150 overseers and foremen to the paint shop." They waved bottles of gasoline and threatened to set fire to the paint shop if the supervisors did not retract the order to stop work. Fearing for the safety of the hostages, IKA President James McLeod finally gave in."

From 1969 to 1972, IKA also had other riots and destructive strikes. In particular, in 1972, the government mobilized the army to protect the factory buildings from strikers.

The labor movement in Argentina was very strong and aggressive, at least since the 1910 railroad strike. At the time, the riots in Buenos Aires forced a strong repression by the government, so much so that the entire city was turned into a "military barracks." Since then, labor and management conflicts have been a prominent issue in Argentine domestic politics.

In 1946, Juan Perón, who was partial to workers, was elected, and the government immediately enacted a new constitution guaranteeing workers' rights. There is no doubt that the hostile relationship between labor and management has cost IKA a heavy price, and the company has been hit by continuous strikes, not only the production costs are getting higher and higher, but also the daily production has plummeted to 70 vehicles.

In this case, it is not surprising that investors have no interest in continuing to invest. The treasurer of a large company said: "From an economic point of view, making cars in Latin America is nonsense. If it weren't for tariffs, you could import cars and only spend a hundred or two hundred dollars more than in the U.S. or Europe. The widespread story of this view not only weighed on the stock price, but also frustrated IKA workers. They can only hope that a steady stream of government subsidies will keep the company afloat.

There are huge differences in confidence and sense of fairness between countries, and even within a company, which can be fully explained as differences in national cultures. But in fact, we have good reason to believe that these factors will change over time. These factors will change as the business succeeds, as the stock price changes.

If we always have a feedback mechanism around us from price to animal spirit to price, then we live in a world that is very difficult to predict. Today, Argentine businesses and people may be very different from the era we described earlier, but they will change in the future because of endless economic feedback.

(Robert Shearer's Animal Spirit reading notes)