VW scandal: lies, damned lies and capitalism

Volkswagen is in crisis after cheating environmental tests -- it is just the latest in a shameful history of massive lies told by businesses to consumers. In capitalism, who can we trust?

‘In my German words, we have totally screwed up.’

No business leader would have wished to find themselves in Michael Horn’s shoes earlier this week. Such words, spoken by the President and CEO of a multinational company worth tens of billions of euros, were sure to travel around the world.

There was little else he could say. Last Friday, environmental regulators in the United States had announced that the diesel cars manufactured by his firm, Volkswagen (VW), had been emitting pollutants at over 40 times the legal limit. VW had been able to bypass the rules by building software designed to cheat tests. It soon emerged that they had installed it on 11 million cars worldwide.

European governments, whose policies have promoted the use of diesel since the 1997 Kyoto Protocol was signed, will be especially concerned by the revelations. In the UK, half of all cars bought are now powered by diesel. Worries over the environmental impact of diesel are growing, and some estimates suggest that it is responsible for 7,000 premature deaths in the UK per year.

But businesspeople from beyond the car industry will be following developments closely, as the scandal has provided a focal point for anti-business sentiment. VW, which was attempting to become the world’s leading car manufacturer by 2018, has been criticised for putting its ambition ahead of the public interest. The company has found itself compared to others who have engaged in unscrupulous behaviour, such as those who contributed to the 2007-8 financial crisis and the traders whose fixing of the Libor exchange rate was revealed in 2012.

Public anger is unlikely to be assuaged by suggestions that governments were lenient towards those involved. German Chancellor Angela Merkel is facing questions over whether she knew of VW’s tactics before they were revealed, while documents revealed yesterday that the British, French and German governments had lobbied in favour of the flawed tests which were used.

A question of trust

‘We can no longer give big business the trust it seeks,’ says Chris Blackhurst in the Independent. This was a systematic effort by a global company to build and use technology in order to cheat the public, harm the environment and contribute to people’s deaths. Businesses are being allowed to think they can act with impunity.

But Tim Montgomerie, in the Times, says more regulation is not the answer; capitalists must be allowed to clean up their own system. The outrage is understandable — VW’s behaviour is appalling and those responsible must be punished — but businesses remain, overwhelmingly, a force for good. We must not constrain those who drive our economy for the sake of appearances.

You Decide

  1. Are you surprised by these revelations, or should we have expected something like this to happen?
  2. Should we impose more rules on our businesses?

Activities

  1. Write a list of five questions you would like to ask the executives at Volkswagen about the scandal (and, if possible, write the answers you think they might give).
  2. Write to Transport Secretary Patrick McLoughlin, suggesting measures he should take in the wake of this scandal and explaining what they would achieve. Consider how to deal with both short-term and long-term problems.

Some People Say...

“Lying, stealing and cheating are commonplace.”

Joseph Wirthlin

What do you think?

Q & A

Has this affected the air I breathe?
Almost certainly. Although the scandal was uncovered in the US, VW has now admitted that it fitted the test-cheating technology to cars around the world, including in Europe, and now there are suggestions that other car manufacturers may also be involved. The air quality in some British cities is a problem — the European Environment Agency says nitrogen dioxide levels are twice the legal limit in London — although the link between such figures and this scandal is difficult to measure.
Will I be affected if the car industry suffers?
It’s very possible that car companies will have to cut jobs or even go bust as a result of this episode. Job losses would be bad news for the economy, as people would have less money to spend.

Word Watch

Cheat tests
The software could recognise when a car was being tested and adapt the way it performed so that it would pass the test.
Kyoto Protocol
Under the agreement, wealthy countries needed to cut carbon dioxide emissions by 8% in 15 years. In response to the signing of the protocol, European governments became particularly keen to promote the use of diesel fuel, which was believed to be cleaner than petrol.
Powered by diesel
This is only true of 3% of cars bought in the US, where the Senate refused to ratify Kyoto. Many Senators expressed concern about the treaty’s likely impact on business in the US.
Environmental impact
Earlier this year, it was revealed that diesel cars’ carbon dioxide emissions were almost identical to those of other cars. Their fumes also contain more than 40 toxic pollutants, including carcinogens (chemicals which cause cancer), nitrogen dioxide (which is concentrated above a legal limit in 40 of the UK’s 43 urban zones) and high levels of particulates (microscopic pieces of soot which cause health problems including heart attacks and asthma).