VW: Emissions Versus Omissions

With the revelation that VW have been hoodwinking customers and regulators, all over the world it seems, what can we take for granted? This is where politics and business collide.

It’s a simpler analogy if we use human relationships to examine the kind of problem we’re looking at. There’s a piece of amusing advice for men: it’s important to find a woman who is good at juggling their home and business life, a woman who is an incredible lover, a woman with whom you can enjoy spending time and have a laugh. But the most important thing of all is that these three women NEVER meet. Actually, that’s not as ludicrous as it sounds. I’ve observed that women generally look for a man who is at once sensitive and sporty, reliable and spontaneous, funny and serious, down to earth and exciting, and so on. Again, there is no way that’s one man!

And so to VW and other car manufacturers. Governments need companies to support growing and stable economies. VW would have been a poster boy for the exercise until this week. They also want companies to jump through their regulatory and legal hoops so they can pretend that it’s possible to have a perfect world. It isn’t. Every time you create some rules game theory kicks in.

Game theory, for those who don’t know, is the study of how one person’s actions affect another person’s actions, which in turn affect the first person’s actions and so on. It can be applied to all sorts of situations from politics to sport to simply getting served quickly in a pub.

So back to governments trying to be all things to all people and all companies. Clearly it can’t be so. Something, somewhere has to give. If governments create legislation then people will work around it. Maybe, just maybe, they’ll obey it. More likely they’ll subvert it or ignore it. Don’t think for one minute that there isn’t a big board room somewhere in every big city where the criminals meet on a Monday and discuss the opportunities raised by new laws that they can take advantage of.

Faced with a game-changer, then companies may choose to circumvent the rules too. Most commonly that’s in the form of fraudulent accounting, but here’s a brilliant example of a company cheating the rules. Newspapers are another great example of breaking the rules by phone hacking, paying the police for stories etc.

I’m not sure why everyone is so outraged. I mean all of us have a window-dressed self-image that could, in certain circumstances that we tend to actively avoid, be destroyed. I remember an ex-girlfriend’s dad when I was a teenager. He was a rich business man. Really confident and delightfully opinionated. Family Christmas dinner round his mum’s and suddenly this façade crumbled as his mum berated him about his worst subjects at school and the silly things he did as a child.

As Balzac said: “behind every great fortune lies a great crime”. Well behind every successful company is a government trying to flog the goose that lays the golden eggs to within an inch of its life. They get it wrong a lot, ask the impossible and this is what happens. And another brilliant nail in the coffin of the bull market and another step towards a proper recession. Encore! VW represents a failure in government more than a failure in business, and is the by-product of career politics conducted by people with no experience in the real world or in industry, and a complete misunderstanding of the relationship between economic growth and reducing emissions.