Abstract: A Prisoner's Dilemma: Auto Investment Incentives and the Failure to Regulate Them in North America, 1975-1980
The emergence of 1970s auto investment incentives in North America was a consequence of three factors: the fight for investment dollars; competition over the investment of offshore firms; and the industry's continentalization after the 1965 Canada-U.S. auto pact. The latter was galvanized by the successful 1978 Canadian incentive given to Ford Motor for an Ontario plant over Ohio. In an effort to control themselves—officials in Washington and Canada both deplored incentives as a "mug's game"—in 1978 diplomatic efforts were made to end the practice. But these efforts failed. What emerged was a classic prisoner's dilemma: Both sides were unwilling to discontinue incentives, fearful that their opposite could or would not do so.The failure to regulate incentives resulted in three long-term consequences. First, incentives paradoxically weakened the state's ability (on both sides of the border) to regulate MNEs. Second, incentives provide an example of how American capital and American firms were effectively decoupled from U.S. government interests. Finally, the inability of North American states to regulate auto capital flows in the 1970s acted as a precursor to the unregulated globalized capital mobility in the postwar period.