GM's fall a case of 'creative destruction'
In the 1950s GM was the largest industrial corporation on earth, and now it's bankrupt. How did this happen? Commentator and historian John Steele Gordon provides some historical perspective.
Financial and business historian John Steele Gordon (flaglermuseum.us)
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TEXT OF COMMENTARY
Kai Ryssdal: As Bob said, 50 years ago General Motors was the biggest industrial corporation on the planet. It was, in its day, considered a model of how to run a global enterprise. What was good for the country really was good for General Motors and vice versa. As to how the company finds itself in bankruptcy today? Historian and commentator John Steele Gordon says the answer lies in what was not good for GM, or for the country.
JOHN STEELE GORDON: Between the end of World War II and the early 1970's, the Big Three automakers had a cartel in the American market. Except for a few niche players like British sports cars and the Volkswagen Beetle, they had it to themselves -- 50 percent for GM, 30 percent for Ford, 15 percent for Chrysler. Instead of competing for market share with better design, lower prices, or technical innovation, they rested on their laurels and split the guaranteed profits with the United Auto Workers, who commanded ever more generous wages and benefits. The Big Three, like all monopolists, became fat, dumb, lazy and incredibly bureaucratic.
When the price of oil shot up in 1973 and Japanese cars that were better designed, better built, and better looking invaded the American market, the Big Three were caught utterly flat-footed. They have been trying, unsuccessfully, to adapt to the new market conditions ever since -- proof that a corporate culture is a very, very hard thing to change. The current recession proved the final straw.
So is GM's bankruptcy the end of American industrial might? Hardly. American manufacturing is orders of magnitude more productive than it was 50 years ago. So manufacturing output in the last 30 years has more than doubled, even while the number of manufacturing jobs has been declining sharply, as it has everywhere in the industrial world, even China.
Rather, it is simply an example of the "creative destruction" that is the hallmark of capitalist systems. Of the 30 members of the Dow Jones Industrial Average in 1959, exactly four are still in the index, as General Motors got the boot this morning. AT&T, another component, is an utterly different company today than it was then. Many of the biggest companies on today's list -- Intel, Wal-Mart, Microsoft -- did not even exist 50 years ago.
So GM's bankruptcy is not the end of industrial America, only the end of mid-20th century industrial America. Frankly, it's about time.
Ryssdal: That was economic historian John Steele Gordon there. Earlier we heard from Robert Reich. He teaches public policy at the University of California, Berkeley.
Comments
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From Cincinnati, OH, 06/03/2009
I hope Mr Gordon's economic research is better than his automotive research. To characterize Japanese cars as "better looking" than anything is unknowing.
Japanese cars are many things, but good- looking they are not. I've served as a car show judge for many years and don't remember a Japanese car winning any major award due to styling or appearance.
Japanese cars are all function-over-form hence, somewhat dull economical commodities of which, styling is a very low priority.
06/03/2009
We had a 1973 Toyota station wagon, a similar year Datsun 510 station wagon, a VW 412 Squareback, and a 1975 and 1980 Pinto stationwagon. They were all the same in quality, and no one needs to own a Vega to know that was no better.
But, later in the 70's, the Japanese seemed to get better, while Detriot...bought Japanese economy cars and mini trucks, and re-badged them as their own. And continued to make big cars as they always had been.
The problem Detriot has now, is the same the computer industry had--the models of the last few years, are perfectly capable of handling what you, the customer, requires. To buy a new item, is a needless expense--unless its somehow cheap enough, or has enough doo-dads you can somehow be convinced you really need.
From Raleigh, NC, 06/02/2009
I object to the claim that "....when the price of oil shot up in 1973 and Japanese cars that were better designed, better built, and better looking...."
I am old enough that I actualy drove new Japanese cars in 1973. They most certainly were not "better designed, better built, and better looking." Mostly they were slow, noisy, cramped, cheaply built, light, unsafe, and unreliable. The main positives were that they were cheap, got moderately better gas mileage (nothing special for such small cars...), and were not American built. They appealed to people who were willing to but up with a slow ox cart like cars in order to save a few pennies on gas. They also appealed to people who thought anything foregin had to be better. I always laugh when people talk about legendary "Toyota" reliability. The only cars I know that were less reliable in 1973 were VWs Bettles, but then people miss remember how horrible they were as well. Admittedly by the early 1990 Japanese cars had become very good vehicles, but in 1973...please....quit trying to rewrite history.
From Seattle, WA, 06/02/2009
I recall reading a review of the latest Corvette in a popular car magazine. It went through extensive testing against a Ferrari costing more than twice as much. In every test, the Corvette beat out the Ferrari! Now the clincher is that every reviewer, given the choice, would prefer to own the Ferrari. Their reason? Sitting in the cockpit of the Corvette, surrounded by cheap vinyl and plastic, felt like the inside of a common Chevy instead of a $100,000 super-car while sitting in the Ferrari felt like, well, a Ferrari. So how do I feel about bailing out a company filled with overpaid executives who make these kinds of moronic decisions? Like pulling my hair and screaming!
From Austin, TX, 06/01/2009
RE Mr John Steele Gordon's report on GM's fall:
He's terribly mistaken if he believes Japanese imports were better looking than GM models in the 70s.
Americans started to embrace Japanese cars in spite of their dowdy looks because they were compact, fuel efficient, more reliable and longer lasting. Most Americans did not embrace Japanese cars in the 70s however.
GM was producing very popular models up to the point of their bankruptcy. Their fall came about because bloated corporate inefficiencies, failure to compete with the Japanese market niche, rising health care costs, and the global financial derivatives fraud that has brought every car maker in the world to major losses.
Finally, he claims the bankruptcy is just part of the re-industrialization of the US, when in fact it's emblematic of the ongoing de-industrialization of the US.
From Ann Arbor, MI, 06/01/2009
I see the problem --
Pundits such as Mr. Gordon, tooling around in their chauffer-driven Mercedes, just parrot one another about the viles of "the American car" and the (alleged) virtues of "the Japanese car."
FACT: Japanese cars of the 70s and 80s rusted out just as fast and required more repairs than their American counterparts.
The most expensive-to-own car I ever had was Japanese. The best cars I've had have been Pontiacs.
I drove a Toyota (a 2007?) as an airport rental and was very underwhelmed. The ergonomics were terrible. I was happy to get a Grand Prix the next time.
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