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GM’s fall a case of ‘creative destruction’

Marketplace Staff Jun 1, 2009
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GM’s fall a case of ‘creative destruction’

Marketplace Staff Jun 1, 2009
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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.

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