What Went Wrong With General Motors?
What Went Wrong? is the title of a book by the Orientalist scholar Bernard Lewis about the Decline and Fall of the Islamic Civilization. There was a time when the Islamic Empires ruled from Spain to India and beyond. They had the best scientists, the most sophisticated literature. The basic degrees given out in Western Universitites today (Bachelors, Masters, Doctorate) are translations of Arabic terms used at Madrassas from Morocco to Egypt. The idea of tax exempt foundations to support research and charitable work is Islamic. The Shariah Law gave women the right to property, unheard of in the West till the eighteenth Century. And then it all fell apart. The Ottoman Caliphate lingered on as the sickman of Europe until it was finally abolished in the 1920s by the British.
Something like this is happening with the American Car industry. Obama just fired the Chairman of GM, the closest thing to a Caliph in America.
General Motors was nicknamed Generous Motors by its employees: the salary was great and the benefits even better. You could work at one Auto company long enough to get vested for benefits then switch to another and get vested there too. Their salaries supported more than their families. Detroit flourished as the center of music and middle brow culture.
Every year Detroit would introduce new models. A car was not just a means of transport, it was an extension of an American’s identity. Are you a Trans Am or a Corvette?
Auto executives moved easily from Detroit into the Eisenhower and Kennedy Cabinets. They established foundations that still support scientific research and world peace. Sloan and Ford foundations will survive even after the demise of the industry that created their wealth.
What happened to Detroit?
As in the case of Islam, the first thing was that success attracted competitors. The Crusades did not bring down the Islamic empires. But the Crusaders brought back to Medieval Europe knowledge and value systems that eventually produced worthy competitors who drove out the Moors from Spain. Europeans learned from the Arabs science and technology. Even the value of basic bodily hygiene. They then explored the oceans searching for trade routes to India and discovered not just that but a whole new Continent. Science and literature shifted to Europe.
The wealth and success of the West attracted attention too. Japan did not win WWII. But the Japanese and later Koreans learned how to operate assembly lines. Set up dealerships. Pay attention to the customer. They responded to the oil crisis of the seventies with smaller cars. While Detroit lobbied Congress to lower CAFE standards and impose quotas, the Japanese companies developed sensible cars that people wanted to buy. They also thought ahead and developed hybrids at a loss. For three decades, Detroit produced a mediocre product that competed with better imported cars. My last car was an Oldsmobile in which to set the clock you had to use the radio dials. In my Toyota (made in Tennessee) I can just punch in the time.
In the American system, executives are rewarded for short-term profits. If you can figure out a way to put off expenditures and book sales as they happen, you get a big artificial boost in profit. It is a lot easier to pull off such accounting gimmicks than to make and sell good cars. So auto execs got wage concessions from unions in exchange for a promise of lifetime health care and retirement benefits. By the accounting rules in place then, they did not need to book the current value of those promises as an expense.
But it is not just the auto executives that are to blame. We all have a share of blame in the fall of Detroit. Back in the 1990s we blew our chance to get National Health Insurance, and the last chance to save Detroit. The health care and retirement costs of employees should have been paid for by their taxes and not by added costs to the cars they make. That competitive disadvantage alone explains much of the rot of Detroit.
There is more. Complacency breeds corruption and extravagance. There was no oversight of executives: the boards became their Harems. Members could be hired and fired at the whims of the Sultans of Commerce, the CEOs. The Corporate Nobility not only managed companies, but became trustees of museums and universities. Journalists found it easy to trumpet their talking points, much like the court jesters of old. The executives became cutoff from the common people.
At the height of its influence, the Ottomans would recruit (in some cases, kidnap) brilliant boys (Dervishem) from around the world to be brought to Istanbul where they would be trained to become functionaries of the Empire. The corporate equivalent is the MBA. But in both cases the system degenerated. The functionaries got caught up in the politics of the Harem and the executive suite. The quality of management declined even as its power grew. The guys who thought up the Hummer were showing the same impaired judgment as the Ottoman Generals who decided to conquer the Balkans.
Minor American executives were strutting about the world (buying Saab) like the Turks who ruled Bulgaria. In Detroit they built palatial headquarters for their many divisions, as decadent as the palace of the Ottoman Ambassador to Egypt that still stands on the Eastern bank of the Bosphorus. For a while Egypt, a province of the Ottoman Empire, was richer than Turkey, the seat of the Capital. In recent years, the North American divisions of GM have been bleeding money while the European and Asian divisions have made modest profits.
So what do we do now? Look at how Kamal Ataturk carved Turkey out of the remnants of the Ottoman Empire.
It is time to let GM go bankrupt. Its employee pension plans should be scaled back and then guaranteed by the government to protect retired workers. National health insurance must be adopted right away to protect them and the workers at other companies. After scrapping extravagances like the Hummer, GM should be allowed to go back into business with a smaller core business. May be they should concentrate on just trucks: their cars are not selling.
There is no way anymore to salvage all the jobs of the hundreds of thousands of workers at the GM plants. The best we can do is to sell the small core of GM that can be saved to its own employees. The Government should remain a major shareholder, but the majority control should be with the employees. There should be an understanding that no executives should be paid more than twenty times the average salary. Not only to save money but to make sure that they don’t get out of touch again.
When the Sultan ate with the soldiers and slept in the same tent, the Ottomans were strong. As soon as the Sultan moved into the Dolmabache palace on the West Bank of the Bosphorus, keen observers knew the end was near. Abolish the executive dining rooms. Sell off the fleet of jets. Let what is left of GM be run like AVIS or UPS.
Salvage the parts of GM research that works on electric cars and fuel cells. Spin it off as a separate entity, a non-profit corporation like the Smithsonian. Give it Govt subsidies to do research to invent an environmentally safe alternative to the internal combustion engine. We have already proved that Private Industry will never do that.
If a man’s livelihood depends on him not learning something, you can never teach it to him
said Mark Twain. Only the Government can do what is needed for the national and global good. What is good for GM, it turns out, is not good for America. It is not even good for GM in the long term. But the flaws of GM are the flaws of much of traditional corporate America. Its failure is a warning to get the rest of our house in order.
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