Top of the News: I covered the Big Three, especially General Motors, back in the 1980s when the automakers were trying to re-engineer themselves to face an onslaught of competition from Japanese imports. They had reached this point through the complacency and arrogance of corporate chiefs and union bosses so well documented by David Halberstam in his book, The Reckoning. So plants were closed, tens (ultimately hundreds) of thousands of jobs were cut, unions gave repeated concessions and states such as Ohio provided generous incentives to spark automaker reinvestment in the heartland. I got a chance to see the unions and executives close up, as well as the blue-collar middle class this industry had created.
The reinvention didn’t take, primarily because of an executive culture that couldn’t see beyond the next quarter’s numbers. Like an addict with a new jones, the Big Three avoided the reckoning for another two decades because of cheap gasoline and its myopic bet on SUVs and big trucks. (These were unsustainable bubbles in their own right, much like what happened with housing). Closings and worker givebacks continued, but the executive culture didn’t change. Now GM’s failed Chief Executive Rick Wagoner is being forced to walk the plank as a condition of government help. Yet it won’t change the lack of innovation and creativity in the ranks immediately below him. At one time, GM employed some of the smartest people in the world — but their ideas usually never got past the bean counters. Now, for all its protestations to the contrary, Washington has decided America doesn’t really need a substantial auto industry. And after more than 20 years of executive malpractice (sorry, union haters), it’s a hard argument to fight. Maybe Ford, under more progressive leadership, will survive. If America is to repay all its debt and sustain its economic power in the new century, it will have to actually make things, say transportation for an era of higher energy prices, instead of just cars as if the future will be a replay of the 1960s.
It’s interesting to note the contrast. The government is even more invested in saving the banking industry and Wall Street than the Big Three, yet the president isn’t asking for the resignation of, say, Bank of America’s Ken Lewis, who presided over a disastrous merger with Merrill Lynch, slimy bonuses and all. This is what happens when the American economy has become so heavily “financialized.” In the 1950s, GM chief Charlie Wilson could say “What’s good for America is good for General Motors and vice versa.” Is what’s good for “too big to fail” financial institutions the same? A former IMF chief economist says no, in a provocative Atlantic article, about how the financial industry “has effectively captured the govenrment.”
The Back Story: Be sure to check out Marc Ramirez’s fine article today in the Times about how the collapse of Washington Mutual has devastated retailers near its headquarters. We will be counting the casualties locally from the nation’s biggest bank failure for some time. The damage goes quite deep, even beyond the loss of thousands of high-paid jobs and the wealth destruction visited on employees and shareholders.
A major bank headquarters is a prime — and increasingly rare — asset for a major city. It disproportionately attracts talent and capital. It is usually a concentrated operation in a downtown, underpinning the health of the center city. It provides an executive incubator that spins off talent to start other ventures. It assures the livelihood of scores of smaller companies that act as partners and vendors. And it is usually an outsized leader in advancing civic health, whether through the arts or volunteerism. Most cities lost these assets in the bank mergers of the 1990s that are now so obviously ill-advised. Seattle was one of the last. I think civic and political leaders are still in denial about this situation, and the need to find a way to replace the loss so the region is not behind in the great reset.
Today’s Econ Haiku:
Wagoner drives off
While the president tinkers.
Buddy, got a wrench?