As GM Went, So Went the Nation

Estimated Reading Time: 6 minutes

The forces that almost brought General Motors to its knees are even more powerful and ferocious today.

Water buffaloes in Africa can be driven to madness and to their knees by swarms of flies. The flies came to mind as a perfect metaphor when reading “The Sack of Detroit,” the fascinating and balanced book authored by Kenneth White and published by Alfred A. Knopf.

The book details how Ralph Nader and other so-called consumer advocates joined with trial lawyers, opportunistic politicians, public-interest groups, and a gullible media in the 1960s in almost bringing General Motors to its knees.

In the intervening years, such swarms have become larger and more ferocious in attacking not only individual companies but consumerism in general and the overall market economy. The book doesn’t say this, but a case can be made, as I’ve made many times, including in my 1991 book on bureaucracy, that these anti-business forces comprise a growth industry in America, one that is a major cause of low productivity, income inequality, the offshoring of companies, and unsustainable deficits. Stay tuned for some statistics later in this commentary.

History hasn’t been kind to GM. The prevailing take is that by the 1960s, America’s most admired company had become a bumbling, bureaucratic behemoth beset by hubris, arrogance, and bad engineering, run by a bunch of out-of-touch white guys who were blindsided by the Arab oil embargo, the onslaught of better-built foreign cars, and recalcitrant unions. To top it off, GM’s hidebound executives were callous about 40,000 Americans dying in car crashes every year, as they put profits before safety and refused to make their cars safer.

The Sack of Detroit” confirms that some of this is true but also tells the rest of the story.

Years before the oil embargo and the big invasion of Japanese cars, GM had anticipated a market for smaller cars. It had invested heavily in plants and joint ventures in Europe to import smaller cars to the U.S. At the same time, with the help of the U.S. government, Europe had rebuilt its industrial base after the devastation of the Second World War and thus had newer and more efficient plants and equipment than the United States. Europe and Japan (and later South Korea) also put stiff tariffs on cars imported from America, thus protecting their auto industries.

GM came out with the Corvair in 1960. It was the compact car that made Ralph Nader famous and was the subject of his 1965 book, “Unsafe at Any Speed.” The book and his other relentless attacks on the car’s supposed safety flaws would result in GM eventually withdrawing it from the market.

In reality, the car was very advanced. It had independent suspension and an air-cooled, rear-mounted engine—features that made it nimbler than the typical American car and more like European cars in its handling. (A friend of my family had a Corvair convertible and would let me drive it. It was a fun, good-handling car.)

Regarding auto safety, there were two schools of thought back then. One was to reduce injuries and fatalities by making roads safer, enforcing speed limits, reducing drunk driving, and educating drivers. The second was to make accidents more survivable by building safety features into cars, such as seatbelts, head restraints, stronger door latches, safety glass, collapsible steering wheels, padded dashboards, and the elimination of protruding knobs and handles inside the car.

Independent safety experts with no financial stake in the outcome or tie to the auto industry had legitimate differences of opinion on whether the first or second approach would have the highest payoff in reduced injuries and fatalities. But Nader and other crusaders, in their animus for GM and other auto companies, pooh-poohed the first option and wanted the government to focus on crashworthiness.

Naturally, the auto industry didn’t want to increase costs, and it said with some credibility that consumers didn’t want to pay for safety features. In fact, when seatbelts were introduced as an option, few car buyers took the option.

Due to consumer resistance to seatbelts, the U.S. was slow to mandate them. But when they were finally mandated by some states and then by the federal government, most Americans didn’t buckle them, including, as the book humorously mentions, safety advocates who were railing about the auto industry not doing enough for safety.

Countries that enforced seatbelt mandates and instituted breathalyzer tests and other drunk-driving laws sooner than the U.S. saw bigger drops in fatalities. For example, between 1979 and 2002, traffic fatalities fell 46% in Great Britain but only 16% in America.

GM didn’t lose the technological battle so much as it did the public relations battle. One reason is that in a fight between David and Goliath, the public and the media generally root for David. Or as one GM executive said, “The silk hat gets the snowballs.” A larger reason is that it became public that GM had made a boneheaded decision to try to dig up dirt on Nader.

Nader was a strange duck, albeit one with an undergraduate degree from Princeton and a law degree from Harvard. He lived a monastic and apparently celibate life, so there was no dirt to be found. GM’s effort only served to solidify Nader’s reputation as Mr. Clean.

The government smelled blood. Rumors spread that it was considering breaking up GM for antitrust reasons, as it did with AT&T. To thwart such an effort, GM began centralizing its manufacturing, essentially taking car assembly away from its car divisions. This would make it more difficult for the government to spin off the car divisions into separate companies because a car company without manufacturing wouldn’t be much of a car company. The unintended consequence of centralized manufacturing was that GM’s cars began to look alike and began sharing common platforms and parts, thus losing the distinctiveness between divisions that had been a major selling point.

Regulations exploded. Between 1974 and 1979, GM spent $8 billion on regulatory compliance. In 1979 alone, it spent 40% of its capital budget on regulations and had 26,000 employees working full time on compliance.

Morale plummeted. Employees with oil and gas in their veins and engineering in their hearts became hamstrung by red tape. Meanwhile, Japanese car companies, aided by the Japanese government, were putting their energy and resources into developing prowess in engineering and manufacturing.

The epilogue of the book describes how the regulatory state grew over the 20th century and into the 21st, and how progressive activists, intellectuals, and politicians changed their thinking about capitalism.

Progressive reformer Teddy Roosevelt at the start of the 20th century, and his cousin Franklin Delano Roosevelt in the 1930s and 1940s, reduced the power of corporations and intervened in the economy to temper capitalism, but they and other reformers at the time were not out to dismantle or replace capitalism. They understood that capitalism and markets were the engines of progress and wealth creation—wealth that was essential for addressing social problems, and in the case of the Second World War, for beating the Axis powers.

The thinking began to change in the late 1960s to the idea that capitalism and markets were the causes of social problems and to the degradation of the culture into materialism, mindless consumerism, and dog-eat-dog competition. For example, to quote from the book:

Ralph Nader testified that he wanted Americans to throw off the chains of capitalism. John Kenneth Galbraith called for a “major wrench in our attitudes” toward economic production and growth. And Daniel Patrick Moynihan rejoiced in 1967 that the “central concerns of American society are no longer in the hands of free enterprise and that free enterprise is no longer in the hands of men who expect to lead society.”

By 1977, 83 public-interest groups had offices in Washington, D.C., a doubling in ten years. And by the mid-1970s, there were 86 public law firms active in the capital, with 80% of them having been formed since 1968. The number of lobbyists saw similar growth.

There was one lawyer for every 627 Americans in 1960. Thirty-five years later, there was one for every 307. Annual legal billings grew from $9 billion in 1960 to $54 billion 27 years later (in constant dollars), a period in which the population increased by 36%. The direct costs of torts (liability judgments) reached a staggering $429 billion by 2016. As the book says, this means “that Americans annually spend 70% of their world-leading national defense budget warring with one another in the courts over injuries, real and perceived.” The effect on innovation is probably much costlier.

National output per person fell by a third in the 50 years after 1970 compared to the 50 years before 1970. The growth in real income for the average American also fell. It had climbed at an annual rate of 2.58% between 1948 and 1972, but only .48% since 1972. There are now more Americans employed in the non-profit sector than in the manufacturing sector.

Other details on how the regulatory state and anti-business animus have lowered productivity and income can be found at the following link, which will take you to an article of mine published in a medical journal: “It’s the Bureaucracy, Genius: How Bureaucracy has Lowered Productivity and Income.”

In a modern version of corporatism, many companies and professions have benefitted from the regulatory state, especially those that know how to play the public relations game and appease the political class and conform to today’s zeitgeist of sustainability, social justice, equity, and diversity and inclusion—becoming very wealthy in the process. (As the former head of an influential environmental group, I know how the game is played.)

The game-playing can be seen in commercials and advertising, much of which says nothing about the features and benefits of products and services, but instead is hooey about how kind, caring, enlightened, open-minded, and saintly the companies are.

If General Motors had learned how to play the game in the 1960s, it would still be one of the most admired.


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