The US Is GM

Tom Davenport’s Blog: November 2, 2009

The United States, my beloved home country, has become the General Motors of nations in its lethargy and complacency. This is ironic, because the US (and Canada) own a majority share of GM, but I am focused more on economic similarity rather than ownership. The height of complacency for GM was probably about 2004. In that year the automaker still had the title as the world’s largest maker of cars, a title it relinquished in 2007. GM was still profitable in 2004 — but not very much so — and it was losing market share in many of its major markets. That was the year that GM abandoned the Oldsmobile brand, but it didn’t seem worried about its future overall. (Announcing the decision to phase out Olds, GM stated in a press release issued in late 2000 that the move would “accelerate GM’s effort to focus resources on strengthening its market position and growth opportunities” and “further streamlines GM’s product portfolio, focusing engineering and marketing resources more sharply on the company’s most successful products and brands. It will also facilitate the development of more innovative products with shorter life cycles.”) Optimism is great, but obviously that didn’t work out terribly well; by 2009 GM was in bankruptcy and is about to shed a lot more brands. It’s now a shadow of its former self, but in 2004 its managers didn’t seem to grasp that the company had a serious problem. Compare GM’s situation to that of the United States, where the complacency peak was probably about 2007. In that year my country continued its long, slow economic and social decline; it ranked 13th (down from 12th the year before), for example, in the United Nations Development Program Human Development Index, which combines GDP per capita, education, and life expectancy (Norway, Australia, and Iceland held the top 3 positions. Yet the then-CEO of the US, George W. Bush, was sanguine about the economy in the 2007 State of the Union address: A future of hope and opportunity begins with a growing economy, and that is what we have. We are now in the 41st month of uninterrupted job growth, a recovery that has created 7.2 million new jobs so far. Unemployment is low, inflation is low, wages are rising. This economy is on the move. And our job is to keep it that way — not with more government but with more enterprise. Apparently the near future of the US economy wasn’t quite as bright as Bush suggested. Both GM and the US government seemed unable to grasp the extent of their problems and failed to do much about them. Both had insufficient innovation, overly high health-care costs, undereducated populations, unwillingness to face environmental issues, and an inability to make tough decisions and take tough actions. And why should they make the hard calls, when it was all too common to hear within both institutions that they are the greatest of their kind in the world? Are there bright spots in both organizations? Absolutely. But touting them, as opposed to calling attention to problems, only leads to further apathy and decline. I believe that it’s diligent and serious self-criticism that identifies the need to change and drives action. Compare the attitudes of the U.S. in 2007 and GM in 2004 to that of Akio Toyoda, the new CEO of Toyota (and a graduate of my school, Babson). Instead of patting the company on the back, Toyoda addressed its recent problems with sharp, pointed criticism, according to a New York Times account of his remarks at the Japan National Press Club: Mr. Toyoda said his company was shamefully unprepared for the global economic crisis that has devastated the auto industry, and is a step away from “capitulation to irrelevance or death.” The company, he added, is “grasping for salvation.” Even adjusting for the usual Japanese tendency to self-criticize, this is an amazing statement. It suggests that Toyota and Toyoda aren’t remotely content with business as usual and plan to face the company’s problems. It may exaggerate a bit, but isn’t it more constructive to exaggerate problems than to exaggerate success? As many have noted, Toyoda borrowed the language for his company’s situation from Jim Collins’ book How the Mighty Fall. One might suggest that Collins’s framework for economic decline applies to countries as well as companies, although that wasn’t his focus in the book. So where is the U.S. in his five-stage model? We have clearly exhibited Stage 3, “denial of risk and peril,” for many years. I don’t think that Toyota is truly at Stage 4, “grasping for salvation,” but the U.S. probably is. And we aren’t that far from “capitulation to irrelevance or death,” Collins’s fifth and final stage. Barack Obama hasn’t sounded the alarm quite to the degree that Akio Toyoda did, but he clearly knew we were in big trouble well before the latest economic crisis. His administration is trying to work along multiple fronts — health care, the enormously costly wars in Iraq and Afghanistan, climate change, education, financial mismanagement, and many others — to address the sad state we’re in. He may not succeed, but I give him substantial credit for trying. It’s typical of our situation that his strongest detractors allege that he’s taking on too much and having government play too large a role. If we’re verging on “capitulation to irrelevance and death,” the implication is that, if anything, he’s moving us too slowly. I love my country, but right now the kind of love it needs most is tough love.

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