Charles Erwin Wilson, known as “Engine Charlie,” was president of General Motors and later Secretary of Defense under President Dwight Eisenhower. He is broadly — and incorrectly — quoted as having said during his Senate confirmation hearing “what’s good for General Motors is good for America.” His actual quote is more nuanced: “For years I thought what was good for our country was good for General Motors and vice versa.”
This is a fascinating bit of history because we aren’t talking about today’s General Motors or even today’s United States of America but the GM and the USA of 1953 — a time when both were leading the world. Yet look at the equivocation in Charlie’s statement — I thought, not I think.
Look, too, at our biggest companies today like Apple, Exxon-Mobil, Google, Microsoft, General Electric, and even, yes, General Motors. Can we still maintain, as Engine Charlie kinda/sorta did, that what’s good for those companies is good for America and vice versa?”
No, we can’t.
A tax policy that has companies diverting revenue to other countries with lower taxes and then holding trillions in cash offshore to further avoid taxes may be good for the companies, but it isn’t good for America.
An immigration policy based on lying about shortages of technical talent in order to reduce real wages and longer-term costs is good for the companies but it isn’t good for America.
That’s what’s happening right now with S.744, a bad bill that will give a green card to every foreign STEM student receiving a master’s degree or higher — this at a time when less than 50 percent of U.S.-born STEM graduates are finding employment in their fields of study.
And sometimes what happens isn’t good for the companies or America. This latter point requires some elaboration.
Again, let’s stick with General Motors. The popular management mantra for nearly every public company, including GM, is that management should “increase shareholder value.” The main point, indeed the only point, we’re told, of running a public company is to make the stock price go up. Anything that doesn’t contribute to increased earnings, which are supposed to translate into higher stock prices, isn’t worth doing. And so pension plans are looted and communities abandoned without a second thought.
Yet following the financial meltdown of 2008, General Motors went bankrupt, was eventually saved after a fashion by a government bailout, and what became of shareholder value? It disappeared completely, those shareholders who hung on losing everything as the value of GM shares went to zero and the company was delisted from trading. Shareholders, those very folk whose value was above all supposed to have been increased, lost everything.
So while the function of the public corporation is supposed to be increasing shareholder value, there are evidently other underlying values that are even greater. In the case of General Motors circa 2009, that greater value lay in continuing to service the company’s debt while also rewarding GM management.
What was ultimately protected in 2009 were the banks and the executives and not much else. Despite the vaunted firing of GM CEO Rick Wagoner after his mistake of flying in a company jet to Washington, DC and not driving, Wagoner still walked away with a package worth $10 million. If that doesn’t sound like much retirement money for a titan of industry remember that during Wagoner’s tenure as CEO GM had a cumulative operating loss of $85 billion.
Rick Wagoner, who came up at GM through the Chief Financial Officer’s office, remember, lost approximately $30 million for GM every day he was CEO.
And the guy was CEO for nine years.
Now you may wonder why I’m on this particular rant and why General Motors seems to be in the middle of it? GM is in this case the poster child for a greater American malaise that I have been worrying about, which I’d characterize as the looting of America.
It’s not a question of whether America’s best days are past or can it’s greatness be regained, the problem with America is the people who think they are in charge have simply given up. Worse still, they appear to be too stupid to even know that’s what they’ve done.
The political wrangling between national parties today reminds me of action heroes and villains (it doesn’t matter who is who in this case) fighting atop a moving train. No matter who wins the fight the train is still moving and as long as the fight continues the train will never stop.
What if in all this wrestling the train is going somewhere really terrible but the combatants, trapped in traditional enmity compounded by new-fangled grudges and excuses, don’t even know it? That’s how Washington feels today.
The parasites believe they are in control of the host. The liars, cheaters, bullies, con artists, misguided ideologues and former student council presidents who have been fighting for control of this nation since the 1960s have now thrown away enough treasure and eaten enough seed corn that we as a nation are nearing a tipping point. We may well be past that tipping point. And the way our leaders behave, they assume we are past it.
Look at the later days of any empire. There’s still wealth and grandeur, but there’s also corruption. The court becomes interested more in intrigue than substance not because intrigue is more fun but because substance is viewed as being out of reach.
That’s the way it seems today in our government and most others, where we spend a lot of time arguing and very little time actually getting things done. Debts rise and money is thrown away for what? Our leaders have forgotten what cooperation and communication are even for.
Which brings us back to Charles Wilson, who as Secretary of Defense trying to downsize the military-industrial complex after the Korean War said, “the price of progress is trouble, and I must be making lots of progress.”
Where are you, Engine Charlie? We need you.
“In the case of General Motors circa 2009, that greater value lay in continuing to service the company’s debt while also rewarding GM management.” …Not to mention the unions.
@H. Hofman – So, the unions forced management to sign those deals? Really? Unions only get their power by management agreeing to it. You place blame in the wrong place.
The unions did force it, but through their ties with the Presidency and Congress; not directly.
Honestly, the car companies should sell the vehicle plants to the unions and then force them to compete for the business. Give them 3-5 years before doing so (as part of the turnover agreement). See how long they remain employed under the same considitions. See how long it takes for their union policies to continue. Or rather, see how long it takes for them to put themselves out of business.
Much was done wrong with the GM (and Chrysler) bankruptcies. The union deals were one part of that. What Bob mentions above was another. They honestly should have allowed a normal bankruptcy to take place – but Washington, D.C couldn’t allow that as it would have nullified the union contracts, and the Democrats are doing everything they can to protect the unions as they get a good chunk of the campaign money from the unions.
so rry, did you mean conditions or considerations?
In Germany Unions have representation on the boards of directors. In Japan they have widespread employee tenure. I would argue that the effect of these is for the companies to be run with a high degree of worker interest than you would find in the U.S. and very close to what you recommend.
Union representation in most 1st world countries is around 30% – including Canada. In the U.S. it is around 7%. Not one car imported into the U.S. built on an assembly was built by a non union hand. We had problems in our system, and the elites chose to destroy the system rather than fix it.
This explains the concentration of wealth in this country. Wealth translates into leverage over government and society. The concentration of wealth in this country has destroyed our political system and is in the process of destroying our society, nation and civilization.
Historically, concentrated wealth is the destroyer of nations, empires and civilizations. To wit: Ancient Egypt’s New Kingdom, Western Roman Empire, Pre-Islamic Mecca (Islam is in part, a reaction to concentrated wealth, one of the few successful reactions), Byzantinium right before the battle of Manzikurt (1071, when they lost all of Anatolia, the Byzantine heartland, to little more than a Turkish reconnaissance in force, creating the reaction in the crusades), Medieval Japan, about a half dozen Chinese Dynasties, Hapsburg Spain, Bourbon France, Romanov Russia, Coolidge/Hoover America ( – triggering the great depression, the rise of Hitler, and WWII, and nearly a new dark age, per Churchill’s “Finest Hour Speech” – the society destroyed was Wiemar Democratic Germany, but it almost destroyed western Civilization, and sure made a go at doing that), and finally Reagan Revolution America.
In “Structure and Change in Economic History, pages 100-115, Economic Historian and Nobel Laureate Douglas C. North says that by the 5th century, wealth was so concentrated in the Western Roman Empire that 6 senators alone, owned half of North Africa. Their was no middle class, the bulk of the population was subsistent farmers, and trading took place on a barter basis (no cash – gold – it was all held by the rich). The wealthy and powerful used their influence to avoid paying taxes. The empire still had a tactical edge over the barbarians, but it had thinned, and so need a larger army. What it got was a smaller, cheaper army, manned by barbarians because they were cheaper labor. (The 4th century’s H1B?). The empire lacked the political will to raise an army large enough to defend its borders – when it controled ALL the resources of western civilization, when that civilization included, Turkey, half the middle east, Egypt and all of North Africa as well as the better parts of Europe. All of that was lost to impoverished, illiterate, landless nomadic barbarians.
Our fore fathers were familiar with this history. They believed this was occurring in both France and England that they broke away from. Still they gave us a system that provided for free contract – a system where bargaining power is everything. They knew, that under that system, eventually the rich would get richer and the poor would get poorer. They gave us democracy to redress the balance. Democracy, with one man one vote, is basically political socialism. When wealth get’s too concentrated then the majority would vote to level the playing field.
The forefathers did not anticipate the modern limited liability corporation. In 1860s, despite 3 million of us being held as slaves, the United States had the most distributed wealth in economic history and arguably the most dynamic economy in history. In 1861 we went to war to liberate that 3 million. Yet 25 years after the successful conclusion of that war, wealth was more concentrated than ever. Why? the invention of the limited liability corporation in 1862 (first in England but quickly spreading to the entire western world).
Corporations are ownership collectives. That creates a bargaining power advantage for ownership over individuals. The only redress was collective bargaining – which was resisted by the Corporations. Wealth concentration hit a peak in 1928-1929. It was only in the 1930s that democracy intervened to redress the imbalance in bargaining power. The basic solution to the crisis of the first half of the 20th century was a mixed economic system that included collective bargaining of some sort. That solution went global (in the 1st world) after 1945 (spreading everywhere American boots had a major presence in 1945). In 30 years global productivity doubled – in 30 years the global economy grew faster than it had the proceeding 11,000 years since before the neolithic revolution.
There were problems with the mixed economic system we embraced. Collective bargaining was done on an industrial wide basis – resulting in managerial sclerosis and economic oligopolies instead of competing firms. This was exploited by the Japanese that framed a new model.
Basically the Japanese created the model that you suggest: companies run by unions, well, sort of.
I learned reading this space, that the average CEO tenure is less than 4 years. That’s significant. A CEO’s main interest is to pad his estate before he moves on or retires. In other words very short term. In the Go-Go 1950s, management at the automotive companies didn’t want to stop production because that limited their income and therefore their future estate. Instead they gave the unions everything they asked for to keep the assembly lines running. When they ran out of things that they could give away in the present, they gave away the future in generous retirement pensions – let the CEO of the future figure out how to make good on that – and perhaps they might of if they had maintained the product and market share.
In Japan companies provide life tenure. This results in the balance of power favoring employees. Companies are run with employee interest as paramount. What do employees want? They want a job 20 years hence and a pension 20 years after that – so what they want is long term market share growth. This shows up in everything the Japanese companies say and do. What do share holders want? Increased share holder value. It turns out that stock markets value market share – so in essence the investors and the employees interest are aligned and the Japanese system exploits that alignment of interests. Japanese employees, it turns out, are better proxies of shareholders interests than American Directors and CEOs.
Japanese companies have ‘company unions’. These have proven in-efficacious in the United States. But tied to company tenure, they seem to be effective. Until 1990, Japan had a broader distribution of wealth than most Scandinavian countries.
An interesting experiment would be to follow up on your idea – let the unions run the companies… but in a more nuanced way. Implement the Japanese model in the sense of widespread employee tenure. Then implement company unions (as opposed to industry wide unions – leave the ties as confederal as opposed to federal), but then add the German model, have employees AND union representation on company boards – then sit back and see what happens.
I would also add, that if a company gets too big, it should be split up like Standard Oil was. I once read somewhere, that Peter Drucker said that GM should have been split up in the 1950s – but wasn’t because of Engine Charlie and the Republicans had too much influence on national policy. I don’t know if that is true – but if GM and Ford and Chrysler had been broken up, then we might have had 10 evenly sized car companies competing in 1970s, on the cusp of the Japanese invasion, instead of 3 1/2 oligopoly. History might then have been different.
Concentration of wealth is the greatest threat to our civil life and it always has been. After 80 years of corporate distortions we introduced collective bargaining in the 1930s. It helped a lot, but it was not the perfect solution. Corporation do need to be checked or they will consume our civil structure and bring down our society as they appear to be doing. The affects of concentrated wealth are epic, and have been repeated over and over and over again in history. That you don’t know that, is the result of who is teaching you history.
It is interesting to note, that rather than advocate for fixing our system, economic elites tried to break it. American CEOs would much rather send jobs to COMMUNIST dictatorship in China, thus breaking the backs of American labor, rather than fix the system. The result was concentration of wealth, which as history shows, undermines America, not enhances it. It’s not a coincidence – the high point of the post war American economic model was the late 1960s and early 1970s, which was also when America landed on the moon. We also did other things, like respond to an global environmental threat – the fixing of the Ozone layer in the atmosphere. Wealth concentration results in political concentration which undermines our civic and social life. A country with a working class that eeks out a middle class existence can do just about anything – can even land a man on the moon, but a country with an undersized middle class can do almost nothing.
We have checks and balances built into our constitutional system – too keep any branch from gaining too much power – but we don’t have such in our economic system. And so we are suffering as a result.
Marx called this the “inherent contradictions of capital accumulation.” (Rich become richer, poor become poore, until like in a game of Monopoly, nearly everyone is so poor that they are excluded from participating in the economy). Such phraseology made it seem like he discovered some thing new that was attributable to only Capitalist societies. It was not new. It is a natural danger to free market economics: the rich get rich, the poor get poorer. Our founding generation were well aware of it. They thought Democracy would solve that problem. Corporations, thanks to things like Citizens United and the idea that money is speech, have found a way to buy government in a democracy.
Wealth concentration, for a society, is like standing up in a dug out canoe – its prone to sudden collapse. Our way of life is very much threatened. We have to think about new institutional arrangements. (This is what occurred in the 1780s, when the Articles of Confederation were failing – they came up with a new institutional arrangement, the current constitution.)
Finally, as an aside, I would also mention, that a friend of mine was a stock holder of the old GM. Originally he complained a lot about the settlement. He said he eventually got his money back through some kind of issuance of bonds.
Some other points: the bailout of the auto industry began under Bush. He didn’t want another house hold institution failing on his watch, I assume.
Also, GM is important to the United States on other levels. It was a major instrument in winning WWII. I once read that 20% of U.S. munitions came from the Detroit area (or perhaps it was Michigan). There are other things important about GM than just their economic and raw political value.
Wow. This is a very impressive screed in support of total nonsense.
Didn’t feel like a screed when I wrote it. Just followed the trail of logic I learned from taking North’s class while I was in law school.
I’m not sure what a screed is, actually. But there’s a long and tragic history behind concentrated wealth. It’s been a problem since the neolithic revolution.
A screed is a semi-solid cement mixture, used for levelling floors.
You’d need an impressive screed to level a playing field.
You’re thinking of this: “a leveling device drawn over freshly poured concrete”, however the first definition of screed is “a lengthy discourse”.
https://www.merriam-webster.com/dictionary/screed .
Nonsensse? You must have very poor reading comprehension.
Bruce;
The USA has the most unequal wealth distribution of any developed country (highest Gini coefficient). In the not too distant future it will have the same coefficient as Mexico if nothing changes. Do you think democracy as you know will still exist if the middle class is hollowed out to that degree?
Bruce;
Try google “Gini Coefficient” and see where the American coefficient is going and ask yourself what your country will be like when American wealth distribution is the same as Mexico’s in the not too distant future.
Bruce;
Try google “Gini Coefficient” and see where the American coefficient is going.
Tim,
This is a well thought out logical response and I agree with a majority of what you said. Sadly, the environment in Japan has changed drastically over the past 10~15 years. I lived and worked in Japan for 7+ years and have done business there for more than 20. Over that time I have seen a change from lifetime employment where it was almost impossible to change jobs to job hopping becoming as common as it is in the States. Another change is the fact that many companies have severely reduced the number of full-time employees they hire. Many are now either part time or contract employees. These employees are not given many of the benefits of a regular employee; no pension, no ‘allowances’ (most Japanese companies provide living allowances such as commuting allowance, heating oil allowance etc.) and reduced benefits where allowed by law. As Japanese corporations have become much more short sighted the work environment has become very similar to that in the US and other western countries. The repercussions of these changes are already starting to be felt in Japan and will have lasting effects that will not be known for another 10+ years.
Yeah, I recall being in South Korea in the fall of 2007 and watching an interview on CNBC with the then head of J.P. Morgans branch in Japan and he complaining about the worker tenure rule and the problem of how it forces companies to be run on behalf of worker interests. So I think big money Americans have put lots of pressure on the Japanese to roll back their system. Apparently they’ve had some success. That is a shame. I still think that it is a model that should be tried and encouraged to succeed in the U.S. I think it is good for investors and better for workers and bettter for society. One aspect of the Japanese model is that you have less mergers and consolidation in the industry. This is because companies are run with employee interest as primary and employees don’t like consolidation because it eliminates jobs. As a result Japan has 8 very competitive automobile companies instead of like two or three as we have. Investors lose the control premium which comes when a firm merges – which is probably one reason why J.P. Morgan doesn’t like employees as primary interest. But society benefits from greater competitiveness and more and greater choices of products to choose form in the market place.
Most of the munitions for WWII came out of Michigan because the cereal industry was centered there. Much more to do with the location of Kellogs and Post than Ford and GM. Since ground grains can explode, the materials handling techniques for cereals were applied to handling munitions.
That’s a great factoid — thanks for sharing that!
Paragraphs can be your friend.
Yeah, I’m not sure why they didn’t show up here. If you don’t use them, people think you wrote a screed.
New hires at GM start @ 12/hr.
Of course, it only takes GM 20 hours to build a car, wages are but a tiny portion of the retail price.
GM is stuck paying expensive generous health benefits to retirees. GM would save a lot if money by moving those retirees to taxpayer funded Medicare.
Don’t get out much do you?
Tim’s post seems like a pretty good summary of the situation as it currently exists and of how it came to be. The fact that that you don’t recognise it speaks volumes about your education and knowledge of history.
Check the posting times moron.
When the wealth was held by rich people, they spent their money in their country of residency. Now the wealthy is held by rich organizations, companies, mutual funds and the like. They have no home country or a moral reason to spend there.
The comment “A tax policy that has companies diverting revenue to other countries with lower taxes and then holding trillions in cash offshore to further avoid taxes may be good for the companies, but it isn’t good for America” applies equally well to other countries, such as here in the UK, where currently we’re hearing a lot about the minimal tax paid in the UK by giants like Amazon and Google whilst they make significant profits here. There is a suspicion that perhaps large tax-avoiding companies have too much influence in political circles of power for politicians to challenge this state of affairs.
That is one reason why, at least for the U.S, I think that companies should not be allowed to talk with anyone or provide campaign support for anyone in the House of Representatives; they will, however, allowed to talk with and provide campaign support for those in the Senate. Let the HoR be able to truly represent citizens by removing the influence of companies there.
Sure, it’s not ideal – but it would at least help balance the power again.
BTW, we can’t outright deny them access to the political process as SCOTUS ruled they must have a voice; but there is no reason their influence cannot be balanced out by limiting it to one chamber of Congress.
Once upon a time, before the 17th Amendment wrecked it, the Senate was designed to represent the Sovereign States, and the House of Representatives was designed to represent the People.
It’s hard for me to see how having the Senate represent the Corporations, and the House represent the People, is an improvement on either that system, or the current system!
The 17th Amendment needs to be repealed, so that the States can have their sovereign interests properly represented once again.
Don’t forget about the 16th Amendment too.
Don’t forget about the 16th Amendment, too.
“That’s what’s happening right now with S.744, a bad bill that will give a green card to every foreign STEM student receiving a master’s degree or higher — this at a time when less than 50 percent of U.S.-born STEM graduates are finding employment in their fields of study.”
Yes, much better that they should go back to their home countries, or countries with immigration policies geared towards recruiting skilled immigrants, like Canada, Australia or New Zealand. That way instead of paying American taxes and working for American companies (or founding them), they can work for foreign companies and compete with us.
Given that something like a third of Silicon Valley companies are founded by immigrants or the children of immigrants (Sun, Google, Intel, Apple, etc.), I’m not convinced that more skilled immigrants will drive down wages. More likely that it will lead to more innovation and therefore more jobs overall.
But even so, you do realize that higher wages for engineers translates into higher costs for everyone else, right? And these costs are not just reflected in the prices of consumer technology products like laptops and cell phones, but in the prices of every product and service sold by every company that uses technology. In other words, every company, period.
So if engineers are earning higher wages than they otherwise would because of immigration restrictions (which I doubt, but let’s assume they are for the sake of argument), then those higher wages are coming out of the pockets of everyone else, most of whom make less money that said engineers.
Google and Intel were founded by Jewish refugees. NOT H1-B visa holders.
I’m not opposed to immigration. I’m in favor of it in fact. What I’m opposed to is the current lack of transparency in immigration policy. There is too much posturing and lying going on. Yes, companies should be able to get the best possible workers and yes there can even be a cost component in the definition of “best,” BUT THAT’S NOT HOW THE PRESENT SYSTEM WORKS. It isn’t ven how it purports to work, the politicians are so divorced from reality. As such we look for cookie-cutter solutions and tend to implement broad programs for the wrong reasons. Immigration reform is great IF IT IS REAL REFORM. The current proposals aren’t real reform.
Yes, H1B clearly sucks, but what you said in your post was that you were against “a bad bill that will give a green card to every foreign STEM student receiving a master’s degree or higher.” I have no idea what other garbage is in S.744, but giving a green card to every foreign STEM student who receives a master’s degree or higher” sounds like a pretty good idea to me. As long as the holders of those green cards aren’t essentially indentured to a particular employer like H1B visa holders are, and they can earn longer term residency and eventually citizenship by paying taxes, not committing crimes, etc., then great, we should welcome them to America.
If Engineers make higher wages it does not necessarily result in higher costs to the consumer. No firm is free to simply mark up its price simply because they have an increase in cost to one of its inputs (labor, capital, raw materials, etc…) unless that cost is across the board and a I factor in the end unit cost, and demand will absorb it. Prices in a free market economy are set by the law of supply and demand. Generally firms will price their products at the highest point the market will bear regardless as to the cost of their inputs (unless they are attempting to buy market share through lower prices). If the margin is below 4%, the historical rate of return for investments, per Milton Friedman, then that firm will eventually go out of business and the remaining firms, presumably, will have a margin >= 4%. Presumably then, in a free market economy, consumer prices are as high as they can be at any given time. Lower wages then translates into fatter margins for the business entity. Higher wages translates into slimmer margins. That’s why they want to import workers. It drives down wages and drives up margins. So, a more expensive engineer does not cost the consumer anything. The wage comes out of the owner’s margin. The idea that the cost gets passed on to the consumer, or can easily be passed on to the consumer, is a lie they tell the public so the public will acquiesce to policies that favor the owners or managers of businesses.
Well, it appears that up to now, as usual, most commenters are bickering on points of detail, and ignoring the larger one, which (to me…) is the Twilight of the American Empire and the slow demise of Capitalism and our policies of eternal growth in the face of diminishing physical resources and uncontrolled Population Growth.
So let’s just keep whistling in the dark past the cemetery of our future as a race of Dodos…
And Cringely’s not the only commentator who has noticed that the US looks like an empire in decline. People all over the political and philosophical spectrum are writing the same thing, last days of Rome, decline of the British Empire, etc.
There is lots of things here to think about. It’s not so much union vs management. You can find extremes on each end. GM is over unionized, WalMart’s employees could probably benefit from a union.
It’s more the too big to fail mentality. Which allows banks and others to do whatever they please because the government will bail them out. The regulating agencies do little and are hampered by complex and conflicting regulations. Plus, they are a revolving door employment agency for the industries they regulate.
I like the image of heroes and villains fighting on the roof of the train, which is heading full speed down the wrong track. That’s our government today.
Not all bondholders profited. Many secured bondholders were wiped out. This was a landmark occurrence in US business law– the first bankruptcy ever where secured bondholders, who by contract law are the first to get paid, were pushed back in line in favor of politically preferred creditors. That was the most foul and insidious crime perpetrated during the GM bankruptcy, by a most foul and insidious administration.
I agree. The “widows and orphans” class of Chrysler bondholders across the Midwest received zilch, while the fat cats in New York City holding the same class of bonds received consideration.
US law was totally perverted in the name of letting the white shoes in Washington and NYC profit because of their political connections.
fortunately, some see the big picture… https://www.truthdig.com/report/item/rise_up_or_die_20130519/
Wow – Thousands of lines of armchair philosophy could be typed about this general malaise. Leaving out political/religious/philosophical debates, in short:
History shows that all empires collapse, but this country is truly unique to recorded history – with its freedoms/beliefs/mores – so we might be able to buck the trend.
For that to happen, however, there are two possible paths to a fix, IMO:
1) Lucking out and electing a group of leaders to DC with Solomon’s wisdom and a desire to deal in honest facts. (Not truth – facts… Remember, “perception is reality”, and ratings-hungry pundits can sell you on any truth you want to hear.) They would force change down our throats with cold, hard facts, and those changes would show enough results to where the American people would be compelled by results to listen, and act together to “stop the train” (Think, “Stop using Brawndo to water your crops. Use water instead.”) That all could happen, but considering the pool of people we have to choose from those odds are really long…
2) A crisis strikes the country that doesn’t completely destroy us but can’t be escaped by economic/philosophical/political smoke and mirrors. A drawn out, non-nuclear world war with countless casualties? A true depression that money printing and borrowing can’t delay? A national pandemic that doesn’t discriminate between classes and puts the “fear of God” into everyone? Some other, unexpected natural apocalyptic event? Whatever it is, a REALLY BAD crisis – the kind that would bring humility back to every American enough to force us to work together – if only to survive.
Another point of data to the patient’s chart of declining health: in America, rent-seeking has become hugely profitable, much more so than actually creating something new. So we have money pouring into the Big Six New York banks, but not into startups. We have telcos divvying up the market and maximizing the profits. We have Big Pharma and Big Hospitals colluding with the federal government to run all the small operators out of business.
It’s been over for a long time.
Its been over for a long time.
Hurrah, Bob, you are nailing it. Looting indeed, but having taken all the easy pickings from current and past employees, they have turned to looting the public treasury before there is not enough left to bail anything out. By that time the multi-nationals will be safe, offshore, with the loot, and the carcass will be left to rot in the sun, now super-intensified by climate change.
Sadly, the distraction machine is doing yeoman duty pumping out American Idol, etc. So the mass awareness and push-back needed to stop this can never be assembled. Genius, really, but of the most evil kind.
BTW, you give me all this in email and it means I never need to come to the site. This time I came to say, once again, hurrah, more people in the civilized west need to see this incredible game being played at our expense.
I am a little amazed Cringely hasn’t proposed a Dutch auction for H-1B visa’s. With the profits, plow the money back into STEM education for US citizens. At the point where every foreign applicant gets hired the visa price is too low and the median should come out to 110% of the distorted median price for US technical graduates.
Bob, you write about technology and empowering people through technology. Can technology save us from this fate? Is there a way, via some technology or a combination of multiple technologies? I’m not talking about a technology bubble like in the 90’s. I’m talking about some yet to be determined technology that will help us bypass our current leaders – literally change the game. Please tell us there is some troublesome/pricey progress out there. We need hope!
Bob,
I’m sympathetic to your overall argument, but I think you are wrong on the facts on two key specifics:
1. The only point of running a public company is not to raise the stock price. The point of a public company is to earn a profit. Much has been done in recent decades to align incentives by rewarding key executives with stock options, but let’s not forget that companies raise capital by issuing stock. What happens in the secondary market (that it, after the shares are floated) is really not the company’s direct concern. Yes, it earns some very unwelcome attention if a company’s share price falls too low, but from the company’s standpoint, all the capital they will ever get out of the stock offering came at the time of the IPO.
2. In the GM restructuring, the shareholders got nothing when creditors were repaid (in whole or in part). In every company’s capital structure, there is a hierarchy of senority of claims on assets in the event of an insolvency. Shareholders are always last. Once the outstanding debts are paid, an insolvent company by definition won’t have anything left to pay the shareholders. If they did, they wouldn’t be insolvent. Does this mean that individual investors can lose their shirts while big banks are repaid their loans and bondholders may just get a “haircut”? Of course it does, but GM is no different in this case than every other publicly traded company in the world. If, in the chaos of 2008 – 2009, GM had announced that they were going to stiff their creditors and pay off their loyal mom and pop shareholders instead, it would have been a disaster. For a large industrial to reneg on their debt commitments would have sorely tested what little confidence remained in the global financial system.
Finally, someone who actually understands business. Also note that shareholders, by definition, are the ones taking the biggest risk and, therefore, expect the biggest reward. If they want less risk (and less potential reward), they should buy bonds.
By the way, Bob got the order of things wrong. The government bailed out GM before GM filed for bankruptcy.
” For a large industrial to reneg on their debt commitments would have sorely tested what little confidence remained in the global financial system.”
Yet isn’t that what happened with the way the GM bankruptcy was handled, the administration/courts disregarding several debt seniority rules?
Proto,
in my opinion a public company should reward its stakeholders in the following priority. 1. Its customers. 2. Its officers and employees. 3. Its investors (bondholders and shareholders). 4. The general public, the environment, the government, etc.
The only reason to form a company is to provide an unmet need in the marketplace at a profit. If the company succeeds in this, it usually will be able to satisfy the various stakeholders. The customers should be the primary beneficiaries, since their purchases allow the company to make a profit and stay in business.
The only reason the company officers keep braying about the need for a rising stock price is because they want to make a killing on their stock options. Of course, the company founders and early supporters also want a return on their high risk investment of time and money. Once the IPO is finished, the typical company officers could care less about the shareholders.
Once upon a time, business schools preached these very same ideas. At least, some did. Then, things fell off the rails for a variety of reasons explained elsewhere.
In the end, it all amounts to plain old greed, no matter how it’s cloaked and dressed up. People have been greedy throughout time, to varying degrees. Now, why the rest of us, who might believe that compromising and cooperating ain’t the worst thing ever, go along with such institutional greed is a puzzling question.
Engineers have always been viewed as a necessary cost that needs to be controlled. It was easier to justify paying a line worker $100k with overtime than paying an engineer that much. H1B is just another cost saving move.
There is hope. Look at the MakerFaires that have spread across the world. 3D printing, Desktop CNC, Benchtop laser cutters, electronics being built by home hobbyists at a technology level we couldn’t even dream of only 10 years ago. In the last 5 years the technology of creations have advanced so far at these Faires.
This is where STEM in the hands or free thinkers pays off. Right now its Facebook and Tumblr getting the large money but give it time and more technology will evolve. It’s people in their garages creating things just like the computer industry did years ago that Bob wrote about.
Corporations have the power right now. It took them 30 years to wrestle it away from unions. But as a new generations of basement entrepreneurs expands daily, then they will have a whole new competitor. When you can order and ship the same day a custom design that is 3d printed or electronics built on a home solder oven you can get what you want when you need it and at an improving technology and quality rate far faster than any large corporation can keep up or compete with.
Bob — Good article. I appreciate the time and effort you into your posts/articles.
Chuck
Seems to me there are two possible outcomes to our growing suicidal governmental tendencies: (1) abolish the Senate and let the House of Representatives actually do things, or (2) secession of the south and the west.
Sure the South tried to split 150-odd years ago and got hammered, but I think the farce in Washington DC and the example of Britain devolving more independence to Scotland might be pointing to the eventual outcome. There’s not the sense it’s “our” government anymore. I see some regional representative groups forming in the near future as a prelude to our eventual, hopefully amicable, split-up.
Here’s another trick that big corporations use: it’s called “policy laundering,” wherein if a group fails to get some restrictive law passed by Congress, well, just insert it into the next (mostly secretly negotiated) international trade agreement. Then go back to Congress and tell them, “It’s a treaty now, you have to codify it into US law.”
See: https://www.eff.org/deeplinks/2013/03/ustr-secret-copyright-agreements-worldwide
If the link seems a little off-topic, I suspect that copyright law isn’t the only area getting policy laundered.
Probably Cringely has written on this previously. My memory isn’t what it used to be…
As one of the millions of GM bond holders that took one hell of a hair-cut, while the 28 billion of debt we owned was transferred to the UAW, I’ll never purchase a GM product, and may never vote for another Democrat. To top that off, GM was allowed by Obama and his “car czar” to close brands when they had pretty solid offers to purchase at least two of these brands. I get sick, and want to stick my foot through the TV screen, every time I hear Obama crow about saving GM. No, the American taxpayers saved GM, and some of us got the pleasure of contributing twice.
You don’t have to worry about a flood of visa holders coming here to work and replacing US workers. Pretty soon there will be no attraction (or jobs). In fact, as a former visa holder and not US citizen it’s a form of indentured servitude and not a fun experience (9 years of stress and worry on myself and my family) but I still chose to make this country my home. Now I am beginning to think it may have been a mistake. It’s still a great country but I’m not sure for how much longer that will be the case. And if you even mention anything related to ‘socialism’, government control of the unions, better take cover. The funny thing is, everyone wants less government until the effect of that is that big business discards them, then they want government protection.
The US has dominated the last 100 years for a single reason, industrialisation on a previously unheard of scale directed by deep understanding and unbridled ambition.
As it adapts to modern challenges the dilema presents about whether to sacrifice what has been for what may be. Both voices must be heard through democracy. Discussions of Visa etc are irrelevant
When you “peal back the onion”, the root cause of all America’s problems is public education. We have systematically taught our children that government is the answer to all life’s problems. Because the vast majority of educators are government employees, they simply can not be unbiased regarding political issues. Their views and biasses creep into every part of the curriculum.
When the “school moms” of the one room school house taught only the “3 Rs” (reading, writing, and arithmetic), the damage was minimal. But now-a-days, the “3 Rs” are a small portion of the overall education experience. Public schools either by direct education or omission, instruct students to adopt mindsets on everything from diet to social sensitivity. The result is an electorate that looks more to Carl Marx, than to Adam Smith for economic guidance and looks to FDR rather than Jefferson for political guidance.
Quite frankly, I believe the tipping point has been reached and we as a nation, are doomed. Bullets and cigarettes will be the currency of the coming revolution.
B.J.
blanejackson.com
Really? Public education is the root of all evil?
If that’s the case, then standing armies are also the root of all evil, because THEY are government employees too.
Finally, someone who actually understands business. Also note that shareholders, by definition, are the ones taking the biggest risk and, therefore, expect the biggest reward. If they want less risk (and less potential reward), they should buy bonds.
By the way, Bob got the order of things wrong. The government bailed out GM before GM filed for bankruptcy.
It isn’t just the corporations. They are the symptom not the cause. The cause is the betrayal by leaders, media and academics. For forty years the media and academia have been tearing down the history, traditions and legitimacy of the Nation. During the Civil Rights and Women’s rights movement it was the character, values and tolerance of the middle class that created the success of those movements. In other societies today that sort of social progress doesn’t occur. As a response we have had over two generations of snide put downs, suppressed and censored public communications and disaffirmation of all that was good in the US in the name of political correctness. As a result we have developed a Soviet style system that doesn’t respect itself. The intellectual leaders are self serving and self righteous, and the business leaders see no reason to value much less sacrifice for the common good. That is what Gibbon saw and wrote about in his work on the Decline and Fall of Rome. At first it was an honor to server Rome, then an obligation, then a burden to be avoided at all cost, then nothing. Sound familiar.
African Americans from the South would be very interested in hearing about your characterization of “tolerance of the Middle Class” from the Civil Rights movement.
This is little more than a “I wish things were the way they were back in the 50s” with a little “except for that racist stuff” tacked on. That’s like saying “things were great in the 1840s and 50s, except for that slavery thing.”
A better handle for Metalman would be Metalhead. Sure there was racism and intolerance, but the country did accept the premise and the country and government supported Civil Rights. It was the protection of the Government that protected Civil Rights activists and supported Civil Rights legislation. Also, we shouldn’t neglect Black anti-Semitism and racism. My point is that the post Civil Rights behavior of liberals (1976-2013) is unwarranted, self-serving, intolerant, prejudiced, hypocritical and prejudiced against whites, the middle class and men. This has a price that, because of blocked channels of public debate, hasn’t been explored. As a result too few people see value in our society and values and self serving behavior by politicians, bankers and journalists is tolerated or encouraged. It can’t come to a good end and your accusations of racism are unsupported and false. You create some strawman and then attack it as if I had actually expressed the sentiments you claim. That is a logical fallacy at best.
Because the Feds backed Civil Rights is an indicator of mainstream acceptance? Hardly. The Civil Rights Act created the current Republican domination of the South because Southern White Male Democrats abandoned the party and went to the Republicans, where they were welcomed with open arms. That the Civil Rights Act passed not with broad support but by strong armed tactics by LBJ should speak to how bold an idea it was at the time. Given that Republicans have broached the topic of repealing the Civil Rights Act, it should give you an idea as to how reviled in certain parts of the country it is.
Racism is not a matter of “your racism is trumped or cancelled out by my racism”: it all feeds from the same source. The racism of the Nation of Islam doesn’t trump the racism of Whites, it merely compounds the problem. Blaming the “liberal elites” for the decline of American dominance is a cop-out heard on conservative talk radio. And since I hail from the Midwest, you hear a LOT of conservative talk radio and hear that same refrain at the ballot box. The thing is, Republican ideals have been in power in some form since 1980, so you can’t really use that argument as an excuse for the past 30+ years.
If I wanted to hear your argument I’d call up my parents, who are quite fond of espousing those talking points (coupled with a longing for a “return to a Christian America”) at the drop of a hat.
Metalman. When I read your replies I keep thinking Kool Aid Kid. I can’t blame you since you were almost certainly indoctrinated when you should have been educated to think. First some facts. The Civil Rights acts were passed and supported by an overwhelming majority of Americans. Second, I’ve not heard about Republicans as a party wanting to repeal the Civil Rights act. Perhaps you quote accurately but unrepresentatively, Third, The turning of the South against Democrats arose more because of the way in which Civil Rights were handled and managed than because of racism, although there was racism. If you have ever managed people you would know that strong armed tactics come with a price. If LBJ had used force on a couple of instances (the way you talk you would think that the South was under martial law, which it wasn’t), he could have done some good. Instead he, to use a management metaphor, broke some eggs and then killed the chicken. By that I mean that the follow up to forced integration was the disrespect and denunciation of Southerners and Christians that continues to this day. Instead of healing wounds he kept inflicting them. How do you expect people to respond.
Modern liberalism amounts to noble principles selectively applied. Your words about all racism being bad is well put, but not well understood. You apparently dislike Christians, your parents and hate Republicans. I use the label “liberal” because in this case, based on numerous studies, around 90% of the media, the entertainment business and academia is self-declared as liberal. The problem is that they are intolerant and denounce and suppress those that disagree with them. Liberal ideology has denounced the racists and non-racists equally. They denounce white people,males, the military, America, conservatives, Christians, Israelis and Jews and a range of other target groups. My guess is that you are more tolerant of Islamist mobs (otherwise known as Muslims) than you are of Christian activists. Our mainstream intellectuals (and I used to teach at a major Eastern University, so I know whereof I speak) have divided more than unified and worked to turn young people against their society and their parents.To paraphrase you, if I wanted to hear your arguments I would call up one of my kids.
So what is the big concern here. It is that after all the work done to create equal rights and a just society there will be nothing left to share. Neither party or ideology is working for a secure and prosperous future for American young people. The country is entering a new age of Feudalism run by financial rent seekers. Divide and conquer is the classical way of maintaining control and is working now. Yet as Lincoln noted, a nation divided against itself cannot stand. Today’s younger people need to heed Plato’s advice to pull their heads out of their cave and see the light of what is really going on and what type of society will enable them to survive and prosper. Unhook from the media and read the classic sources of timeless wisdom. Harold Bloom’s book on “Where Shall Wisdom be Found” is a good place to start.
If you want to talk about racisum then you should fight against the current crop of slavers bringing in nothing but Indians and having nothing but Indians in the workplace, why are there no white or blacks in these work places, why is having nothing but Indians not racisum
Fight against today’s problems not yesterdays problems, use the Internet, why is there no free speech in the workplace
There is more freedom in Europe than in the us despite that the politicians still try and turn europecinto the us but with much less success because people organize and unite in europe and use their free speech which the Americans seem not to have
Why is the us the only country with a south African health care system by the way
Why were the British Olympics dubbed over when they were showing the national heal are system, but the commentary was dubbed over, and there was no original source for the commentary, what is this information control?
Health insurance is a form of tax, worse because you don’t get your money back after paying for it once your not paying for it, so taxes are higher in the us unlike what they would have you believe, for the average working stiff taxes are higher in the us
It isn’t just the corporations. They are the symptom not the cause. The cause is the betrayal by leaders, media and academics. For forty years the media and academia have been tearing down the history, traditions and legitimacy of the Nation. During the Civil Rights and Women’s rights movement it was the character, values and tolerance of the middle class that created the success of those movements. In other societies today that sort of social progress doesn’t occur. As a response we have had over two generations of snide put downs, suppressed and censored public communications and disaffirmation of all that was good in the US in the name of political correctness. As a result we have developed a Soviet style system that doesn’t respect itself. The intellectual leaders are self serving and self righteous, and the business leaders see no reason to value much less sacrifice for the common good. That is what Gibbon saw and wrote about in his work on the Decline and Fall of Rome. At first it was an honor to server Rome, then an obligation, then a burden to be avoided at all cost, then nothing. Sound familiar.
Tesla Model S (EV) sales are beating Mercedes, BMW and Audi, despite the corrupt idiots at the New York Times,Top Gear and Texas. Texas has enacted a law under which,Tesla’s employees are not allowed to sell vehicles, offer test drives, or even tell customers how much the car costs. A North Carolina’s law will prohibit online sales.
In 2001,General Motors sold battery patents ( ev NiMH ) to the oil company Texaco. Who Killed the Electric Car explores how General Motors tried to kill electric vehicles in 1999:
https://www.youtube.com/watch?v=IENnSK8Q6nE
The good old days were not that great:
Oil man W. Alton Jones was found to be carrying $55,690 cash , en route to Eisenhower’s fishing camp.
Looney Gas is a story of a corrupt federal government sacrificing the nations interest to Standard Oil back the 1920’s :
https://www.wired.com/wiredscience/2013/01/looney-gas-and-lead-poisoning-a-short-sad-history/
I first read Ayn Rand just a couple of years ago, which was way overdue. It was striking the similarities between what she wrote in her novels ‘Atlas Shrugged’ and ‘The Fountainhead’ and what was occuring in real time in the Obama Administration and in Congress.
Looting is exactly what has been going on, by the bankers, by the people who walked away from their houses, by the ‘Occupy’ and similar groups who want something for nothing and by Government.
I’m torn between wanting to save what’s good, and wanting to see it all burn to the ground just to show the looters what they’ve done. Unfortunately, there is no ‘Galt’s Gulch’ in which to hide.
If you want to talk about racisum then you should fight against the current crop of slavers bringing in nothing but Indians and having nothing but Indians in the workplace, why are there no white or blacks in these work places, why is having nothing but Indians not racisum
Fight against today’s problems not yesterdays problems, use the Internet, why is there no free speech in the workplace
There is more freedom in Europe than in the us despite that the politicians still try and turn europecinto the us but with much less success because people organize and unite in europe and use their free speech which the Americans seem not to have
When I try to “reply” to a post I get the Cringely “oops” page as a response, offering me the chance to search the site since the “reply” page could not be found.
It happens to me too, Ronc. I can post about 1/3 of the time, and the other 2/3 I get errors ranging from the “oops” to the “duplicate” to the “server not available” variety.
I am reading “The Great Deformation” by David Stockman. I thoroughly recommend you do so.
Jobs, money, etc. do not “belong to” a country. Any attempts to force them will fail in the long run, ending in fascism.
Why do you complain about S744 giving green cards to tech graduates, but have no objections to giving visas to tens of millions of lower skilled labor? You don’t care about the little people who will lose their jobs to immigrants, just the smart ones who are supposed to be the elite.
Biggest problem with GM is that the greens running the auto policy want there to be less cars purchased. They are achieving this with fuel mileage mandates that make cars more expensive and less desirable.
The capitalism paradox:
Capitalism demands and generates efficiency to increase profits (decrease costs). Efficiency decreases required employees. Less employed means less customers. Less cutomers means less businesses. Surviving businesses reduce cost of survival by increasing efficiency.
And it goes round and round.
It’s not really a paradox since efficiency does not decrease required employees. Under capitalism the employees would be free to work on entirely new projects, whether for the same employer or a new employer. That’s how progress is made.
Are you claiming that robots in manufactures, computers, technological advances have not reduced the number of available jobs?
There is a limit to the number of available projects, especially in a slowed economy.
Do you want to outlaw the cotton gin, the printing press, electricity, and powered transportation? That would put a lot of people to work.
Of course not, I’m just explaining the paradox of capitalism.
I’m just supporting my initial argument that efficiency reduces jobs. And by replying “Do you want to outlaw the cotton gin, the printing press, electricity, and powered transportation? That would put a lot of people to work.” means that you agree with my argument.
Sorry for the misunderstanding. I guess I meant to say it’s a result of capitalism, but I would not have used the word “paradox”. Capitalism simply has different undesirable side effects than socialism.
As far as I understand it, a side effect that is at the heart of capitalism and is detrimental to itself is in essence a paradox. We can argue about terminology but as I see it capitalism is shooting itself in the foot by design. I’m not advocating socialism, I’m just acknowledging a big fault in the race for efficiency. What will happen when robots and computers can do most of the work? Who will sell to who then? Who will be the customers if most people can’t find jobs?
We have started to enter such a time and these are questions that we should start to acknowledge and address. We can already some results of this with the exportation of jobs. Jobs are exported generating less consumers locally. Money flowing in a single direction can’t be sustained for ever. China helped give easy credit to the US to sustain the economy but we saw the result of this a few years back and we are still in this situation. If nothing changes I expect that we will live recessions that will become more frequent and more “violent” each time.
corruption in the government and citizens taking back the repulic – the big theme of Larry Lessig’s great TED speech in February if you haven’t seen it: http://blog.ted.com/2013/02/27/taking-back-the-republic-larry-lessig-at-ted2013/
I completely agree with Bob and it’s a sorry state that we live in today. Now in my early 50s, I knew many many older people who had actual retirements. I am very sad that I won’t be able to enjoy that same quality of life since corporations – or more appropriately money grubbing executives – have looted and destroyed that way of life. The prognosis for my generation is working until you’re too old to work anymore and accepting substandard healthcare because it’s become yet another item separating social classes. You get what you pay for and if you can’t pay for it.. suffer.
Our country used to have a genuine, neighborly attitude to it – the kind of thing you only see now when a school gets flattened by a tornado. Now what most people want is to screw the next guy as quickly as possible, grab the cash fast and ‘get theirs’ and the hell with anyone else. We’re completely losing our civility, our community and our right to claim our vaunted ‘American exceptionalism’
It’s sad that our political arena has lost it’s civility and most of it’s intelligence as well. I see that in microcosm here in these comments. Haranguing and brow-beating are not useful debating techniques.
As always, thanks Bob for raising important issues and sharing, what I consider to be, a well rounded and underserved point of view.
Yes, the US empire is dying, foundering in a sea of corruption, polarization and elite-fostered stupidity. The name of our pain is neoliberalism: the undemocratic looting of everyone by the richest 0.1%. It’s not just an American story, it’s been the story of the entire world for at least 35 years.
But there are reasons for hope. I’m a digital media scholar, so I keep my eyes and ears tuned to the digital underground. And all the signs are pointing in one direction: we’re headed for a Global Spring. Imagine the Arab Spring raised by an exponent of one hundred. Hip hop musicians (Russia’s Lisa Small, Iran’s Yaz, Turkey’s Radansa) are breaking the chains of copyright fundamentalism, digital media artists (US’ Ross Scott, Russia’s Freemans Days) are producing better media than the biggest commercial oligopolies, the videogame artists (Valve, Kojima, cdp.pl) are reinventing the future, open source audiences (pretty much all of us) are pushing back against the plutocrats in ways noone could have imagined. The digital commons is on the march everywhere against global greed.
Your site says “I am a scholar of videogame culture and transnational media.” That makes me curious about what your occupation might be.
Americans seem to be unable to agree with each other and take action and have lack of empathy for each other
Allowing ship loads of temp cheap labour aggravates things
If people can’t agree they can’t take action
Computer people are notoriously bad at organising
But the businesses organise so you have a one way fight
The digital media like in Internet is also sensored, and people atack each other instead of having the optimism and take action like they used to
The Internet and the media is controlled and most people cannot even agree on anything
Bob,
Just to let you know – again, your web site is loading still very slowly. Whereas before it used to load in a snap, it now takes several seconds. I noticed the site performance went down after you got some company to manage your site. You displayed their logo for a while.
At the beginning of May Bob said there would be a new wordpress server by May 15th. But obviously that did not fix it or make any improvement at all.
Ive noticed the decline as well but assumed that was the intended result of globalism. They wanted to reduce the U.S. standard of living to be more in line with places like India and China. There is no nationalism or patriotism when global profiteering is the main goal.
The Germans have figured out how to survive with an expensive currency by producing good quality products while not encurring little dept
There is no need to bring in cheap labour or compete with china or India, Europe and Germany did not do so, you can’t produce lower quality producs cheaper
The us has the added problem of healthcare and education that is higher cost than incomes in other countries, that alone makes the cost of living and pay higher
The us has out of control inflation and stagnet wages and high unemployment
The europeans compete with high salaries good benefits and good products, if the us wants to compete with slavery like they did before the civil war, it’s a choice
The Europeans Germany France and others do it well, pay high wages free education and healthcare and high quality products people want to buy, in IT and other industries salaries are a small part of the cost, and skill is more important than salaries in IT, it’s all a choice, competing with low skilled labour and salaries is a poor strategy in IT, if you read the mithical man month, it says adding more unskilled labour does not produce good results
Bob, You wrote:
“What was ultimately protected in 2009 were the banks and the executives and not much else.”
This is the premise of a book about the Federal Reserve, called the Creature from Jekall Island about the purpose of our central bank.