Sunday, June 12, 2005

GM's pain = whose gain?

Daniel Drezner links to Gregg Easterbrook, who finds a silver lining in GM’s announcement that it is cutting 25,000 jobs.

Easterbrook makes an interesting point that global competition does not always benefit the corporate behemoths, as is often assumed. McDonald’s, Microsoft, and Wal-Mart are all losing market share to more savvy competitors. Few are shedding any tears for those companies.

But GM has long been vaunted as one of the engines of change that propelled workers into the middle class during much of the last century. What will happen to workers in auto manufacturing if the entire sector is on its deathbed? Well, it may not be quite as dire as that:

. . . the same week that G.M.'s cut made the front pages, DaimlerChrysler announced it would invest $40 billion in North American operations over the next five years, including building a new assembly plant in Illinois and expanding factories in Ohio and Michigan.

According to a study by the Association of International Automobile Manufacturers, non-Detroit automakers have in the last two years created 55,000 new factory jobs in the United States. Today just under 50 percent of the "foreign" cars sold in America are made here, with BMW, Honda, Nissan, Toyota and others operating large factories in Alabama, California, Indiana, Kentucky, Mississippi, Ohio and Tennessee. About 800,000 passenger vehicles are expected to be manufactured this year in Alabama, all for global brands; cars have become to the state's economy what cotton once was.

And American auto workers aren’t the only ones benefiting from GM’s pain:

According to the consumer price index, new cars and light trucks today cost less in real-dollar terms than in 1982, despite having air bags, antilock brakes, CD players, power windows and other features either unavailable or considered luxury options back then.

This means that during the very period that General Motors has declined, American car buyers have become better off. Competition can have the effect of "creative destruction," in the economist Joseph Schumpeter's famous term, harming workers in some places, while everyone else comes out ahead.

Even if society is better off if GM cuts its workforce, though, the individuals who get laid off are certainly not. While redistributing some of the gains of creative destruction to the losers looks good on paper, we have not been particularly good at implementing actual policies along those lines. Until we get serious about cushioning the fall of workers in declining sectors, globalization and trade liberalization, which have such potential to improve lives around the planet, will remain convenient targets for anyone more concerned with justice than efficiency.

1 comment:

your girlfriend said...

Thanks for keeping those of us whose livelihoods and upbringings were based on manufacturing in mind. This is possibly the most heartfelt thing I've ever heard you say about GM. Maybe big corporations in other sectors will go the way of big media and big airlines--it seems the economy these days requires companies that can be far more agile...