AmericanOpinion

Creative destruction

The mighty corporations most able to reverse American industrial decline don’t care

By Richard C. Longworth

Some sixty years ago, Charles E. Wilson, then CEO of General Motors, told Congress: “What is good for our country is good for General Motors, and vice versa.” This was widely seen as an arrogant exaggeration of industry’s role in American life, and “Engine Charlie” took public flak for his hubris.

But he was right. Giant corporations such as General Motors ruled the US economy in those days and underwrote what was, in retrospect, the golden era of American industry. Certainly, government fought with business and business — especially GM, protagonist in some bitter strikes — fought with labour. But together, they created a post-war landscape of high employment, rising wages, job stability, and economic security. The American working class became the American middle class through this mighty economy and the great corporations that dominated it.

That’s gone now, and the reason underlies many of the woes — instability, falling wages, inequality, insecurity, the vanishing middle class — that plague so much of Middle America today and, especially, the industrial belt where “Engine Charlie” and his colleagues were kings.

The giant corporations such as GM have abandoned the US and its workers. Or rather, they’ve moved on, into a global economy where these workers and the cities they supported cannot follow. Mostly, they still have American addresses, but they’re global now, not American. There is nothing illegal in this, and by the rules of corporate responsibility prevailing in the US, nothing very immoral. In an economy where shareholder value trumps stakeholder interests, any global corporation has to attend to the bottom line.

But the bottom line is written in a global economy. That fact enables — almost demands — that the great American corporations abandon their commitment to the wellbeing of the country that most of them still call home.

In the old nation-based industrial economy, the bottom line for American corporations dictated a real concern for American society. Most of the corporations’ employees were American, so American education counted. Most of their sales were domestic, so it was important that Americans could afford to buy their products. Both politics and the economy stopped at the water’s edge, so the government could pass regulations and laws on the environment, taxes, and collective bargaining and make them stick.

The global economy has changed all that. Giant corporations have moved many, sometimes all, of their operations to Asia or Latin America, to cut costs or to be closer to markets. The result is a hollowing out of old industrial cities that were literally founded to serve their companies. These include places like Newton, Iowa, which Maytag left and took 4,000 jobs with it. Or Dayton, Ohio (Delphi, 30,000 jobs). Or Rochester, NY (Kodak, 50,000 jobs.)

Or the wreckage left by GM, most recently in Janesville, Wisconsin, home town of Republican vice presidential candidate Paul Ryan, where GM’s closing cost 2,500 jobs. Or the real catastrophe, in Michigan, GM’s home state and, especially, in Flint, its hometown. In 1978, GM employed 80,000 people in Flint, out of a population of nearly 200,000; GM suppliers employed 40,000 more. Today GM employs fewer than 8,000, one-tenth as many, in a total population of 100,000, half as many. Flint once boasted the highest per capita income in the US. It was a middle class town. Today it has a 16 per cent unemployment rate and the nation’s highest murder rate in the nation.

GM has changed over the years, too. Today it employs 70,000 Americans, fewer than it employed in Flint alone at the peak; this is about one-third of its global employment. It sold more cars in China last year than in the US and has as many dealerships there. Its sales in China are rising 11 per cent per year: US sales dipped with the recession, when the company had to be bailed out by Washington, but are recovering at a 4 per cent per year rate now. In other words, if GM worries about the education and income of its employees and customers, it is right to focus this concern on China, not Flint.

What this means is that if America is declining, the mighty corporations most able to reverse this decline don’t care — indeed, can’t care. Globalisation has freed them from any perceived responsibility to their home country. It’s a psychological schism between American workers and the companies that once signed their paychecks, and the country hasn’t absorbed this fact.

In the old industrial towns, this gets personal. In these towns, the workers and bosses shopped on the same main street, worshipped in the same churches, often sent their kids to the same schools, breathed the same air. It was certainly no classless society, but the same things mattered to workers and to the men who employed them.

That’s over. Industry has left these old towns and so have the men who ran it. If Main Street is crumbled, its stores boarded up, its remaining storefront filled with AA clinics and gift shops, that’s of no concern to global leaders who live in isolated suburbs, sending their kids to top schools where they learn to take their place in the global elite.

This disconnect between America and its biggest corporations shows up in other statistics. In 1950 (Engine Charlie’s era), corporations paid 26 per cent of all federal government tax receipts; now it’s only 10 per cent. A survey of US companies listed in the Standard & Poor’s 500 showed they get an average of 46 per cent of their earnings overseas. This alone explains why the stock market has been sprinting upward while the US economy itself is barely stumbling along.

This will continue. The American market isn’t puny but the real growth is global and that’s where corporate focus will lie. Americans, who invented the global economy, are now getting its results good and hard.