Thing 18
What is good for General Motors is not
necessarily good for the United States
At the heart of the capitalist system is the corporate sector. This is where things are produced, jobs created and new technologies invented. Without a vibrant corporate sector, there is no economic dynamism. What is good for business, therefore, is good for the national economy. Especially given the increasing international competition in a globalizing world, countries that make opening and running businesses difficult or make firms do unwanted things will lose investment and jobs, eventually falling behind. Government needs to give the maximum degree of freedom to business.
Despite the importance of the corporate sector, allowing firms the maximum degree of freedom may not even be good for the firms themselves, let alone the national economy. In fact, not all regulations are bad for business. Sometimes, it is in the long-run interest of the business sector to restrict the freedom of individual firms so that they do not destroy the common pool of resources that all of them need, such as natural resources or the labour force. Regulations can also help businesses by making them do things that may be costly to them individually in the short run but raise their collective productivity in the long run – such as the provision of worker training. In the end, what matters is not the quantity but the quality of business regulation.
They say that Detroit won the Second World War. Yes, the Soviet Union sacrificed the most people – the estimated death toll in the Great Patriotic War (as it is known in Russia) was upward of 25 million, nearly half of all deaths worldwide. But it – and, of course, the UK – would not have survived the Nazi offensive without the arms sent over from what Franklin Roosevelt called ‘the arsenal of democracy’, that is, the United States. And most of those arms were made in the converted factories of the Detroit car-makers – General Motors (GM), Ford and Chrysler. So, without the industrial might of the US, represented by Detroit, the Nazis would have taken over Europe and at least the western part of the Soviet Union.
Of course, history is never straightforward. What made the early success of Nazi Germany in the war possible was the ability of its army to move quickly – its famous
Even among the Detroit car-makers – collectively known as the Big Three – GM by then stood pre-eminent. Under the leadership of Alfred Sloan Jr, who ran it for thirty-five years (1923–58), GM had overtaken Ford as the largest US car-maker by the late 1920s and gone on to become the all-American automobile company, producing, in Sloan’s words, ‘a car for every purse and purpose’, arranged along a ‘ladder of success’, starting with Chevrolet, moving up through Pontiac, Oldsmobile, Buick and finally culminating in Cadillac.
By the end of the Second World War, GM was not just the biggest car-maker in the US, it had become the biggest company in the country (in terms of revenue). It was so important that, when asked in the Congressional hearing for his appointment as US Defense Secretary in 1953 whether he saw any potential conflict between his corporate background and his public duties, Mr Charlie Wilson, who used to be the CEO of General Motors, famously replied that what is good for the United States is good for General Motors and vice versa.
The logic behind this argument seems difficult to dispute. In a capitalist economy, private sector companies play the central role in creating wealth, jobs and tax revenue. If they do well, the whole economy does well by extension. Especially when the enterprise in question is one of the largest and technologically most dynamic enterprises, like GM in the 1950s, its success or otherwise has significant effects on the rest of the economy – the supplier firms, the employees of those firms, the producers of goods that the giant firm’s employees, who can number in the hundreds of thousands, may buy, and so on. Therefore, how these giant firms do is particularly important for the prosperity of the national economy.