GM is not too big to fail
I don’t have any deep thoughts about the GM bankruptcy that were not already expressed in the first few paragraphs of Michael McKee’s Bloomberg story: General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth ...
I don't have any deep thoughts about the GM bankruptcy that were not already expressed in the first few paragraphs of Michael McKee's Bloomberg story:
I don’t have any deep thoughts about the GM bankruptcy that were not already expressed in the first few paragraphs of Michael McKee’s Bloomberg story:
General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.
Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.
GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.
“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”
GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.
One of the most difficult and painful aspects in any mature economy is the phasing out of uncompetitive sectors. Delay and denial, however, accomplish nothing but deferring the pain until later (one oddity of the auto sector is that even most people who blame Ameria’s industrial decline on globalization/Japan/China/slave labor in Bangladesh tend to shed very few tears for Detroit. I suspect this is because it’s very, very hard to defend the long-term performance of either management or labor in this sector).
It’s not like I’m thrilled that GM is going under or anything, but as transitions go, this one has been pretty drawn out. When GM lost a record amount in the early nineties, there was a fair amount of speculation about when the firm was finally going to go under.
Now we know.
This story, on the other hand, scares the ever-living crap out of me for reasons that I still need to process.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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