Economy & Budget

General Motors Demoted to Buck Private

“The state is a swollen monstrosity….Indeed, government is sick, and just at a time when we need strong, healthy and vigorous government.” –Peter F. Drucker
 
Now that the federal government has gotten back into the business of running businesses, it is appropriate to reflect on the advice of the late great management guru Peter Drucker.  
 
After all, it was Peter Drucker who got a consulting contract with General Motors after World War II, and wrote the defining work, “Concept of the Corporation,” that got GM into trouble in the first place.  
 
In this breakthrough study, Drucker came to the unshakable conviction that big businesses like GM should replace the federal government as the “representative social institution” and assume social responsibilities such as job security, health care, retirement, training and educational opportunities, and other social benefits.
 
Top officials at General Motors at first resented the book and scoffed at the idea that a large corporation should assume social responsibilities.  But eventually they bought into the idea — and now 65 years later GM is paying the ultimate price of bankruptcy by being too generous in its retirement and health care programs, to the detriment of producing a top product in an extremely competitive business.
 
Imagine, chapter 11 bankruptcy and a government takeover of a private company that only twenty years ago employed over one million workers and suppliers and was the world’s largest corporation in sales and market value.  GM was one of the few Dow 30 stocks that survived the Great Depression.  Now only GE remains.  
 
To Peter Drucker’s credit, he warned government leaders time and again to avoid running businesses.  Why?  Because they politicized the production process and do a lousy job of meeting the needs of customers.  No government has ever produced a decent automobile or truck.  
 
We are already seeing the ill-effects of the new Obama Motors Company.  Dealers who are Republicans and oppose Obama politically have been shut down.  The administration plans to make the new GM the poster child of “green” cars, hybrids and fuel-efficient cars that meet the outrageous CAFE standards of 39 miles per gallon.  The result will be inferior cars and continued billion dollar losses at GM factories.  
 
The law of unintended consequences will hit the US car industry:  there will be a boom in used cars, and an increase in fatalities as smaller, less safe cars are manufactured to meet higher fuel standards.  
 
The decision by the Bush and Obama administrations to get involved in the bailout of GM was a fatal mistake.  It destroyed shareholders and bondholders alike (bondholders were forced to take diluted new shares).  The government now owns 60%, and taxpayers are in hock over $50 billion.  
 
No doubt the Obama administration has ever intention to exit from the car business, but that could take years.  
 
And that brings us full circle to Peter Drucker, who was one of the first management gurus to advocate privatization of government services as a way to reduce a bloated bureaucracy. Indeed, Drucker claims he invented the term, calling it re-privatization in his 1969 book, The Age of Discontinuity.
 
Perhaps someone should send a copy of “The Age of Discontinuity” to President Obama.


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