The GM Solution: Life Boats, Not Life Support

As the ship sinks, "creative destruction" is too simplistic. Only a "creative response" can rebuild a U.S. auto industry

By Shoshana Zuboff

General Motors (GM) is the Titanic of Corporate America—it has been sinking in an agonizing, slow-motion suicide since its mid-century golden age. A century ago, GM was the solution to the problems faced by America's fledgling auto industry. Now it represents Detroit's dead end of denial and narcissism. While GM executives beg for a bailout, Washington has an opportunity to be part of the solution to the problems that confront each of Detroit's Big Three.

Many congressional Democrats, and perhaps President-elect Obama himself, are uncomfortable standing by as economist Joseph Schumpeter's famous gales of "creative destruction" sweep GM and its dependents into history's trash can. But the flip side of "creative destruction" in Schumpeter's theory was the far more important notion of "creative response." He wrote about economic renewal as the emergence of "the new thing" when entrepreneurs recombine new and existing resources in wholly new ways to better meet society's needs. Schumpeter described this sort of breakthrough as the "watershed" between epochs in the social history of capitalism.

The real question for the new Administration is how to fashion policies and practices that are on the right side of this historical process. That means clearing obstacles and providing incentives to help midwife "the new thing." It also means mitigating the worst consequences of destruction with additional direct support to workers, communities, and states: extended unemployment and health benefits, meaningful retraining, economic development investments. ("Do Not Resuscitate" orders for the careers of GM's top executives and board members wouldn't be a bad idea.)

Revolutionary Days

Oddly enough, 100 years ago Ford (F) and GM showed the world how to execute a Schumpeter-style creative response. Their pioneering innovations back then say a lot about what needs to happen now.

Packard, Wayne, Northern, Hudson, Willys-Overland, Lozier, Regal, King, Studebaker…these are just a few of the many early-20th-century automobile companies that disappeared because they didn't produce the cars people wanted. Back then the automobile industry was a high-risk venture dominated by the sons of Detroit's wealthiest families. They competed to make luxurious vehicles for their social set—at a financial loss.

It took Henry Ford, an anti-Establishment outsider who identified with the masses, to break out of that failing business model. He knew the farmers and shopkeepers who wanted cars too, but at a price they could afford.

Ford didn't invent the automobile. He carefully selected assets from the old production regime that could be adapted to standardization and quantity production: designs, parts, engineering approaches, technologies. Ford's genius was to invent a wholly different pattern in which those assets would be reconfigured: the moving assembly line and then mass production based on a new economic logic of high throughput and low unit cost. The result was the Model T. Sales soared, prices dropped, and the company was swamped with orders. Ford's singular pole star in that historic migration of assets was his intuitive sense of a vast population whose dreams and needs were ignored by the business Establishment.

Sloan Ranger

Ford soon lost his first-mover advantages because he rejected the idea of professional managers and new administrative practices. That set of innovations fell to GM, newly reorganized under Alfred Sloan in 1921. GM had been a loose formation of companies that made and distributed cars, trucks, parts, and accessories. It hadn't yet combined those resources in new ways to do new things. Sloan had a more complex reading of consumers than Ford.