Does anyone really believe that top management of the Big 3 Detroit automakers were just helpless pawns of the all-powerful unions? That’s the conclusion one would have to draw from this post at Chicago Boyz, which attributes the city of Detroit’s woes to 1) labor unions and 2) invasive government.
Frankly, I think the historical record paints a different picture. The city’s fortunes have risen and fallen with those of the domestic auto industry. The time of greatest union power was also the time when GM, Ford, and Chrysler managers wielded the most power, both in industry and in politics.
I’m not saying that unions were blameless or that Detroit’s city government was prudent and far-thinking. Far from it. But if all that top management was around for was signing union contracts, they wouldn’t be necessary at all.
Unfortunately, managers kept getting paid big salaries and bonuses for delivering short term stock gains, thinking that Detroit’s hegemony over the auto industry would never end. It ended. And now their successors are stuck with the consequences of decades of bad decisions.
Part of the auto industries problem is that management made products that were designed for profit, SUVs, and little thought about the future….you would have thought that they would have planned for this, the future. Of course we can’t really blame management for that, profit, it’s the American way, quick easy short term profits. So why is it labor is always to blame for trying to play the same game, earning a profit, it’s all part of the system…capitalism. I hope unions make a comeback in a big way, add a bit more equilibrium to the mix.
I don’t think the evidence supports that, Larry. Maximizing shareholder value is management’s job; management has manifestly not done its job. The evidence for that right easily available—just look at the stock prices and dividends for the auto makers.
However, managers continue to rake in enormous compensation even as shareholder value declines. That’s not the mark of the capitalist system; that’s the mark of a corrupt system and that’s exactly what exists in most industries right now. We need to raise the standards for corporate governance and moves aimed at doing that have been inadequate so far.
Hi Dave,
And why would managers be outside of the ‘capitalist’ umbrella? As I recall, it wasn’t too long ago that these enormous compensation deals where held up as the jewels of capitalism, the standard of just how great capitalism is, or was. Has not the demographics of the share holder changed from that of just 20 years ago..I believe I’ve read that the number of Americans having investments in the markets is around 50%..so perhaps we all have a stake in this problem, national case of greed. But this is another story, and where the share holders have lost their influence..how did that happen???
Did the auto industry not maximize it’s share holder profits when they fell behind the Japans auto industry and had to compete with them on quality issues? They did, and then they got lazy, but profits were still being earned then were they not?
Corporate governance, how do you accomplish this? Self governing, not likely, and mandated governance, I can hear those who would call this socialism or some other such thing…perhaps we are in the beginning stages of something new coming down the pike..after all, being neither capitalist or socialist would end American democracy would it?
You would think that we could find a negotiated compromise, a system that works best for as many as possible, but I doubt we’ll see anything like that. We have a lot to work through now just to keep our system afloat for as long as possible and I hope we do keep things together..
Larry,
I think the point (and problem) is that management receives fantastic pay and bonuses regardless of how well the company does. I have no problem with executives receiving tens or even hundreds of millions in pay as long as the company they are leading is doing well. Unfortunately, I’ve seen too many cases where those executives receive that kind of pay as they drive the company into bankruptcy. While thousands are thrown out of work, the CEO gets “fired” and walks away with millions in severance.
Is there not something called a Board of Directors, who hire or fire those highly paid CEOs, do they not write and negotiate CEO contracts? Who’s interest have these boards of directors had in mind when writing such contracts?…there is more to this than we can resolve here…and I’m not so sure we’ll ever resolve it. But the issue is you cannot extract management from capitalism…or it’s corporations.
The many theories on economic systems seem to look good on paper, but in reality I think there is some other system that really runs the show…most of us just go along or the ride..with little choice…
There’s a limit to the rational self-interested behavior of human beings, even wealthy ones, even when it comes to their own money. No one should be surprised by this. Except people who are overly enamored of economic theories based on people always behaving in line with ruthless, rational self-interest.
Am I badly out of date? Or is there something unrealistic in electing a president because you think he will “fix” the economy. This is in reference to both parties. The president is the head of the executive branch of the U.S. federal government. He doesn’t control the economy. He certainly can do and say things that will influence the economy, but he can’t control that, either. That is, the markets or the titans will react to his words and deeds as they choose. And what is disturbing to me is the way they seem to prompt the government rather than simply reacting to it. Having managed to capture all our retirement funds, etc.
The federal government controls the currency. I suppose that extends to the mythical currency of finance. But to be strictly constitutional, Congress ought to control that, since it is among Congress’ enumerated powers, not the executive’s.