Old kid off the capitalist block

Photos: AFP

GENERAL MOTORS (GM) will be delisted effective June 8, 2009 as a component of The Dow Jones Industrial Average — the best-known stock market barometer in the world, one composed of 30 bluechip US stocks that are generally the leaders in their industries. GM will end its 83-year run as bellwether stock on the NYSE; its reign second only to General Electric, which has been a consistent component since Charles H Dow created a 12-stock index in May 1896. “The parlous state of GM has left us with no choice but to remove it from The Dow,” said Robert Thomson, editor-in-chief for Dow Jones, in a written statement.

It is a humbling and defining moment — but not a totally unexpected one to see the end of one of the great symbols of America’s industrial might in its current avatar. Officially incorporated in Sept 1908 by William Durant, it was defined as a company that made cars “for every purse and every purpose” by Alfred P Sloan, its most famous and defining chief executive. Its line of Cadillacs continue to be the pride of American Presidential fleet. During its 100-year celebrations last year, it was dubbed the company for the next 100 years by the last CEO, Rick Wagoner. What has gone so terribly wrong? Experts are looking back and dissecting the strategies, methodologies, implementations and executions of major decisions that fell through since the 1960’s. Eight huge brands — Cadillac, Buick, Chevrolet, GMC, Pontiac, Saturn, Hummer and Saab; operations during its peak days in over 150 cities in 40 countries, a demanding, unionized workforce and a callous, if not egotistical attitude, towards its foreign competition are some of the attributes being blamed for its downfall. Nine American states will be affected. Major towns whose entire economies ran on GM’s manufacturing units will be shut. Detroit, which was the Silicon Valley of the 20th century, a place for research, creativity and passion for the car industry, is turning pale.

It is not that the fall was long in coming. It is rather the way GM fell. Reeling under the effects of capitalism run amok and the unraveling of the financial system, a situation caused by greed and the sustained abuse of the very system that enabled prosperity, GM eventually followed the path of American institutions such as AIG, Lehman Brothers, Citigroup and Chrysler. Only to be rescued by the US Federal Government and eventually owned by the tax payers. The GM bankruptcy deal crafted by the current administration along with the company board, the United Auto Workers union and its bondholders will give the US government a 60 percent controlling stake in what was once the world’s largest automaker. Twelve and a half percent ownership would rest with the Canadian government, 17.5 percent with the unions and 10 percent with bondholders. The equity holders stand to lose everything.

During its 100-year celebrations, GM was touted as the company for the next 100 years

Given the economic crisis, the Obama administration’s aggressive intervention is a defining moment for capitalism. Addressing the nation, President Obama declared, “What I have no interest in doing is running GM.” It will be run by a management team and a private board of directors . “We are acting as reluctant shareholders because that is the only way to help GM succeed,” Obama said of the temporary nationalization of the 100-year-old company. The bankruptcy was imminent. With low faith in the company and reluctant capital on the street, the future of the company was unpredictable. It may well have been liquidated in pieces. Obama called it a “viable, achievable plan that will give this iconic American company a chance to rise again”. A current example is GM’s smaller rival, Chrysler which is coming out of bankruptcy after the Italian manufacturer Fiat came in as a buyer.

There were press briefings galore. “He has a strong obligation to ensure that there is a management structure in place that is making smart business decisions,” said White House press secretary Robert Gibbs. Steve Rattner, head of the president’s auto taskforce, later told reporters: “The outcomes are driven heavily by things that are outside our control, particularly market conditions, car sales, the overall economy and, obviously, the performance of this company.” He said the government would retain the right to vote its share on major matters such as mergers or acquisitions but reiterated that day-to-day operations “are all going to be left to management.” Fritz Henderson, president and CEO of GM, who took over the top job with the approval of the Obama administration, which engineered the ouster of his predecessor, Rick Wagoner, told reporters he hoped a leaner, quicker GM could emerge from bankruptcy protection within 60 to 90 days. The new GM would be formed “from the strongest parts of our business, including our best brands and products.” GM plans to focus on four core brands — Chevrolet, Buick, Cadillac and GMC — and get rid of the Pontiac, Saturn, Hummer and Saab lines.

‘What I’ve no interest in doing is running GM. We’re reluctant shareholders,’ said Obama

IS THIS the new avatar of capitalism? According to the traditional understanding of capitalism, governments don’t run enterprises, they foster them. They help empower entrepreneurial ecosystems that create great research institutions. That research is productized, venture capital is obtained and mentor entrepreneurs grow their businesses, à la Silicon Valley. The debate could rage to no end. But exceptional times call for unprecedented decisions. When swathes of the globe are feeling the crush of the economic stampede, we look up to the US, if a bit unwillingly, to take us towards financial stability.

In times when China has successfully implemented quasi-capitalist economic policies and has emerged as the 21st century’s foremost manufacturing power; in times when India, after 50 years of Fabian socialism, has opened the gateway to business and is treading the capitalist path to economic prosperity; are socialism and capitalism in their purest forms fit to be relegated to the history books? Is it time to introduce the word ‘adulterated’ to our economic lexicon and grow the world’s economies with adulterated socialism or adulterated capitalism? Is there a lesson or two that India can learn in its exuberant quest to reach the zenith of prosperity? For the benefit of the world, it may well share its cultural traits of prudent spending and obligatory saving.