As General Motors Goes, So Goes the Nation!

By: Richard H. Frank

Consider the following Scenarios with regard to this old prediction:

General Motors: Rapid growth at the beginning of the 20th Century

United States of America: Rapid growth through the industrial revolution

General Motors: Consolidation of manufactring during depression.

United States: Economic stagnation during the depression.

General Motors: Emerged stronger and grew due to WWII demand.

United States: Regained economic strength during WWII.

General Motors: Unionization of auto industry following WWII.

United States: Unionization of major industries nationwide.

General Motors: Steady increase in market share through 1970s.

United States: Steady increase in GDP through the 1970s.

General Motors: Major impact on profitability due to Government regulations.

United States: Federal Government regulatory agencies increase regulations.

General Motors: 1973 first oil embargo cripples industry.

United States: Government response is increased fuel standards.

General Motors: Foreign competition increases through the 1980s.

United States: Manufacturing industries exit the U.S. seeking lower costs.

General Motors: Steady loss of market share 1980s-1990s.

United States: Transition from manufacturing economy to service society.

General Motors: Struggles for profitability entering 21st century.

United States: Federal spending results in increasing deficits.

General Motors:  Files bankruptcy 2009-Govrenment bailout for $50B

United States: 2006-2010 national debt is doubled to $14B.

General Motors: 2010 New GM future is in doubt without Government funds.

United States: 2011 Nation in Crisis  –  exceeding debt limit.

Today we find the Federal Government faced with exactly the same predicament that caused General Motors to collapse. When profits were being generated and market share grew with little or no competition management gave in to Union demands and passed on the cost of Federal regulations to the consumer. As competition developed from lower-cost foreign manufacturers market share fell steadily until the industry found it had excess capacity and unsustainable contractual commitments with unions. Productivity increases could not keep pace with low-cost manufacturers many of which were non-union or government subsidized. Profits fell to the point reinvestment in new plant and equipment disappeared. This scenario repeated itself beginning in the early 1970’s and continued for 30 years until the steel industry, textiles, clothing and shoe manufacturing all but disappeared in the United States. The Automotive Industry was the last to fall and only remained viable as long as it did by sourcing from low-cost foreign manufacturers. Today, this once great industry has been diminished to assembling components the majority of which are made by competitors of the United States.

Some may argue that General Motors just got too big, too greedy and lost control of their costs from poor management practices. Others place equal responsibility on the government interference in the free enterprise system through over regulation and the strangle hold placed on large corporations by the unions. In either case we see the same scenario playing out in government today as was the case for GM. Big industry and big Government share the same big problems with regard to managing costs.

State and Federal Government agencies have fallen into the same trap of believing there was no end to the economic generating power of the private sector in the U.S. The Federal and State bureaucracies have continued to grow at an alarming rate. In the past three years alone the number of employees at the federal level has doubled to the point it outnumbers the private sector employment. These bureaucratic positions rely upon the private sector to fund their existence and pay their wages and benefits. At the state and local level many of these positions are unionized with unsustainable work rules and benefit plans. When the takers outnumber the makers bankruptcy is just around the corner. At the Federal level the government continues to print money and borrows 42 cents for every dollar it spends reducing the value and purchasing power of the dollar for every American. Every citizen continues to pay for the Governments uncontrolled appetite for spending and legislating entitlements which cannot ever be paid. Like it or not the old adage appears to be true. “As goes General Motors, so goes the nation.” Make no mistake the United States of America is indeed bankrupt and should Congress vote to raise the debt ceiling once again without enacting drastic spending reforms we are destined to default as a nation and wind up without someone to bail us out as we did for the New General Motors. When that day arrives what flag will be flying over our Nation’s capital?

Congress and the President had better heed the lesson of General Motors and quit playing politics when considering the 2012 budget proposal from Paul Ryan. Then and only then should any consideration be given to increasing the national debt limit.

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