Tuesday, August 20, 2013

Detroit Sufferes from Globalization & Executive Arrogance

Ian Ransley Design/Flickr
Since the city of Detroit filed for bankruptcy, many voices have expressed their opinions about this situation, who is to blame, can Detroit be rescued, is this a sign of times to come, what about other cities and towns etc.

Now a thoughtful op-ed article in The New York Times by Stephan Richter, publisher of The Globalist, an online magazine, puts the causes of Detroit's downfall in perspective, a combination of globalization and arrogance by the executives of U.S. manufacturing companies are at cause. Not only the future of Detroit is at stake, but the future of U.S. workers and manufacturing. Richter states:

 "The traditional narrative holds that globalization, outsourcing and, after 2007, the recession have been responsible for devastating American manufacturing by moving jobs out of the country in enormous numbers. But at best, that is a convenient half-truth.

American manufacturing has been in trouble even since its heyday, in the 1950s and 1960s, when the United States was the global economic powerhouse and American assembly-line workers earned very decent middle-class wages. 

That era of prosperity was not, as is so often claimed, the manifestation of the American dream. Rather, it was, or should have been, a warning sign that America was riding a fleeting wave of progress. Almost nobody was looking hard enough to the future and asking what it would take to sustain success...................

.... Once foreign competition was re-established, in Europe and Asia (DutchUncle: i.e. after the 1960s), only the superior skills of a nation’s workers and a focus on long-term workers’ training would allow a country to stay ahead.....

-----In that moment, American companies, communities and employees should have started taking the competition seriously. That did not happen. Companies like General Motors continued to shower blue-collar workers with handsome pay and benefits.

Who was to blame for this? Not the unions. They did what they were supposed to do: ask for higher pay and more benefits. No, the fault lay with the top corporate managers: it was their job, as capitalists, to deny such increases if they were not justified by productivity trends.

But with a fatal arrogance, executives at American manufacturing companies did allow those increases, in part to maintain a society of contented, trouble-free workers, though executives would also use those increases as cover for their own rapidly swelling compensation. In the 1960s, the average compensation of an American C.E.O. was about 25 times the average compensation of a production worker. That ratio rose to about 70 times by the end of the 1980s, and to around 250 times these days.(underlining by DutchUncle).

It is tragic to hear voices from Detroit declaring themselves ready for a resuscitation of the city. Revival is a question not just of will but also of the available skills base, which unfortunately has deteriorated as a result of a failure to invest in training.....

This kind of common purpose (DutchUncle: i.e. developing the necessary skill base among U.S.  workers), however, is not something that American society, with its ethos of individualism and personal independence, seems capable of undertaking. Doing the right thing for the long haul is typically put off for a later time, if it ever happens......

.... Globalization, in many ways, serves as an early warning system for the changes required in a domestic society. No society should have been better prepared to utilize this tool than the United States, given its traditional — but at least for now largely lost — proclivity to embrace change. That it didn’t work out that way is a tragedy of the nation’s own making."

The question is indeed how to embrace this change, which is only going to continue: increased competition, better trained overseas workers, and a transforming economy. Maybe it's just me, but I haven't heard any truly urgent, honest, let alone visionary calls for change among the Washington politicians. Clearly, if we don't change course, then Detroit will be only the first to hit the wall.

See for some of my other posts about Detroit:

Detroit Bankruptcy: Spectacular Failure or Good for Tax Payers?
Detroit Files for Bankruptcy 
Detroit, a Microcosm of America?

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