The Big Question: Who Wrecked the U.S. Auto Industry?
(Bloomberg Opinion) -- This is one of a series of interviews by Bloomberg Opinion columnists on how to solve today’s most pressing policy challenges. It has been condensed and edited.
Joe Nocera: Over the last six decades, America’s Big Three automakers – General Motors, Ford and Chrysler — have seen their share of the U.S. market decline from more than 90% to under 50% today. Your book is about what happened to General Motors in the mid-1960s, and how that not just damaged the American automobile industry but set the U.S. on an anti-business path from which it has never completely recovered. I guess if I were to sum up your thesis in one sentence, it would be, “It’s all Ralph Nader’s fault.”
Kenneth Whyte, author, “The Sack of Detroit: General Motors and the End of American Enterprise:” Something semi-disastrous happened to General Motors in the sixties and its repercussions are still with us today. Ralph Nader was at the fore of that phenomenon, but he wasn’t alone. He was part of an intellectual movement that was interested in reducing, if not denigrating, the role of business in American life. He was closely associated with people in the higher reaches of the American government, along with the tort industry and a lot of intellectuals sympathetic to an anti-business message. And the fact that they were all in this together created the momentum for what befell Detroit.
JN: What happened to turn the country from being fundamentally pro-business and pro-growth to being fundamentally suspicious of business, assuming that business was always on the wrong side of everything?
KW: From the Eisenhower era of the 1950s into the Kennedy era of the early sixties, America had no higher priority than economic growth. It was understood that growth was produced primarily by consumer spending. Kennedy wanted to grow the economy at 5% a year. This was important in a Cold War context, because we had to grow faster than the Russians. All through the political establishment at the time, there was a belief that the highest good for America was economic growth and all good things flowed from that. But in the mid-sixties another point of view came across. It held that economic growth was not the most important thing in America – in fact, it was bad for America. The country was rich enough. The economy was already big enough. The important thing now was to divert the government’s attention and resources to public goods, in the form of better schools, better communities and more public spending.
On the surface that might seem reasonable. But the approach that many of the people who wanted to effect this transition took was to subordinate business to the public sector — the federal government, in particular. And in the course of doing that, they did a lot of damage to industry in America.
JN: It sounds like something that would have emerged from the counterculture, but you focus on the Corvair, the GM-made car at the center of Ralph Nader’s book, “Unsafe at Any Speed.” How did this controversy swing public attitudes against business?
KW: Nader launched a safety crusade that blamed Detroit for making unsafe vehicles and killing 40,000 people a year on the highways. The crusaders argued that drivers weren’t responsible for highway fatalities; Detroit was, because Detroit was making unsafe cars and foisting them on an unsuspecting, unwary American public. They were committing “murder by motor,” which was the phrase at the time. Essentially, Nader and his allies were accusing Detroit of murdering Americans in order to make more money.
JN: I’ve always taken it for granted that some of these measures needed to happen — that these outsiders who said the cars weren’t safe enough were actually right. Are you saying that they were wrong?
KW: Yes. They were wrong in 1966 because in 1964 most of the major problems with car interiors had already been taken care of. The federal government had used its purchasing power to insist that all cars that it bought would have safety steering wheels and padded interiors and so forth, and all of the concerns of the American medical establishment about the interior of Detroit automobiles had been taken care of by this time. But Nader and his friends believed that it was possible for Detroit to make a perfectly crash-worthy car, so that it didn’t matter how irresponsible or reckless drivers were. They took the attention away from the driver and efforts to get people to wear their seatbelts and to drive sober, which were the real keys to improving auto safety. Nader and his crew actively opposed those efforts. They wanted to focus on Detroit. They wanted Detroit to be federally regulated. So they put all the emphasis on the automobile, not the driver.
In the end, that set back American auto safety immeasurably. America went from being the safest driving environment in the world to now something in the neighborhood of 18th to 20th. The rate of progress in improving auto safety declined after Nader’s intervention. Putting the focus on the car, rather than the driver, and blaming Detroit rather than the people behind the wheel was counterproductive to the cause of auto safety.
JN: So how does this effort in 1966 lead to the decline of Detroit?
KW: The Corvair was Nader’s exhibit number one in his prosecution of Detroit. He said it was a one-car accident, unsafe at any speed, prone to going out of control and flipping over and killing people for no reason. By leveling these accusations, he managed to kill the Corvair business for Chevrolet and General Motors. I found a lot of internal General Motors documents that show that the safety crisis also did deep damage to the General Motors brand and to the company’s finances. Basically, Nader and his friends in the Senate and in Lyndon B. Johnson’s White House did manage to convince Americans that Detroit’s cars and General Motors’ cars in particular — GM at the time sold half the cars in America — were unsafe at any speed. And as a result people rationally stopped buying them and began turning to import cars. Detroit had been doing an excellent job of beating back imports up until the mid-sixties. Then the safety crisis hits, and within five years import automobiles went from an afterthought in the American market to almost 25% of vehicle sales.
As GM had a more difficult time selling its cars, it had to discount them more. Its profits evaporated. Its share price lost 30-40% of its value, which would take almost 40 years to recover. The company that had been a well-oiled machine, the heart of Detroit, the heart of American industry and the most admired industrial project in the world was never the same after that.
JN: The third part of your thesis is that what happened in the mid-sixties, where General Motors became vilified and Nader became a hero, was a seminal moment in American business history. It created a template for activists, tort lawyers, members of Congress and so on to take on other industries. And this, in effect, reshaped the way the country thought and dealt with business.
KW: There had been previous regulatory spasms in America, going back to Teddy Roosevelt and again with the New Deal. But after the 1960s it took on an entrepreneurial cast. You can see America’s entrepreneurial energy shifting in that decade from 100% about business, to some portion in favor of business and some portion of entrepreneurial energy determined to reforming, reducing or halting the importance of business in American life. And so you get the tort industry, which essentially makes its living off finding harms in the business environment. You have entrepreneurial congressmen who recognize that finding a consumer issue to campaign on was a clear way to raise your visibility and enhance your chances of being elected. And then you had a whole bunch of public interest advocates and public law firms, following Nader’s example, who descend on Washington in the late sixties and seventies and take up business in regulating corporate conduct. The Nader incident was the spark that lit this conflagration of greater legislation and regulatory protection of Americans from business.
JN: To be fair, there are plenty of business scandals that are bogus, but there have also been any number of business scandals that were real. You don’t really talk much in the book about how American society would fix those problems if we didn’t have this culture of tort lawyers and public interest people and so on. How do you stop the bad stuff from happening?
KW: I have no problem with regulation. I say this repeatedly in the book: I think regulation is necessary. Business left to its own devices will pursue profits, not the public interest. I am absolutely in favor of some regulation of business. What I’m talking about are repeated incidents where the social harm that’s identified, as with automobile safety — and later with opioids and tobacco — becomes an opportunity for crusaders to attack corporations and blame them for what are essentially social failures. That to my mind is counterproductive and harmful for business and industry in America. In terms of reducing the social harms, these initiatives are useless. They transfer a lot of money from companies to tort lawyers or to the states, but they have no effect on solving the problem.
JN: I don’t disagree, but I do think that in the opioid situation companies behaved badly.
KW: They did behave badly. And tobacco companies behaved badly. Companies behave badly in every industry. It’s a fact of life and it’s something that, again, we need to be concerned about. But these attacks on companies, the way we go about trying to solve the problem by suing them and punitively regulating them, does not work. A more nimble and sensible approach could be taken to solve problems without doing harm to the private sector.
JN: So now that we’ve had 40 years of congressional investigations and class-action lawsuits, what could replace the tort system? How would you right the wrongs? Is it just a matter of sensible regulation versus stupid regulation?
KW: Virtually every other country in the world has a less combative and belligerent process than U.S.-style torts. There are all kinds of administrative options, apart from having the parties go at each other hammer and tong in political and legal venues. As I say in the book, it’s almost a medieval approach to trying to solve differences: having two sides face off with all of their lawyers and all of their backers and huge amounts of money behind them, just trying to beat the crap out of each other in a courtroom or in a hearing. They spend all of their time and attention trying to win that fight rather than in solving the actual problem. People outside the U.S. watching this who have seen other tort systems — whether it’s the UK, Australia, Canada, France, Germany, other regulatory environments — generally look on the way Americans handle it as insane.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."
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