Government Motors: Death of the Private Corporation

Original Article

On June 1, 2009 America’s most famous manufacturing corporation died–and along with it a great era of private corporate enterprise.

Founded in 1908, GM set the standard for auto manufacturers by employing more than 600,000 people, and in 1954 attained a historic 50-million cars sold worldwide. Valued at $93 per share as recently as late 1995, GM’s stock was trading under a dollar per share when the bankruptcy deal was announced. GM will be deleted from the Dow Jones Industrial Average, which it joined in 1925.

Peter Drucker, supreme managerial intellectual of the post-World War II generation, in his classic book Concept of the Corporation, profiled the company in 1946. Therein Drucker noted GM’s pivotal role in shaping the very idea of private enterprise in America; corporations like GM stimulated the rise of labor unions and big government.

Drucker wrote of government and GM’s role as to free enterprise:

It [GM] does not exclude government regulation or government limitation of business; but it sees the function of government in setting the frame within which business is to be conducted rather than in running business enterprises

Of labor unions and regulation, Drucker wrote:

If we look upon the two other new social institutions of basic importance that have emerged in her society during the last half-century, the labor union and the administrative government agency, we see that they are nothing but social responses to the phenomenon of modern Big Business and of the corporation.

The American government (taxpayers) will now own 60 percent of the “New GM,” the Canadian government 17.5 percent, the United Auto Workers 12.5 percent and bondholders 10 percent. True, the administration says it wishes to exit the car business. Thus in announcing the GM bankruptcy deal on June 1, President Obama said:

What we are not doing – what I have no interest in doing – is running GM.

GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They – and not the government – will call the shots and make the decisions about how to turn this company around. The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions..In short, our goal is to get GM back on its feet, take a hands-off approach, and get out quickly. (Emphasis added.)

Among the “fundamental” decisions the government has already taken for GM are: where to manufacture compact cars; substituting Green cars for guzzlers; and keeping GM’s corporate HQ in Detroit. Additionally, GM’s stock will have to soar 100-fold for the government to recoup its $50B investment. Which politician will vote to sell early, and tell bailout-fatigued voters their tax dollars have been lost?

GM was the quintessential industrial age manufacturing corporation of the 20th century. Its takeover by two governments symbolizes the end of an era, one in which private enterprise took pride of place in directing the commanding heights of the American economy. “Government Motors” will see to it that domestic workers displace foreign workers, union interests displace outside investor interests, worker pension fund coffers will be filled with money from taxpayers, and that regardless of the size of the government stake it will always be the senior partner. Even if the government stake falls from 60 to 6 percent, it will inevitably call the shots on crucial decisions. Government suzerainty over “the most fundamental corporate decisions” means political criteria will dominate economic criteria. There are lots of phrases to describe this state of affairs, but free market capitalism is not one of them. GM’s demise as a private entity symbolizes this fateful transition to a new domestic economic order in which Washington politicians are the ultimate private-economy CEOs.

John Wohlstetter

Senior Fellow, Discovery Institute
John C. Wohlstetter is a senior fellow at the Discovery Institute (beg. 2001) and the Gold Institute for International Strategy (beg. 2021). His primary areas of expertise are national security and foreign policy, and the 25th Amendment to the U.S. Constitution. He is author of Sleepwalking With The Bomb (2nd ed. 2014), and The Long War Ahead and The Short War Upon Us (2008). He was founder and editor of the issues blog Letter From The Capitol (2005-2015). His articles have been published by The American Spectator, National Review Online, Wall Street Journal, Human Events, Daily Caller, PJ Media, Washington Times and others. He is an amateur concert pianist, residing in Charleston, South Carolina.