Silicon Valley vs. Detroit

I’m not a huge fan of Thomas Friedman’s, but I think that his op-ed piece in today’s New York Times raises an interesting question… If our objective is to create new jobs, are our billions better invested with General Motors, a company that is already asking for more money after being bailed out last month, or with a venture capital firm? Here’s a clip:

Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support. Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.

G.M. has become a giant wealth- destruction machine — possibly the biggest in history — and it is time that it and Chrysler were put into bankruptcy so they can truly start over under new management with new labor agreements and new visions. When it comes to helping companies, precious public money should focus on start-ups, not bailouts.

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves…

OK, I’m off to watch the Oscars now. I generally try to avoid them, but the prospect of an exchange between Mickey Rourke and Jerry Lewis has me near giddy.

And, as for Friedman, I’m not sure what to make of his suggestion. I guess, however, that I’d be more inclined to invest my own money with Al Gore and his associates at Kleiner Perkins Caufield & Byers in the Greentech initiative than with Rick Wagoner and his team at GM.

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16 Comments

  1. Ol' E Cross
    Posted February 23, 2009 at 12:28 am | Permalink

    For a bit of perspective on Friedman and the value of “potential” jobs versus existing jobs… While enjoying a virtual monopoly on the PC platform Microsoft employs 71,000. In an extremely competitive market GM employs 335,000. And unlike GM, Microsoft has less revenue than your neighborhood Walgreens.

    If we’re talking about jobs, the question has to be asked how many ventures would it take to match GM in the number of good paying jobs? Follow the above link. The only non-oil employer to beat GM in US revenue is WalMart, and, I dare say, GM offers better paying positions than WM.

    I’m not in love with the US auto industry, but I don’t think those California oranges ought be compared to Michigan apples.

  2. amused1
    Posted February 23, 2009 at 10:10 am | Permalink

    I think “good paying jobs” is an ongoing issue with US auto industry.

    There’s a lot of focus on executive compensation but I think we need to pay a little more attention to rank and file compensation.

    Many workers with 20+ years on the line earn more than teachers with 20+ years in the classroom. As far as I know, there are no prerequisites to becoming a line worker. Teachers are required to attain degrees and take continuing education courses throughout their careers. That’s a bit more overhead than your typical line worker has to deal with.

    It used to be when the UAW went out on strike people tended to say “Good, they’re not letting big bad management get away with anything.” But when teachers tried to bargain for better wages, improved classroom equipment or appropriate pupil/teacher ratios those same people screamed about their “tax dollars” and called teachers cry babies who “get summers off”.

    I don’t want to return to sweatshops, but I do think the current compensation system is unworkable. And if I had a choice, I’d rather see my tax dollars go to teachers.

  3. dragon
    Posted February 23, 2009 at 10:11 am | Permalink

    Kleiner, Perkins, Caufield & Byers is committed to helping entrepreneurs build sustainable technology businesses. For nearly 30 years, we have invested in hundreds of market-defining ventures that have resulted in the creation of over 250,000 new jobs.

    I agree with OEC, the auto companies alone provide more jobs and that is not even taking into effect the downstream suppliers.

    As for Friedman
    http://www.nypress.com/article-19271-flat-n-all-that.html
    small sample of a great article:
    Where does a man who needs his own offshore drilling platform just to keep the east wing of his house heated get the balls to write a book chiding America for driving energy inefficient automobiles? Where does a guy whose family bulldozed 2.1 million square feet of pristine Hawaiian wilderness to put a Gap, an Old Navy, a Sears, an Abercrombie and even a motherfucking Foot Locker in paradise get off preaching to the rest of us about the need for a “Green Revolution”? Well, he’ll explain it all to you in 438 crisply written pages for just $27.95, $30.95 if you have the misfortune to be Canadian.

  4. Curt Waugh
    Posted February 23, 2009 at 10:48 am | Permalink

    Hey, we can debate Friedman all day, but let’s not pull that crappy Faux News tactic and debate people when we should stick to the subject. Yeah, Friedman has a big house and his family did horribly things to the environment and he’s sometimes pompous and out of touch. ‘Nuff said.

    Back to the point…

    Why do people keep defending all the people employed by the auto industry? In case you have all forgotten, they have been employed building unnecessary SUVs that were purchased with unsustainable credit. So, we’re supposed to prop up this ridiculous business plan?

    Yeah, they employ a lot of people. Yeah, they paid them tons of money for the past few decades. But it’s over. Since when is citing how many employees they have justification for giving them our money? In case nobody noticed, the people in this country gave them billions of our money throughout the years by buying their cars. Just what the hell did they do with all of it?

    Friedman’s just trying to make the point that, if we engineer at the national level which specific companies win and lose, we will inevitably cut off at the knees the up and coming innovators. Let’s face it, EVERY SINGLE COMPANY in existence used to be a hungry up and comer. If we crowd them out by propping up the dinosaurs, we will kill the natural evolution of the next species of company — whatever it might be.

    Until we break with the past, we will never know what the future holds. I’m guessing it’s not a lifetime supply of F150s.

  5. Curt Waugh
    Posted February 23, 2009 at 10:58 am | Permalink

    And furthermore, while I certainly don’t have all the answers, I do know that there is a potential for all this money the government is throwing at the big banks to crowd out credit unions and small, local banks that are run properly. We have several very well run local banks and credit unions (excepting the former Huron River Area Credit Union). It has to just stick in the craw of the local leaders of these institutions that they can’t catch a break when they do everything right.

  6. Glen S.
    Posted February 23, 2009 at 11:41 am | Permalink

    “Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis..”

    Wow. Really? Does Friedman also suggest this should apply to Citibank, Bank of America, Chase, AIG, Fannie Mae, Freddie Mac, etc.? Or, does he believe the only sectors that “deserve” to die are the traditional blue collar industries which provide the backbone of (what’s left of) our manufacturing base, and which provide living wages and decent benefits to millions of active workers and retirees — most of whom just don’t happen to live in the better neighborhoods around New York or D.C.?

    Frankly, this is just more of the same-old condescending double-standard we get from wealthy neoliberals like Friedman, who, for years, have been enthusiastic champions of unfettered globalization and its worldwide “race to the bottom” — as well as mostly uncritical supporters of the very same multi-national corporations who have caused much this mess in the first place.

    Don’t get me wrong — nobody (including me) is crazy about spending more tax dollars bailing out companies like GM or Chrysler. These short-sighted companies have been poorly run for decades … both their executives and workers need to make concessions, and their executive leadership(s) should be dumped a.s.a.p. as a condition of any further bailout.

    However, what Friedman seems to ignore is that these companies self-inflicted wounds have been greatly compounded by the kinds of “free” trade agreements he himself has promoted, as well as by the consequences of structural factors nobody could have foreseen decades ago — when the Big 3 agreed to contracts which guaranteed generous lifetime pensions and health benefits to retirees. As an example, GM’s ratio of retirees to active workers today is more than 2 to 1 … a burden far greater than any of it’s American competitors, let alone foreign transplants.

    If, as Friedman suggests, GM (and/or Chrysler) were allowed to go bankrupt — and to jettison most (or all) of their existing workers and retirees — who is going to pick up the tab for their pensions and health care? Who is going to pay to send these workers’ kids to college? What about the thousands of vendors and suppliers (and their millions of workers) who depend on the Big 3? Can our already-frayed social safety-net (welfare, medicaid, food banks, etc.) seriously absorb an impact of this magnitude? If not, what kind of massive, federal intervention would be required to attempt to stabilize Michigan, and other Great Lakes states and cities, which would be hit with what would amount to an economic “Katrina?”

    The point is … given our current economic crisis, we will likely have to continue supporting some “legacy” industries, as well as investing wisely in forward-focused initiatives (education, research, light-and high-speed rail, green energy, etc.) that will provide future jobs and opportunities. It WILL be expensive, but given the circumstances, I don’t think we have any other choice. The consequences of simply “pulling the plug” on the industrial Midwest would be too devastating, and, ultimately, counter-productive.

  7. Posted February 23, 2009 at 11:42 am | Permalink

    I will most certainly get flamed for saying this, but the simple truth is that only a minority of people in this country are capable of high tech jobs. We need hands on work since that’s all a certain sector of the population is capable of. Sure, people will say that all we need is education and there’s nothing wrong with that. But to assume that everyone is capable is extremely optimistic.

    America needs companies like GM, Ford, Toyota and Hyundai to provide hands on manufacturing jobs that pay fairly well. Not everyone can be a computer programmer or a lab rat.

  8. Paw
    Posted February 23, 2009 at 12:03 pm | Permalink

    Building a car isn’t a trivial task. It takes quite a bit in the way of know-how, and a great deal of infrastructure. A venture capitalist in Silicon Valley may put some money into a boutique auto firm like Tesla, but they’re not likely to build a new Ford of GM. (From what I understand Tesla is having problems mass producing their cars.) I don’t like the idea of a nationalized auto company, but unless we want to buy all of our cars from Japan, we need to figure something out, and it’s likely to take some government investment.

    And I like that we can all agree that Friedman is a first class a hole. We don’t agree on much.

  9. Patrick
    Posted February 24, 2009 at 1:52 am | Permalink

    Glen S. wrote, “If, as Friedman suggests, GM (and/or Chrysler) were allowed to go bankrupt — and to jettison most (or all) of their existing workers and retirees — who is going to pick up the tab for their pensions and health care? Who is going to pay to send these workers’ kids to college? What about the thousands of vendors and suppliers (and their millions of workers) who depend on the Big 3? Can our already-frayed social safety-net (welfare, medicaid, food banks, etc.) seriously absorb an impact of this magnitude? If not, what kind of massive, federal intervention would be required to attempt to stabilize Michigan, and other Great Lakes states and cities, which would be hit with what would amount to an economic “Katrina?””

    That sounds a lot like the reasons they tried to sell us for bailing out Wall Street securities. They claimed they were too big and influential and too many people depended upon them to be allowed to go down.

    Curt Waugh, though, I am liking what you are writing.

    Also, I am not really going for the argument that America so desperately needs to have its own ability to make all these vehicles that we make, instead of being eaten up by big, old, bad, competitive Japan. That line was used in the past to try to “protect” the Steel Industry, so we would be able to make war without depending on other countries for our weapons. Just ask Michael Savage. He said that a “great” country does not remain great without the steel to blow up other countries. What does Japan spend on National Defense?

    Sorry guys, I will go one step further than Curt Waugh and say that I have no answers at all, but so far, I am not convinced that bailouts are helping us.

  10. Glen S.
    Posted February 24, 2009 at 8:50 am | Permalink

    Patrick,

    I think you’re right. This is definitely a “damned if we do, damned if we don’t” predicament.

    All I’m saying is that, one way or another, we’re going to end up paying — either billions for a massive package of unemployment compensation, medicaid, social assistance, food aid, emergency aid to cities and states, etc. to help the millions of displaced workers, their families, and their communities survive what woud amount to an economic calamity — or, attempting to save and restructure what’s left of the American auto industry. Given that choice, in my mind there is no question that trying to save this industry, and the jobs and communities it supports, is the right thing to do.

    I also strongly disagree with your assertion that preserving some degree of U.S. manufacturing capacity is not crucial to our long-term prospects. Over the past 30 years or so, we have forfeited large portions of sector after sector of our economy to foreign production and/or control. First, small electronics, then more sophisticated electronic components, followed by appliances, steel, automobiles, clothing and shoes, IT, energy — and increasingly, even agriculture. Therefore, a serious question: As we rapidly reach the point where we, as a nation, no long “make” or “build” anything, what will become the basis for our economy in the 21st Century?

    For too long, we were told by many “experts,” such as Thomas Friedman, that America would prosper by transitioning to a “service” economy. However, since the major components of that vaunted service economy — banking, insurance, investments, etc. — are now ground-zero for the economic collapse, that plan clearly now seems neither appealing, nor wise.

    In saying this, by the way, I am in no way trying to blame “big, old, bad, competitive Japan” (nor China, nor India, for that matter.) These countries are merely trying to look out for their own best interests.

    However, I do take great issue with an entire generation of American business and government leaders who, while the advocated nearly unfettered globalization and “free” trade, let nearly our entire economic foundation slip away, with seemingly little foresight for what might might replace it … and who actively neglected investment in the kinds of infrastructure and human capital that would have prepared us for a “new” economy.

    More than anything, I think this is the real root cause of our current recession/depression: We have become a country that has become accustomed to borrowing increasingly large amounts of money FROM other countries to buy energy, products and services FROM other countries — squandering our wealth and decimating our economic capacity in the process.

    I think one way to begin to fix that — in addition to smarter government policies that favor investments in infrastructure, education, and green energy — is for individuals to expand the “buy local” idea to include a more regional and even national scale — by beginning to buy and support products and services that help to rebuild domestic economic capacity.

  11. Curt Waugh
    Posted February 24, 2009 at 11:19 am | Permalink

    Lest we get our short in a bind about manufacturing, we need to remember that lots (tons, gargantuan amounts) of manufacturing still goes on in the U.S.

    Here are some numbers from (the clearly biased, but probably not a bunch of complete liars) the Cato Institute:
    http://www.cato.org/research/articles/reynolds-030831.html

    From the National Association of Manufacturers:
    http://www.nam.org/AboutUs/TheManufacturingInstitute/CenterforManufacturingResearchandInnovation/TheFactsAboutModernManufacturing.aspx
    “Standing by itself, U.S. manufacturing would be the eighth largest economy in the world.”

    So, the strategic importance of manufacturing is pretty solid in the U.S. It’s here in Michigan where we’re hurting. And it’s real. And we need to do something about it. But I really don’t want or trust the auto industry with our future. Please give that money to somebody else. Or invest in individuals or piss it down a well. But don’t give it to Rick Wagoner. On their web site, Chevrolet currently has 3 vehicles listed as “trucks”, 7 vehicles listed as SUV/crossovers and 1 van (as opposed to 6 “cars”). So what Rick, you gonna take our money and build us another one o’ them trucks?

    And if ANYBODY can figure out why a private equity company like Cerberus Capital Management gets one goddamn dollar of our money, please explain it.

  12. Glen S.
    Posted February 24, 2009 at 11:58 am | Permalink

    Curt,

    In an earlier comment, I agreed that these companies have been terribly short-sighted and badly mismanaged, and that a complete executive house-cleaning should be a condition of any additional government support.

    However, in simply suggesting that we “give that money to someone else,” you don’t address my main point: If we let the auto industry (and its suppliers) fail — putting millions of workers out of a job and devastating entire communities, not to mention the state of Michigan — would that not ultimately cost the taxpayers more in the long run? (Not to mention the social and human toll.)

    Perhaps a better solution might be for the government to temporarily “nationalize” GM and Chrysler, and appoint more capable and visionary leadership — then put these companies’ productive capacity and skilled employees to work building not only more fuel-efficient cars, but also “green” buses, and more energy-efficient passenger and freight rail.

    Then, once these companies are stabilized, they could be re-sold back to investors (or, better yet, their own workers and pensioners), in order to reimburse the taxpayers.

    A radical solution, perhaps, but then, the magnitude of this problem is truly unprecedented.

  13. Patrick
    Posted February 24, 2009 at 11:45 pm | Permalink

    Curt wrote, “For too long, we were told by many “experts,” such as Thomas Friedman, that America would prosper by transitioning to a “service” economy. However, since the major components of that vaunted service economy — banking, insurance, investments, etc. — are now ground-zero for the economic collapse, that plan clearly now seems neither appealing, nor wise.”

    I agree. What are we going to service if nobody has any goods? It seems almost like exchanging modern economy for barter again. Maybe that is good. New tribalism and all that.

  14. Curt Waugh
    Posted February 25, 2009 at 8:53 am | Permalink

    Hey, I love credit, but let’s give it where it’s due: That was Glen’s comment.

  15. Posted February 25, 2009 at 3:20 pm | Permalink

    That line was used in the past to try to “protect” the Steel Industry, so we would be able to make war without depending on other countries for our weapons. Just ask Michael Savage. He said that a “great” country does not remain great without the steel to blow up other countries. What does Japan spend on National Defense?

    Actually, the steel industry came through its restructuring pretty strong, though one of the big problems that they had was the slow resolution of international trade disputes—many of the companies that went under during the ’80s did so because of price dumping on the part of a nationally subsidized Japanese steel industry, and by the time those companies were finally found the victim of unfair trade practices, they’d already bled out.

    Look, there are two huge institutional costs that all the Big Three have to deal with. The first is health care and retirements, which are insanely high. The only way to get around this is a massive overhall of the health care system in America. Nationalizing health care (ideally with a single-payer system) would immediately make American manufacturing in general, and the unionized Big Three specifically, more competitive, resilient and able to survive. The second huge institutional cost that the Big Three bear is their ludicrous and anachronistic dealership system, which includes incredibly long contracts with dealerships. GM alone has, if I recall my NPR correctly, five times the number of dealerships that Toyota does. These are legacies from when internal competition drove the American market, and you’d have Buick dealerships separate from Oldsmobile dealerships. They’re simply unsupportable, but due to the contract structuring, they’re a cost that can’t be cut without massive costs associated. Without governmental assistance or bankruptcy, there’s no way to let those dealerships go.

  16. Patrick
    Posted March 3, 2009 at 1:53 am | Permalink

    Curt wrote, “Hey, I love credit, but let’s give it where it’s due: That was Glen’s comment.”
    Right. Sorry.

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