Well here's an old post

I just deleted my other blog. I hadn't written there in quite some time, the last post was September of last year. I was trying to find a place for some more political posts, but I think the best thing to do is concentrate on one blog and work on that. I should have more time to do this as I am returning to my student roots (heh heh).

Yesterday was my last day of work for the time being as I return to Carleton to pursue my MPA full-time. I have kept some of the old posts and I thought i'd repost one of my favorite and best written pieces here. So here goes, This was first posted in September of 2006.

About GM.

After watching the movie Who killed the electric car, I went and had a discussion with a friend of mine about the movie; in particular it was about the role of GM as a political actor.

Now my friend criticized me for my lack of understanding of business. But I still strongly believe that you have to understand the modern corporation as a political actor.

A few days ago about a week after my debate I was reading a biography of John Kenneth Galbraith. In his book A new Industrial State, he talks about how the modern corporation has moved beyond the profit maximizing entity described in the economics textbook.

Now JKG was an economist, but it seems to me that he was one of the few who realized the impact of power on economic relations. Economists still to this day largely ignore the social context in which their theories apply.

Anyways the main thing that my friend kept repeating (which seems to be to be a conservative mantra) is that GM is a profit maximizing entity, if it doesn't make business sense they won't do it. While this is true in the long run, is GM doesn't make a profit it will cease to exist, modern corporations are political actors.

Galbraith seems to understand this implicitly in his work. He suggests that the corporation as an entity can have other goals that the maximization of profit. It might be a steady return on investment (i.e. they do not take risks that might endanger a steady level of profit) or it might be the return to shareholders , or it might even be that the CEO wants the largest pay possible with stock options this has become a more common problem).

Companies as large as GM also have a lot at stake, and thus become risk averse as well. They might simply decide that because of their weight in the market, they can prevent competition and keep making profits out of what they are already doing.

This is the profound failure examined in Who killed the electric car. As mentioned in the film, GM had a 2-3 year lead on its competitors in terms of it work on the electric car. Largely because they deemed the stakes too high, they fought tooth and nail against the imposition of the Zero emission vehicle regulations that were in place in California rather than exploiting its edge in R&D and product development of the electric car. In other words they chose steady profit doing what they were doing, rather than disrupt their other product lines and face real competition.

In other words they chose certainty over the uncertainty of developing a new product.
This is the problem with the large corporations, they are no longer innovators.

While it is true that companies need to be a certain size in order to attract capital and create interesting products there becomes a certain point where they are too big and too unwieldy to compete and they start becoming defensive.

The most interesting example in modern times is the degree to which Apple even though it is a small company makes Microsoft shake in its boots. Apple has become the leader through its innovation, and creativity while its competitors defend their positions and copy what Apple does. Microsoft has for years depended on its ability to buy upstart competitors in order to actually acquire and create new products. Microsoft because of its size doesn't seem to need to innovate; it simply buys the innovations of others and repackages them as if they created it themselves. This is why a truly innovative company like Apple scares Microsoft silly.

Imagine a competitive market of small and medium sized companies; this is truly what we should be aiming for rather than the oligopolies and cartels we are busy constructing now.