Earlier this week I was asked if I believed in the old adage that what is good for the motor vehicle industry is good for America. If so, what does that say about our nation's economic prospects? The question itself is a spin on former GM's president Charles Erwin Wilson's statement back in the early 1950s at his confirmation hearing to be President Eisenhower's Secretary of Defense. Wilson was asked if, as Defense Secretary, he could remain independent if he had to make a decision that would be adverse to General Motors. His response was that he could not think of such a circumstance because he had long thought that what was good for our country was good for General Motors, and vice versa.
Over the years Wilson's statement has often been turned around and used as a metaphor for the notion that what is good for business is good for the country. For most of the past century, General Motors itself has been a bit of a metaphor for the U.S. economy and Big Business in general. General Motors was the largest enterprise for much of the past century and the largest private employer through the early 1960s. It remains one of the largest companies in the world. General Motor's troubles have come to symbolize the problems beholden to large complex organizations and its travails epitomize the collapse of America's industrial might.
Given the current troubles with GM and continuing questions about an eventual restructuring and possible bankruptcy, it is a useful exercise to analyze just how closely GM's problems mirror those for the nation as a whole and what the eventual resolution of GM's troubles mean for the broader economy. On the surface, GM seems atypical of the overall economy. General Motors employs 244,000 workers, or just 0.2 percent of the workforce. The entire motor vehicle sector comprises just 0.5 percent of the employment base. Manufacturing employment as a whole has been in decline for the past 30 years, having peaked in 1979 and plummeting to just 9.2 percent of the current overall workforce.
Beneath the surface, GM's predicament is much closer to the current state of the broader U.S. economy. General Motors is as large as many countries and has a vast reach within the economy. Every job lost at vehicle assembly plants is likely to result in six to ten jobs lost in other industries. The challenges GM faces are all too familiar to much of the economy -- weakening demand, a cost structure that is out of line with today's global competitive environment, a glut of excess capacity, and an ongoing battle to contain health care and retirement costs. Solving these issues requires tough choices, both within GM and for the country as a whole.
The federal government is playing a leading role in deciding the future course for GM and is specifically weighing in on what share of future economic gains will go to capital and what share will go to labor. A similar battle is playing out in the broader economy, with the federal government's role in financial services, utilities and health care increasing dramatically. In addition, President Obama has repeatedly noted that too few of the gains from the past quarter century accrued to labor and too much has gone to capital. The thrust of his economic policy is to rebalance those returns. The government's remake of GM may prove to be the template of future policy actions.
There is also the issue of legacy costs of benefit programs from a bygone era. Sincere promises of a secure retirement and dependable health care have proven simply too expensive for GM to fulfill. Retirees and workers will undoubtedly have to accept less. How much less and what share will be paid for by the government and how much by the private sector may provide some indication as to how upcoming battles over health care and social security will play out.
So while it may seem that GM's troubles only impact a small subset of the economy, they are emblematic of the challenges the entire economy faces. How these challenges are resolved and how well the auto industry recovers will likely have a direct impact on when and how the overall economy emerges from the recession.