Friday, June 19, 2009

Detroit R. I. P.

The Pittsburgh Penguins just defeated the Detroit Red Wings to win the NHL’s Stanley Cup. Thus ended Detroit’s any further claim to glory as the Pens drove the last nail in Detroit's coffin. Chrysler, Ford, GM (as we have noted before, and, Lions, Pistons, and Tigers are all losers. Motor City has lost over one million in population in 50 years, to now become the 11th largest city in the U. S., just behind San José. Unemployment in Detroit today is 22%, and 30% of the population live on food stamps. This is sad and heart-breaking, and our heart goes out to the ones who are struggling for no fault of theirs.

So, what led to Detroit’s decline? If you are a geeky database/OLTP person, you have heard of ACID (no, not the one you get high on, but Atomicity, Consistency, Isolation, Durability). If you are a more enlightened, liberal arts person, you can relate to Elizabeth Kübler Ross’ seminal works on death, dwelling on stages of Denial, Anger, Bargaining, Depression, Acceptance, Hope…Yes, that’s what killed Detroit.

Arrogance: the Big Three (2½) thought they were invincible from the days of macho, gas-guzzling, chrome-rich cars when gas was 33 cents a gallon.

Complacency: “We are the Big Three, no one can touch us.” This is how the ancient Chinese, Greek, Persian, and Roman empires collapsed—they were all destroyed from within and not from without.

Ignorance: Not knowing how dumb they were and not foreseeing the inevitable games to be played by OPEC and other oil-rich countries.

Denial: Underestimating the Japanese onslaught from all sides—gas-sipping, not gas-guzzling, small cars; well-built mid-sized cars; luxurious high-end cars; and even odd-looking, funky cars like the Honda Element, Toyota Scion, and Nissan Cube that turned Saturn and Pontiac Aztek into a laughing stock.

Many folks have concluded the end of manufacturing in the U. S. and handing it over to China spell a death-knell for the U. S. We are not sure. In the late 19th and early 20th centuries, almost 80% of American labor was in agriculture. But once massive mechanization took over, agriculture became secondary to the point that today less than 5% of the U. S. labor population is in agriculture.Yet, folks in early 20th century felt the end of an agriculture-based economy would mean the of the U. S. as we knew it then. But, today we not only grow enough food to feed ourselves, the U. S. government provides subsidies farmers not to grow more food! In early 20th century no one had heard of electronics, aerospace, jet aircraft, rockets, microprocessors, PCs, mainframes, transistors, TV, cassette, 8-Track, VHS, diskette, SSD, DVD, DVR, BlueRay, cell phones, iPod, iPhone…you get the point. So, what are the next killer products that will bring America back to its glory days? Biotech, personalized medicine, nanotechnology in all aspects of our lives, systems biology, optical computing, robots ruling your lives...? Your guess is as good as mine.

I am a short-term pessimist and a long-term optimist: America is sick, not dead, and will come back with a roaring revival that the rest of the world will envy. At least, that's my hope!



gatsby said...

An interesting post, though it writes off the Red Wings too soon. They will, barring major injuries, remain an elite team for at least a few more years.

Then again, Detroit's automakers are better than given credit for. What ails them is complicated. It's clear that management gave up too much to the unions when times were good, and who can blame the unions for not wanting to give up what they'd received?

Let's remember that even in decline, Detroit gave us the minivan, the PT Cruiser and for better or for worse, the SUV. I may be totally against SUVs, but a lot of people obviously want them. In fact, I heard a Toyota executive say that once gas prices fell, Prius sales went down faster than SUV sales did when gas was high.

Pension and benefits aside, Detroit can build cars as cheaply as the Japanese, and my American-made cars have been no less durable than my Japanese-made one.

In fact, US manufacturing is the most productive manufacturing sector on the planet. It just can't make up for exceptionally low labor costs elsewhere. The Japanese will run into the same problem -- look at the cars coming from India and China. Those will hurt every manufacturer in high-wage nations.

Many good ideas will continue to come from the u.s. and be commercialized here. Rod Brooks is trying to develop low-cost robots to automate lower-volume factories, which may make the US manufacturing sector much more competitive with places like China.

But high tech innovation does not seem to correlate with high job creation. This problem looks likely to plague the US economy for years to come. A place like Detroit will suffer because of it. But perhaps when things look worst it creates a will and a way to turn things around.

why2jjj said...

Note Ford is the only U.S. automaker that has not received any government bailout money. They were smart and took out a low-cost loan when times were good. They now have 22 billion in the bank to weather the storm and get themselves going again. They are also way ahead of GM/Chrysler in producing more fuel-efficient engines, that oh-by-the-way are starting production now in Cleveland. I'm rooting for Ford.

Part of our issue is the unions in this country- they demand higher pay for the same work of screwing a nut on a wheel. One of the better ways to get higher pay is higher education. I don't blame U.S. auto companies shifting work to other countries because of this. I find it ironic that Japanese auto companies have built plants in the U.S. while U.S. auto companies move their plants outside of the U.S. I don't believe the Japanese car plants in the US are unionized- I know when Toyota moved into Evansville, IN the labor force was non-unionized.

Note Detroit has one of the highest needs in nurses and health care. I know some hospitals are offering outrageous deals to people willing to make a career change to nursing. That will help the unemployment there, if people actually decide to make that change. As for me, I'm glad I'm out of the midwest- I never liked it there. My now home state in Oregon is one of the only states in the U.S. that is actually increasing the number of farms.

Tom said...

I have to agree. 20 - 30 years ago the US moved from being a manufacturing economy to a service economy. When the economy goes south, there is no foundation, no market for the services.

Sean said...

They certainly can't claim industry, their ills were laid out decades ago - only to be repeated - in David Halberstam's brilliant book The Reckoning

Sean said...

er, that should be "ignorance" instead of "industry". hmmm...interesting slip, even this early in the am

the said...

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