GM and Destructive Capitalism

The great Austrian economist Joseph Schumpeter popularized the concept of the creative destruction of capitalism. The genius of capitalism is that it is always changing by embracing entrepreneurs and innovation. But in doing so, existing enterprises will often be destroyed or consumed.

The new industries bring wealth and prosperity to the people, but at the cost of failure, unemployment and poverty to existing businesses and devastation to their communities and investors. New markets, industries, and competitors emerge as others decline.

Capital inexorably flows to growing businesses and flees the declining industries.

Westfield, Massachusetts earned the nickname of “Whip City” because it had several factories that manufactured buggy whips for the horse and carriage industry. The onset of the horseless carriage doomed the buggy whip industry, but the country prospered as wealth was transferred to Michigan.

General Motors had a run of 77 years as the largest automobile manufacturer in the world, but could no longer compete with more nimble competitors, Toyota, Honda, Nissan, BMW, Mercedes, and now KIA. Capitalism is working, and now Michigan is devastated.

77 years is an eternity in business history. Apple had a short rein with its Apple 2+ before IBM introduced the PC, and now IBM is out of the market it pioneered. The mini computers, which weighed in below the large mainframes, lasted about two decades. DEC, DG, Prime, and Wang are consigned to the Computer Museum in Boston. The rise of Silicon Valley was at the expense of Route 128 and Massachusetts. Microsoft conquered all rivals, especially Netscape, until Google emerged. Someday a new company will surmount Google; it’s inevitable.

Once upon a time, not too long ago, Sony strove mightily with the Walkman. Apple trumped Sony with the IPod, and now Sony is sinking. Digital photography killed what was left of Polaroid.

The LP and reel to reel gave way to the 8 track, cassette, cd, and now the MP3 player.

The Dow Jones average of 12 stocks appeared on July 3, 1884. The 12 original stocks were American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feed, General Electric, Laclade Gas, National Lead, Tennessee Coal & Iron, North American, United States Leather, and U. S. Rubber. Only GE is still in the Dow Jones.

The Dow Jones 30 industrials were announced on October 1, 1928, just in time for the Great Depression. They were Allied Chemical, American Can, American Smelting, American Sugar, American Tobacco B, Atlantic Refining, Bethlehem Steel, Chrysler, GE, GM, General Railway Signal, Goodrich, International Harvester, Mack Truck, Nash Motors, North American, Paramount Publix, Postum Incorporated, Radio Corporation, Sears Roebuck & Co., Standard Oil (N.J.), Texas Company, Texas Gulf Sulphur, Union Carbide, U.S. Steel, Victor Talking Machine, Westinghouse Electric, Woolworth, and Wright Aeronautical.

None of the automobile and truck manufacturers are on the list anymore.

I have shopped over time at the following discount stores: Ames, Arlans, Bradlees, Caldors, Kings, S. Kline’s on the Square, Korvettes, Murphy’s, Rink’s Bargain City, Topps, White Front, Woolco, and Zayre’s. Before them, I shopped at S. H. Kress, S. Kresge’s, J.J. Newberry’s, F. W. Woolworth, and W.T. Grant. Some I miss, and some I don’t.

America is much better off with Wal-Mart and Target.

Do these department stores ring a bell? A & S, Alexanders, Bon Marche, Broadway, Bullocks, Elder Beerman, Capwells, City of Paris, Emporium, Foleys, Frederick & Nelsons, G. Fox, Gimbels, Hale Brothers, J. H. Hudson’s, I. Magnin, Joseph Magnin, Lamsons, LaSalles, Lazarus, Leader, Liberty House, Lions, Marshall Fields, May D & F, Robinson May, Rikes, Shilletos, Steigers, and The White House, Been to all of them, but now stuck with Macy’s.

I’ve bought electronics from Computer City, Lechmere, Circuit City and The Good Guys, records from Blockbuster, Camelot Music, Discount Records, Record Factory, the Wherehouse, Tower Records and Virgin Records, and books from Crown Books and Tower Books. I’ve looked in Crazy Eddie’s and Twitter, and Hermans Sporting Goods, but never bought from them.

I’ve flown Aloha, Eastern, North Central, Pan Am, Peoples Express, Piedmont, PSA, Reno Air, TWA, and Western., and banked at Ann Arbor Bank & Trust, BayBank, Crocker-Citizens, First Interstate, and SIS. All gone!

I’ve been to Fred Harveys, Lamonts, Mervyns, Montgomery Wards and Service Merchandise, eaten at Sambo’s, and shopped at Brooks, Cunningham, Dart Drugs, Guy Drugs, Gray Drug Stores, Longs Drugs, Pay’n Save, Payless, Peoples Drugs, Owl Rexall, and Thrifty’s.

What ever happened to Ernest, Builders Emporium, Grossman’s (blew a tire on a nail in one of their parking lots), Home Base, House 2 Home, and Pay’n Pak? Home Depot and Lowe’s killed them in the marketplace.

When I started teaching law in 1972, the large steel companies were U. S. Steel, Bethlehem Steel, Inland Steel, Jones & Laughlin, Kaiser, Youngstown, Republic, National, Sharon, and Armco. Only U.S. Steel survives. Nucor was just beginning.

Creative capitalism. The survivors emerge stronger than ever, and the economy prospers rather than stagnates.

GM is dead, but capitalism thrives, if we let it.