Columns » Warwick Sabin

Profit and loss

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General Motors this week announced it is cutting around 30,000 jobs and closing almost a dozen manufacturing and distribution facilities in response to a continued financial downslide.

The corporate leadership blamed GM’s poor performance on health care and pension costs, but that is simply a way of deflecting attention from the company’s real problems: bad management and greedy profit-taking.

Some analysts recognize this, including one quoted in the New York Times who said, “The primary question is, are you going to be able to produce cars and trucks that are compelling enough to sustain or even gain market share? Health care and pension costs are important issues but the primary issue is always what does your top line look like.”

Detroit is where the auto industry started, after all, and the major American car companies used to offer health and retirement benefits and still be profitable because they made cars people wanted to buy. Today they are tone-deaf, stubbornly producing SUVs and fighting fuel economy standards while Asian and European automakers outsell them with more efficient and appealing vehicles.

Add to that an overall corporate culture that since the 1980s has increasingly defined “shareholder value” solely in terms of earnings ratios. That means CEOs are more concerned with short-term profitability than long-term stability, which explains how the once-invincible GM — until recently the largest corporation in the world — has been brought to its knees.

The Los Angeles Times reported that GM’s cost-cutting measures were in part prompted by a power grab by billionaire Kirk Kerkorian, who last week raised his stake in the company to almost 10 percent and indicated he may seek a seat on GM’s board.

Corporate raiders like Kerkorian buy their way into corporations only to eviscerate them by slashing employees’ salaries and benefits and selling off assets. That temporarily inflates the share price enough to realize a healthy profit. The company is then sold off and quickly dies.

That is what happened to TWA, for instance. The airline industry is another example of the new paradigm. Not only were U.S. carriers symbols of the nation’s efficiency and glamour, but they are conceivably a business model that can’t lose. Americans simply have no choice but to travel on airplanes for business and pleasure, because the country is so big.

And yet somehow most airlines are now losing money and going bankrupt. They were deregulated a long time ago and they treat their employees terribly, so the only logical explanation for their failures is incompetent management and the prevailing profit-taking culture.

When CEOs and top shareholders pocket every bit of a company’s wealth, that company cannot invest in improving its service and marketability, which is why there are uncomfortable planes, no in-flight food, an incomprehensible pricing system and overall consumer dissatisfaction with air travel. The airlines have basically alienated a captive audience and are losing money in spite of themselves.

A very small number of people will get rich in the short term, but the decline of GM, the airlines and other important industries will be extremely harmful to the American economy. The corporate leadership that either can’t or won’t defend the core values and substance of their organizations are complicit in a cult of greed that is irresponsible at best. Considered with the now-common tactics of creating false off-shore headquarters to avoid taxes and Enron-style manipulation of markets to profit at the expense of thousands of people, you could almost call it unpatriotic.

Where else do you see this ethic being applied? At the hands of our M.B.A. president, George W. Bush.

Mismanagement is the hallmark of his administration, as he runs one institution after another into the ground: the military, Medicare and Medicaid, public education, disaster relief, and more.

The demonstrated incompetence is matched by profit-taking in the form of massive tax cuts for the wealthy. The assets of the government are being siphoned off, leaving it weakened and ready for a fire sale. China and other countries have been increasing their stakes by purchasing our debt and are positioned to have a seat on our board.

Is that just the result of the free market? Probably. But the free market is a natural state and we are not animals. What makes us human is our ability to recognize certain values besides those of mere self-satisfaction.

Our corporate culture and government used to embody and draw strength from those values. Now a precious few are profiting by disregarding them, and all of us will lose as a result.

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