Creative Class

Matt Yglesias, responding to the automotive bailout debate, argues that it does:

What I find interesting, however, is not so much how irrational it is to attribute nationality to a business enterprise but how much nationality really does seem to matter. For example, the oil business is an global business. And the six “supermajor” firms are all global firms. But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way. And beyond CEO nationality, local norms seem to make a big difference. The CEO of Total earns way less money than the CEOs of the other supermajors and to a first approximation the reason is that he’s French, and French CEOs just don’t get paid very well. More broadly, European and Japanese executives earn less money than American executives, with British executives in the middle. I recall that one of the issues with the DaimlerChrysler merger was that the executive pay scales were totally out of whack.

Beyond CEOs, Nestle has 15 directors. Of them one is Indian, one is Swiss/American, seven are Swiss, and the rest are from other European countries. But there’s nothing especially “European”—and certainly nothing Swiss—about the company’s actual operations. They earn a lot of money in Europe, but the majority of their revenue is from outside of Europe, and there’s production all over the world. It’s also totally normal for large multinational firms to be disproportionately owned by shareholders located in their “home country” and home continent.

Corporate nationality, in other words, doesn’t matter. But it seems as if it actually does. And for somewhat mysterious reasons.

Reasonable points all. (BTW, this is a huge deal in Canada, maybe even more so than in the U.S.).

But GM and Chrysler had U.S. management and ran their companies into the ground. Toyota, Honda, and the transplants have created jobs in America. Nationality cuts several ways.

Some time ago, when I was studying the globalization of the automotive industry and the rise of off-shore transplants, I discovered something interesting. U.S. and European companies all said it was much easier to set up cutting-edge plants outside their home company. New greenfield plants could be built from scratch, filled with new equipment, laid out flexibly, and staffed with “fresh” managers and workers. Older plants back home suffered less from being in old buildings but from built-up and near-impossible-to-change organizational structures and relationships.

Seems to me the real issue isn’t nationality of ownership or management but its quality. From an economic development perspective, I’d much rather encourage companies and plants with great management to invest and develop in my country or location than to protect and shield ones owned by my far less capable compatriots.

UPDATE: The governments of Canada and Ontario apparently now own a two percent equity stake in Chrysler, according the Conor Clarke of The Atlantic who notes: ”Chrysler is going to become part of an Italian car company. And it’s doing so with Canadian dollars”

Economists have long argued that wages are sticky. I think it was the late John Dunlop who first discovered this. He told me once that Keynes actually sent him a letter congratulating him on that. Fed Ex has just announced big wage cuts. Felix Salmon says it may be class warfare time.

There’s been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now. It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts.

Hmmm… cutting wages in a downturn when folks say there’s a need to stimulate demand and consumption. And double hmmmm… locked up credit markets where people can’t get loans. Try it for yourself, go out there and try to get yourself a mortgage on the buy-of-a-lifetime house. Boy oh boy, quite a vicious set of collective action problems we’re confronting. Not to worry: we have the stimulus and the auto bailout coming (ahem …).

As a graduate of the U of Michigan, I can only try to forget what an awful football season we have just endured. However, a recent WSJ article reminded me that the Big 10 football conference and all major conferences are being outperformed by the teams of the Southeastern Conference (SEC).

The WSJ asks “What the rise of Southern Football Says About America,” in an interesting piece by Darren Everson. And while there is no overt mention of Detroit’s Auto Industry and the South’s Auto Industry in the article, the ongoing bailout saga kept popping into my head as I read the article. A snippet:

In recent years, the South has undergone rapid growth. Twenty-seven of the 50 fastest-growing metropolitan regions in the country in 2007 were in the South, while personal-income growth in the region outpaced the national average over the past decade. These changes have added muscle to the South’s historic passion for college football. While they rank low in many measures like per-capita income and educational achievement, states like Alabama and Mississippi rank close to the top in the percentage of high-school students who play football. And among states that have more than 10 native sons playing in the National Football League, the top six producers by percentage of population are Louisiana, Mississippi, South Carolina, Alabama, Florida and Georgia.

I began to wonder, is there some connection between the success of SEC football teams and the rise of the Southern Auto Industry?

Are Big 10 teams stuck with ‘Fordist’ football models while SEC coaches and administrators make use of ‘continuous improvement’ and other concepts in order to strengthen their programs? Are SEC leaders better at innovating with recruiting, play calling, and conditioning? (Remember, Gatorade was created at the U of Florida.)

The article points out a few potential theories for why the SEC has grown into such a football powerhouse, including pride of place that Southerners exhibit in their states, tight relations between SEC schools and Southern politicians, and academic standards in the SEC that differ from other conferences such as the Big 10 and PAC 10.

While there is likely no connection between successful SEC football and the successful Southern auto industry, it highlights the spiky nature of the creative economy – from auto production and college football administration to content creation and biotech. I believe that is what the rise of Southern football tells us about America.

BTW, I will remind all SEC fans that Michigan (and its old school coach Lloyd Carr) did beat Florida (and new school coach Urban Meyers) handily during last January’s Capital One Bowl Game.

Slate’s Dan Gross says the bailout really can’t work because the Big Three car companies are already dead.

The sad fact is that the U.S. auto industry has essentially failed. Even if car sales come roaring back from their current anemic pace next year, there’s no guarantee the Big Three will return to health, that they’ll be able to stay current on debt payments and raise capital from tough-minded investors. The executives and union leaders speak as if the bailout money is simply needed to tide them over until the sun comes back out. Exuding and instilling such confidence is a big part of their jobs. But increasingly, it seems that the federal funding they’re requesting is necessary to help manage failure, not to stave it off.

Maybe what we’ve been calling culture war has actually been class war.

In RISE, Richard posits the Creative Class as an entity that’s not yet self-conscious and is tied to the new creative (i.e., high tech, etc.) economy. I think the emergence of the creative economy and creative class have been met with resistance in the form of class warfare. We tend to think of class warfare in terms of rich vs. poor, but this is between the classes of the old economy vs. the creative class.

It’s played out in America’s politics as the old economy warriors took over parts of the Republican Party with anti-intellectual, anti-science, anti-elite rhetoric and used them to resist change. Those in the old economy used the culturally conservative demonization of the 1960s to organize against the emergence of the creative class which is intellectual, scientifically oriented, and tends to be highly educated. People tied to the resource-based, Fordist economy, whether Rust Belt working-class “Reagan Democrats” or oil barons, have been fighting against the new social and economic realities. The Bush administration, with its giveaways to resource-based corporations and resistance to science has been a last bastion of resistance. The automakers attempt for a bailout is another symptom of this reaction.

The battle lines haven’t always been clear because the nature of the war hasn’t been well understood by either side. We have to be careful about making assumptions or ascribing value judgments. Newt Gingrich and Karl Rove were clearly part of the creative class, regardless of which side they’re on. Tom Delay and John Dingell were clearly not. Both Clintons, Al Gore, and Obama are clearly creative class. By G.W. Bush’s job description he should be, but not his nature, so he’s hard to define. Bush Sr. and Bob Dole were essentially non-combatant leftovers from an earlier era. It’s hard to say about Reagan or McCain, who fell into both camps.

Obama seems to have captured the Creative Class vote, and may create Judis & Teixeira’s “Emerging Democratic Majority” if his policies succeed in supporting the new economy. The Republicans are faced with going the way of the Whigs unless they can abandon the class warfare and open up to the new economy and the creative class.

This one takes the cake:

Even as Detroit’s Big Three teeter on collapse, United Auto Workers President Ron Gettelfinger said Saturday that the problem is not the union’s contract with the automakers and that getting the automakers back on their feet means figuring out a way to turn around the slumping economy.  “The focus has to be on the economy as a whole as opposed to a UAW contract,” Gettelfinger [the UAW President] told reporters on a conference call … Gettelfinger blamed the problems the auto industry is suffering from on things beyond its control — the housing slump, the credit crunch that has made financing a vehicle tough and the 1.2 million jobs that have been lost in the past year. “We’re here not because of what the auto industry has done,” he said. “We’re here because of what has happened to the economy.”

Er… really. So why aren’t VW, BMW, Damlier-Benz, Toyota, or Honda in this kind of mess?