Dow Jones today announced two substitutions in the venerable Dow Jones Industrial Average: General Motors and Citigroup are being discarded, and taking their places are insurance giant Travelers and Cisco Systems. I’m not at all wistful about any of this — time, technology and comparative advantage all march on, but this is an unusual juncture that highlights the long-term industrial and political paths of the U.S. economy.
Robert Reich, former labor secretary, comments astutely in today’s Financial Times, reminding us how important GM used to be: in 1953, it was the world’s largest manufacturer as well as the largest U.S. employer, and by itself contributed three percent to U.S. GNP. (It was in 1953 that the aphorism “What’s good for our country is good for General Motors” was carved in stone, during the defense-secretary confirmation hearings of GM president “Engine Charlie” Wilson.)
Back to Reich in a moment. The Dow Industrials have been published since 1896, as a chronicle of the share prices of the biggest, best and most American companies. In 1953 the 30-stock index contained only smokestack names, and the members of the club had not changed since 1939:
- Eight of the 1953 Dow companies made either cars, trucks, steel, nickel, copper or tires. After today, there are none (although aluminum maker Alcoa, nominated in 1959, remains).
- Three oil companies were Dow stocks in 1953; today there are two.
- Five of 1953’s stars have kept their Dow luster: AT&T (but only arguably, because of the many de-mergers and mergers done to arrive at its current form); Du Pont; General Electric; Procter & Gamble; and the above-mentioned oils ExxonMobil and Chevron.
- Four financials now are in the Dow — American Express, Bank of America, JPMorgan Chase, and Travelers — although Dow Jones index chief John Prestbo said on CNBC this morning that they are “keeping an eye” on B of A, to be sure it’s not swayed too much by government action (the cause for pulling Citibank today). AIG was a Dow stock from April 2004 until September 2008. Citigroup joined in 1997, going by the name Travelers Group.
- Three of today’s Dow companies are in health care — Johnson & Johnson, Merck and Pfizer, while two American blue chips purvey sugary or high-fat food and beverages — Coca-Cola and McDonald’s.
Getting back to Reich’s excellent comment. He wonders:
But why would U.S. taxpayers want to own today’s GM?
He argues against the motives of the profit the shares might bring in a recovery, or preserving the GM jobs, or leading the development of fuel-efficient cars.
The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise…
But U.S. politicians dare not talk openly about industrial adjustment, because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost…
Another equally powerful group wants to let markets work their will, regardless of the short-term social costs…
So the Obama administration is, in effect, paying $60bn to buy off both constituencies… But it is not telling anyone the complete truth: GM will disappear, eventually.
A few months back, my friend Dave, from the park where I walk my dog, announced an idea that I thought was far superior to bailing out GM. They should give all the employees $100,000 a year for four years, he said, on the condition that they go to college, or get some other training for new careers. The $60 billion would cover 150,000 workers.
The end of a 1950s-style U.S. auto industry means the end of manufacturing jobs that lead to middle-class incomes. To my mind, letting GM go and paying for training now, even if it costs more, is a much better idea than propping up a wheezing old company that just postpones the need to get new skills and jobs. But I was not consulted.
Reich concludes:
GM in its day was the model of economic security and widening prosperity. Its decline has mirrored the disappearance of both.
