Hamish McRae: The downturn is changing America for the better

People are spending less and saving more. There is a return to self-reliance in the US
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The Independent Online

It looks very much as though General Motors will emerge from bankruptcy in the next few days, with the "new" GM, controlled by the US government, having a fighting chance to become a viable and successful entity. If it does, GM will have done a sight better than our own equivalent, British Leyland, with the collapse of its MG/Rover rump now being investigated by the Serious Fraud Office.

But this is not so much a story of the US managing the restructuring of its motor industry better than we, though it could hardly have done it worse. Rather it is a story of how the US will emerge from this recession with an economy in much better shape than when it went in. What is happening at GM is being replicated in different ways and of course on a smaller scale, all over the land.

You might say it is a tragedy that it takes a recession to provoke such change and that would be true. But this does not detract from the fact that the whole US economy is being shaken up and the real possibility that in say four years' time, we will have a super-competitive US again. There is however one twist to that, which I will come to in a moment.

From a British perspective the parallels between General Motors and British Leyland are uncanny. Each at one stage utterly dominated their home markets, with GM peaking at 60 per cent and still at 46 per cent as recently as 1982. The BL group reached 50 per cent in 1978. Both faced the same challenges: how to manage a sprawling empire, cope with difficult labour relations and counter the advance of the Japanese.

Our response, eventually, was to give up: the significant remaining elements of the old BL are foreign-owned, by Tata (Jaguar and Land Rover) and BMW (the Mini). The US pattern is to give the management a breathing space and another shot.

This does not come cheap. Under the deal the US government will get 60 percent of the new GM in exchange for granting some $50bn in bailout loans. Steven Rattner, the US Treasury's chief adviser on the motor industry, said that the new GM will be a smaller and less-global company than it was. There will inevitably be job cuts, starting with top management. GM has said it will cut the top 1,300 executives by about 35 percent, or to 845 people. There are stories that up to half of its North American assembly plants will be closed and as we know, the company has sold SAAB and is negotiating to sell Opel/Vauxhall. But quite how much of the group will be saved or when the US government will manage to start offloading its shareholding is unclear.

Change is happening everywhere in the US. A few days in New York and Washington last week brought home to me how the recession is changing the face not just of the economy but of personal attitudes too. This is not just a top down thing; it is a bottom up thing too.

Some examples. Like every foundation that depends on philanthropic donations the Museum of Modern Art in New York has been struck by the financial downturn. It has a very strong board and is well-run, and it has probably been less severely hit than most. But it is using the downturn to "green" itself, finding ways of reducing its carbon footprint including cutting the heating and cooling bills and using less paper. The whole staff is involved, coming forward with suggestions, often obvious thingsbut that the museum would not have got around to doing had there not been a downturn.

Something completely different. The Independence Day celebrations were relatively low key, with many communities across the land scaling down their festivities. In Washington the main parade was largely made up of community groups, high school bands and Latin American dancing troupes. There was a posse of old Mustangs, which got quite as much applause as the quite small military detachments that marched past.

There was no shock and awe, no fly-past of jets as we would have in a similar parade in Britain. It was my first Independence Day in DC so I can't make an exact comparison with previous years but I understand it was lower-key than before. It was simple homely community stuff and all the more enjoyable for that. But the biggest change is in the way ordinary people are responding to crisis. They are spending less and saving more. The figures confirm this but talking to friends, what seems to me to be happening is something more subtle than just saving money. It is more like the return to the self-reliance and indeed optimism that we used always to associate with the US and in macro-economic terms something that had to happen. But there was something more. Several people mentioned how they thought it was a good time to start a business. The next boom might not get going for another three or four years but now was the time to get ready for it.

This seems to me to be really important. The countries that come best out of the recession will be those that can create new sustainable businesses and new sustainable jobs. There is a real danger of a jobless recovery. General Motors and all the other giant corporations that are downsizing now will come out of the crisis "leaner and meaner", to quote Steven Rattner this week. It is possible to be pretty confident about that.

But someone has to employ all the people who are laid off. Employment in the last boom rose only slowly and in aggregate all those jobs the boom created have now been destroyed – and while the US economy may now be turning a corner, more jobs will be lost yet.

There lies the twist. No-one can know what the jobs of tomorrow will be, in the US, here or anywhere else. What we do know is that they have to come from private sector innovation, because public sector jobs have to be paid for in taxes and that tax is money people do not have to buy private sector goods and services. So, netted out, the public sector cannot create permanent employment. We know too that much of the additional employment will come from smaller companies and from start-ups, so the test will be which country will be best at business innovation. On form, the US should be leader of the pack.

We also know that most of the new jobs will require high educational qualifications. One of the cruellest aspects of the current recession is that the rise in the ranks of the jobless has been greatest among those with the weakest education. If you finish high school you do better than if you don't. Even a year or two at college is better than nothing and a degree is better still.

So one of the further really encouraging things about the States right now is the emphasis on education of the new Administration. As the president put it: "We need to stop paying lip service to public education, and start holding communities, administrators, teachers, parents and students accountable...."

Fixing GM, if it can indeed be done, will be of massive symbolic importance. But ultimately what will determine whether we will in four years' time be declaring that the American economy is back on winning form will depend on the new industries it creates, the new jobs, and the ability of the world's most productive workforce to lift its performance still further. I have feeling they will.

h.mcrae@independent.co.uk

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