Strategy (89 page)

What were Ford's options? Essentially, he needed to prevent Chevrolet from reaching profitability. But in the short term all he could do was respond by further lowering the price of the Model T, perhaps hoping that the slump in car sales that marked the start of the decade would continue, and then counterattack with a new model designed to challenge the Chevrolet's superior design features directly. But as Ford relied on one model, it would take time to develop a new car (although he could have bought another manufacturer to provide a ready-made product). Any new car would also potentially take volume from the Model T. The market picked up, Ford's sales soared, and so he had no immediate incentive to deal with the Chevrolet threat. But while Ford had no price class below the one he was presently occupying from which to draw new consumers, Chevrolet could make the higher range its own and draw customers from the class above as well as from Ford. When its sales grew, there was no need for Chevrolet to match Ford's price cuts. As Sloan observed, “The old master had failed to master change.” Ford had not understood “how completely his market had changed from the one in which had made his name and to which he was accustomed.”
¹⁹
Within six years, General Motors led the market, selling 1.8 million vehicles in 1927.

In one respect Sloan was of the same mind as Ford. He deeply objected to the Roosevelt administration's readiness to interfere with business and
campaigned vigorously against the president. This included sponsoring the virulently anti-New Deal Liberty League and campaigning for Roosevelt's defeat in the 1936 election. In the end, as a result of the backlash against Roosevelt followed by the war, the two came to terms. In the short term, it created extra challenges for the company. The most important was the relationship with the unions. Unlike Ford, Sloan never claimed to have answers to all the problems of industrial society and showed little interest in shop floor conditions. His attitude to unions was that they represented an alternative source of authority for the workers on matters of pay, rules, and conditions which the company could well do without. Instead of trying to create a larger and therefore more profitable cake from which all could benefit, the unions just wanted to carve the existing cake, whatever the damage to profitability.

To prevent the workforce being unionized, the company hired spies to inform on any subversive activities. Anybody attempting to organize on the shop floor could be fired and those taking an interest warned off. The knowledge that spies were around also served to create uncertainty and suspicion among the workers and made them harder to organize. This went on despite the passage of laws designed to protect organizers from harassment. By the summer of 1936, only about fifteen hundred of the company's forty-two thousand strong workforce belonged to the United Autoworkers Union. Once Roosevelt had been reelected in November 1936, and with Michigan's governor sympathetic, the situation changed abruptly and dramatically. Under the miners' leader, John Lewis, the newly formed umbrella organization, the Congress for Industrial Organization (CIO), decided to target the automobile industry. Local militants also decided that this was an opportune moment to attack the company. As General Motors struggled to get out of the recession, the workers complained that they were being asked to work harder for less. Jobs had been cut while productivity targets remained the same. Managers relied on the fear of unemployment to discipline workers and keep wages down. All this erupted in November 1936, resulting in one of the most consequential strikes of the decade, critical to the future course of unions in the United States and also to the automobile industry.

By December, sit-down strikes had spread to a number of plants including the crucial Fisher body plant at Flint. To Sloan, this represented a direct challenge. “The real issue,” he told his workers, was “will a labor organization run the plants of General Motors Corporation or will the management continue to do so?”
²⁰
This all confirmed his fears about the New Deal, as good economic order was being sacrificed to misguided, collectivist notions. Now workers were engaged in an illegal occupation of company property and should be removed. But how? Under the law, force could be used but
what if there was resistance? Was the company prepared to sanction serious violence? Moreover, it was apparent that at the state and federal level, the pressure was to find a negotiated way out of the situation. Though Roosevelt could not condone the workers' actions, there was no doubt where his private sympathies lay. Sloan had not exactly gone out of his way to curry favor with the President.

For the unions, the vital thing was to maintain their position. So long as they stopped the plants operating properly General Motors was hurting. This required not only repelling anybody trying to expel them by force but also ensuring that they had heat and food. In practice, the plants were often occupied by very few men, because the union initially did not have many members to call on and also had to make supplies last. In one of the key plants which employed around seven thousand workers, there were at times no more than ninety in occupation, not all of which were General Motors employees. So in January, when the company first tried to turn the heat off and prevent food being delivered, the “sit-downers” took the offensive to capture the plant gates so they could ensure the supplies kept coming. The crisis escalated as the men fought back against the police's gas canisters with stones and fire hoses. The next round involved guns leading to injuries but not deaths. The union added to the pressure by going after Chevrolet production. A decoy sit-down was staged in a secondary plant diverting the attention of the company police, making it possible to seize a far more important plant where the engines were made.
²¹

The company obtained an injunction confirming the illegality of the trespass, but the strikers refused to leave. Attempts were made to get negotiations going, but the company baulked at the union's key demand of sole collective bargaining rights for the United Auto Workers (UAW). Sloan claimed to be prepared to consider this but only after the sit-ins had ended. Lewis had no intention of losing his leverage or agreeing to a compromise. Before the strike, General Motors had been producing some 50,000 vehicles per month; by February, this was down to only 125. Politically, Sloan was becoming isolated, the Roosevelt administration was accusing him of going back on his word, and commentators were describing him as out of touch with the times.

The responsibility for the use of force to dislodge the strikers lay with new Michigan governor Richard Murphy. He took the lead in trying to broker a dispute. He was conscious that he had to uphold the law yet was horrified about the possibility of violence and major loss of life and then going down in history as “Bloody Murphy.” If he needed to step up the pressure on the union he was more likely to tighten the cordon already ordered when the
Chevrolet engine plant was seized than to order in the National Guard to evacuate the buildings. Such a strategy would require patience, easier for him than for General Motors, which was losing serious money. Even the company was wary about possible violence. They could see how they would be blamed for substantial loss of life when a conciliatory move on union recognition might have brought the dispute to a close.

Toward the end of the confrontation, Murphy issued a formal warning to Lewis about how the law must be enforced. This was followed by some grandstanding by Lewis, who told the governor that he would go into the plants and prepare to be shot with the others. In language that captured exactly Engels's hopes for such a standoff, when there was no doubt about the superior physical force of the authorities but real doubt about whether it could be used, Lewis taunted Murphy. Without a settlement he was not going to withdraw the strikers. “What are you going to do?” he asked.

You can get them out in just one way, by bayonets. You have the bayonets. What kind do you prefer to use—the broad double blade or the four-sided French style? I believe the square style makes a bigger hole and you can turn it around inside a man. What kind of bayonets, Governor Murphy, are you going to turn around inside our boys?

In fact, by this time a settlement was close. It was negotiated by one of Sloan's lieutenants who agreed to direct talks with Lewis, using the request of the president to sort out the conflict as an excuse for going back on the company's previous position. On February 11, 1937, General Motors signed an agreement ending the sit-down strikes. UAW got exclusive collective bargaining and had four hundred thousand members by October.

The administration was not yet finished with the company. In 1938, the Department of Justice secured an antitrust criminal indictment against General Motors, as well as against Ford and Chrysler. The charge, which did not stick, was that the manufacturers had illegally restrained trade by requiring their respective dealers to only use the company-associated finance company. Unlike Chrysler and Ford, Sloan decided to fight, not only because he considered this to be unwarranted interference in business matters, but because he sensed a larger vulnerability—the company was moving toward a 50 percent share in the car market. “Our bogie,” he observed in late 1938, “is 45 per cent of each price class … We don't want any more than that.” This meant that—against all corporate instincts—he had to keep market share down.

One of the New Deal figures with whom Sloan was tangling was Adolf Berle, who had been a professor at Columbia Law School but was also a key
member of Roosevelt's Brain Trust before the 1932 election and a regular adviser to him in government. In 1932, he published a landmark book with Gardiner Means, entitled
The Modern Corporation and Private Property
, demonstrating the divergence between the ownership and control of large corporations, with the result that the management conducted affairs with little shareholder scrutiny. They also showed how the means of production in the United States had become concentrated in some two hundred large corporations, of which General Motors was a prominent example. Economic power was being concentrated in the hands of a few people who controlled these giant corporations. This was power that could “harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another.” With a social role far beyond anything implied by the term “private enterprise,” this was an economic power that could compete on its own terms with the political power of the state. A new form of struggle was developing: “The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation.”
²²

In the run-up to the Second World War, the sure touch which Sloan had showed in his handling of the competition with Ford and the internal structure of General Motors had deserted him when dealing with the government and the unions. In key respects, these were the big strategic issues facing large corporations during the 1930s and there was no reason to suppose that they would subside in the future. It was, however, the areas in which Sloan had been successful, rather than those in which he had failed, that led him and his company to provide the vital raw material for the next generation of management theorists.

Most of what we call management consists of making it difficult for

people to get their work done
.

—Peter Drucker

D
ISAFFECTED
M
ARXISTS BECAME
an important source of management theory as they updated their concepts of class struggle to take account both of their distress at Soviet totalitarianism and new developments in industrial society. The previous section mentioned Burnham's
The Managerial Revolution
, regularly cited because of its title rather than its content, as the neatest description of how emerging structures of power were confounding the expectations of communists and free-marketeers alike. A surprising number of former Trotskyists, including Herbert Solow and John McDonald, joined the business-oriented
Fortune Magazine
. McDonald retained a fascination with conflict and strategy. We have already met him as an important writer on game theory.
¹
Another member of the
Fortune
editorial team was William Whyte, author of the
Organization Man
, reflecting the magazine's critical edge at this time. Yet another was liberal economist John Kenneth Galbraith, who observed that the magazine's right-wing owner, Henry Luce, had discovered that “with rare exception, good writers on business were either liberals or socialists.”
²

Galbraith also became associated with the thesis that power in society now rested with the management class. This challenged neoclassical economics (which assumed highly competitive markets) as much as socialism. Instead of individual firms being small in relation to the total market, and therefore limited in their individual influence, in the most important sectors a few firms enjoyed commanding positions. Instead of being caught between the conflicting interests of owners and customers, the managers had been able to restructure the relationships so that, if anything, owners and customers found themselves geared to managerial interests. They also had discovered ways of preventing potential competitors from mounting effective challenges and of bargaining on almost equal terms with the state. Business success and failure depended less on market conditions and more on the organizational capacity of the large corporations. Arthur Chandler captured the claim neatly when he wrote of the role of management as the “visible hand” as a contrast with Adam Smith's “invisible hand.”
³
There was perhaps also another thought, which had been around since Plato, that there was something to be said for bright, educated people running things.