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Management Practices, Relational Contracts, and the Decline of General Motors

Author

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  • Susan Helper
  • Rebecca Henderson

Abstract

General Motors was once regarded as the best-managed and most successful firm in the world. However, between 1980 and 2009, GM's US market share fell from 46 to 20 percent, and in 2009 the firm went bankrupt. We argue that the conventional explanation for this decline?namely high legacy labor and healthcare costs?is seriously incomplete, and that GM's share collapsed for many of the same reasons that many highly successful American firms of the 1960s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing, and we discuss a number of possible causes for these difficulties. We suggest that GM's experience may have important implications for our understanding of the role of management in the modern, knowledge-based firm and for the potential revival of manufacturing in the United States.

Suggested Citation

  • Susan Helper & Rebecca Henderson, 2014. "Management Practices, Relational Contracts, and the Decline of General Motors," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 49-72, Winter.
  • Handle: RePEc:aea:jecper:v:28:y:2014:i:1:p:49-72
    Note: DOI: 10.1257/jep.28.1.49
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.28.1.49
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    References listed on IDEAS

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    1. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
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    3. Helper, Susan & Levine, David I, 1992. "Long-Term Supplier Relations and Product-Market Structure," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 561-581, October.
    4. Susan Helper, 2011. "Challenge and opportunity in the U.S. auto industry: the key role of suppliers," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2011(2), pages 51-68.
    5. Jin Li & Niko Matouschek, 2013. "Managing Conflicts in Relational Contracts," American Economic Review, American Economic Association, vol. 103(6), pages 2328-2351, October.
    6. Marvin B. Lieberman & Shigeru Asaba, 1997. "Inventory Reduction and Productivity Growth: A Comparison of Japanese and US Automotive Sectors," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 73-85.
    7. Sylvain Chassang, 2010. "Building Routines: Learning, Cooperation, and the Dynamics of Incomplete Relational Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 448-465, March.
    8. Simon Board, 2011. "Relational Contracts and the Value of Loyalty," American Economic Review, American Economic Association, vol. 101(7), pages 3349-3367, December.
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    Citations

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    Cited by:

    1. Jean Guillaume Forand & Jan Zapal, 2017. "The Demand and Supply of Favours in Dynamic Relationships," CERGE-EI Working Papers wp605, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. repec:eee:jomega:v:73:y:2017:i:c:p:29-36 is not listed on IDEAS
    3. Englmaier, Florian & Segal, Carmit, 2016. "Morale, Relationships, and Wages: An Experimental Study," Annual Conference 2016 (Augsburg): Demographic Change 145662, Verein für Socialpolitik / German Economic Association.
    4. Kukharskyy, Bohdan, 2015. "Relational contracts and global sourcing," University of Tuebingen Working Papers in Economics and Finance 83, University of Tuebingen, Faculty of Economics and Social Sciences.
    5. Blader, Steven & Gartenberg, Claudine & Prat, Andrea, 2016. "The Contingent Effect of Management Practices," CEPR Discussion Papers 11057, C.E.P.R. Discussion Papers.
    6. Steven Blader & Claudine Gartenberg & Rebecca Henderson & Andrea Prat, 2015. "The Real Effects of Relational Contracts," American Economic Review, American Economic Association, vol. 105(5), pages 452-456, May.
    7. GIL, Ricard & KIM, Myongjim & ZANARONE, Giorgio, 2016. "The Value of Relational Adaptation in Outsourcing: Evidence from the 2008 shock to the US Airline Industry," Discussion paper series HIAS-E-32, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    8. Kukharskyy, Bohdan & Pflüger, Michael P., 2018. "Time Is on My Side: Relational Contracts and Aggregate Welfare," IZA Discussion Papers 11387, Institute for the Study of Labor (IZA).
    9. Kukharskyy, Bohdan, 2016. "Relational contracts and global sourcing," Journal of International Economics, Elsevier, vol. 101(C), pages 123-147.

    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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