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

  • Susan Helper
  • Rebecca Henderson

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.28.1.49
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 28 (2014)
Issue (Month): 1 (Winter)
Pages: 49-72

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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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  1. Simon Board, 2011. "Relational Contracts and the Value of Loyalty," American Economic Review, American Economic Association, vol. 101(7), pages 3349-67, December.
  2. 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.
  3. Marina Halac, 2012. "Relational Contracts and the Value of Relationships," American Economic Review, American Economic Association, vol. 102(2), pages 750-79, April.
  4. Sylvain Chassang, 2010. "Building Routines: Learning, Cooperation, and the Dynamics of Incomplete Relational Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 448-65, March.
  5. Jin Li & Niko Matouschek, 2013. "Managing Conflicts in Relational Contracts," American Economic Review, American Economic Association, vol. 103(6), pages 2328-51, October.
  6. 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.
  7. 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 561-81, October.
  8. 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.
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