She Ji. The Journal of Design Economics (3)

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Editorial Scope

She Ji is a peer-reviewed, trans-disciplinary design journal with a focus on economics and innovation, design process and design thinking. The journal invites papers that enrich the understanding and practice that enable design innovation in industry, business, non-profit services, and government through economic and social value creation. These papers may explore how design thinking can inform wider social, managerial, and intellectual discourses with an added focus on strategy and management. She Ji also publishes articles in research methods and methodology, philosophy, and philosophy of science to support the core journal area.

She Ji is fully open access. Tongji University and Tongji University Press support She Ji as a contribution to the design field and a public service to design research. Authors are not liable for any publication charges and all published articles are accessible free of charge from the journal web site.

A CC user license which manages the reuse of the article (see http://www. elsevier.com/about/open-access/open-access-policies/ oa-license-policy). All articles will be published under the CC BY-NC-ND license: Creative Commons Attribution-NonCommercial-NoDerivs (CC BY-NC-ND): for non-commercial purposes, lets others distribute and copy the article, and to include in a collective work (such as an anthology), as long as they credit the author(s) and provided they do not alter or modify the article.

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No responsibility is assumed by She Ji nor Elsevier for any injury and/or damage to persons, property as a matter of product liability, negligence, or otherwise, or from any use or operation of any methods, products, instructions, or ideas contained in the material herein. Because of rapid advances in medical sciences, in particular, independent verification of diagnoses and drug dosages should be made. Although all advertising material is expected to conform to ethical (medical) standards, inclusion in this publication does not constitute a guarantee or endorsement

Editorial Ofice Correspondence She Ji

c/o Jin Ma Tongji University College of Design and Innovation

Building No. 2, Room IS-112 281 Fu-Xin Road

Shanghai, 200092 China Tel: +86 21 6598 7990 majin.sheji@icloud.com About the Cover

In Chinese, the name “Tongji” (同济) denotes people sailing in the same boat as they work together for a common goal. Togetherness and collaboration are deeply rooted in the culture of Tongji University. In the changing social and economic context of design, Tongji University is revitalizing this culture. As a young, energetic part of Tongji, the College of Design and Innovation (D&I) contributes the texture of the community. D&I works closely with the neighborhood, the community, and the city of Shanghai to explore the opportunities that design can create for industrial transformation and sustainable ways of living.

The cover of this issue comes from the workshop on building the City Science Lab @ Shanghai—a joint efort of the MIT Media Lab and the College of Design and Innovation, Tongji University. The workshop developed an interactive tool to visualize the multiple trajectories of day-to-day activities by people living and working in our neighborhood to facilitate communication between local stakeholders.

The workshop participants are: Jintian Shi, Ke Ma, Shengchen Zhang, Jan Dornig, Jiabin Wei, Hangping Yang, Shengxiu Zhu, Shuai Liu, Jinnuo Yang, Prof. Jarmo Suominen, Prof. Xiaohua Sun, and Prof. Yongqi Lou from Tongji D&I; and Yan Zhang, Ariel Noyman, Dr. Luis Alonso, Dr. Arnaud Grignard, and Prof.

She Ji: The Journal of Design, Economics, and Innovation is a peer-reviewed, open access journal published quarterly (spring, summer, autumn, and winter).

For information about She Ji, visit:

http://www.journals.elsevier. com/she-ji-the-journal-of- design-economics-and-innovation

Full text available on ScienceDirect®.

She Ji: The Journal of Design, Economics, and Innovation Volume 2, Issue 3, Autumn 2016

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The institutions that we now know as universities date back nearly five mil-lennia. The early roots of the professional school begin in the scribal schools of an-cient Egypt and Sumer. Early institutions that undertook some of the functions of modern universities include Plato’s Academy, the Library of Alexandria, Pushpagiri and Nalanda in India, Taxila in Pakistan, and the Imperial Academy in China.

Today’s modern universities began in the Middle Ages at Bologna, Paris, and Oxford. 2 The oldest modern university with a continuous history was established at Fez, Morocco, in 859—Al Quaraouiyine University. 3

The modern research university is much younger. The concept of the modern research university dates to a debate that began when Prussian authorities asked a theology faculty to review and censor a book on religion by philosopher Emmanuel Kant, a practice dating to the requirement of “imprimatur” for books with the cen-sor's “nihil obstat” to certify books on religion. The government argued that Kant, as a philosopher, had no authority to write about religion unless a faculty of the-ology certified his book. In response Kant, a member of the philosophy faculty at another university, wrote The Conflict of the Faculties. 4 _{In this book, Kant argues that} the university rests on the foundation of the philosophical and scientific faculty. This faculty was the “lower faculty” of the medieval university. The lower faculty was the foundation of the university, just as the ground floor of a building is lower than any higher floor. Everyone at university studied in the lower faculty because every scholar in all disciplines built on the curriculum the trivium of grammar, logic, and rhetoric and the quadrivium of arithmetic, geometry, music, and as-tronomy. The “higher faculties” were the professional schools of law, theology, and medicine. Kant argued that it was the business of the lower faculty to consider and debate on all issues, a debate on academic freedom in the university that continues from Kant’s time to our own. Kant’s book and the debate it engendered 5 _{set the} stage for Wilhelm von Humboldt’s university reforms. 6

The next great advance in university development came when Humboldt estab-lished the University of Berlin in 1809. 7 While older universities became research universities in the years that followed, Berlin was the first research university in the sense that we use the word today. The abiding principles of the modern re-search university date to Kant’s debate.

Universities prepare citizens for life in industrial and post-industrial society.

1 Frank H. T. Rhodes, The Cre-ation of the Future: The Role of the American University (Ithaca, New York: Cornell University Press, 2001), xi.

2 Ken Friedman, “Design Educa-tion in the University: A Philo-sophical and Socio-Economic Inquiry,” Design Philosophy Papers 1, no. 5 (2015): 248, DOI: http://dx.doi.org/10.2752/144871 303X13965299302596.

3 Larbi Arbaoui, “Al Karaouin of Fez: The Oldest University in the World,” Morocco World News, ODVWPRGLÀHG2FWREHU https://www.moroccoworldnews. com/2012/10/59056/al-karaouin- of-fez-the-oldest-university-in-the-world/.

4 Immanuel Kant, 7KH&RQÁLFW of the Faculties, trans. Mary J. Gregor (Lincoln, Nebraska: University of Nebraska Press, 1992).

5 Ibid., vii-xxix. 6 Claudius Gellert, “The German Model of Research and Advanced Education,” in The Research Foundations of Gradu-ate Education: Germany, Britain, France, United States, Japan, ed. Burton R. Clark (Berkeley: University of California Press, 1993), 5–44.

7 Ibid., 5–11.

Tongji University: 110 Years of

Research and Education

Publishing services by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

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They train people to work in demanding jobs. They enable individuals to under-stand and interpret the world around them. They ofer individuals the opportunity to think about fields of inquiry and study. They host research programs that create new knowledge. They establish projects to apply the knowledge that reach gener-ates. Universities fill all these functions and more.

Today’s universities have four great goals: 1) Creating new knowledge,

2) Preserving existing knowledge, 3) Training specialists, and 4) Educating citizens.

Tongji University has now been meeting these goals for one hundred and ten years.

She Ji joins our friends and colleagues in celebrating the first decade of Tongji’s second century.

In This Issue

In the first article of this issue, Cameron Weber uses the late John Heskett’s 1993 economic analysis of General Motors 8 to examine the 2009 bailout of General Motors by the United States government. 9 Heskett described the ongoing problem of the United States automobile industry quite well back in 1993: “change is disrup-tive, and many people aren’t comfortable with it.” Weber deploys Heskett’s ideas to examine GM’s ongoing problems in the quarter century since, with its shrinking market share and declining profits.

The most astonishing aspect of this article is not the continuing value and the incisive quality of Heskett’s analysis. It is the apparent inability of General Motors to learn from its past. David Halberstam told the story of how the American auto-mobile industry lost its way in his 1986 masterpiece, The Reckoning. 10 John Heskett and Cameron Weber bring us up to date.

In the second article, Jordan Beck and Erik Stolterman address an epistemolog-ical question in design research. There has been much discussion on what design professionals know and how they know it. There has been far less consideration of knowledge in design as a research discipline. In their article, Beck and Stolterman examine the concept of knowledge claims, distinguishing the disciplines of design from other disciplines. To do so, they compare publications in the natural sciences, the social sciences, and design.

The design disciplines lack a consensus on the nature and status of knowledge claims. As Beck and Stolterman write, “Without a clearer sense of what kind of knowledge a field produces, or of its unique evaluative tools and methods, scholars must rely on their expertise and experience, which does not always overlap with that of their colleagues.” 11 _{They conclude by suggesting that those of us in the} design disciplines should “begin to think more intentionally about the kinds of knowledge we are producing and what the consequences of its production might be.” 12

Several times a year, diferent organizations rank colleges and universities in global, national, or regional league tables, as well as with respect to specific profes-sions or disciplines. In the third article of She Ji, Meredith Davis asks whether we can believe college rankings. 13 In a broad sense, she is not simply asking whether we can believe the rankings—but whether they are useful in any serious sense.

Davis examines the worldwide literature on college and university rankings and the quite diferent approaches that diferent rankings use to reach their conclusions. Like many others, Davis asks what it is that rankings really rank. In her view, there seems to be little efort to measure educational quality—instead, 8 John Heskett, “Creative

Destruction: The Nature and Consequences of Change through Design,” in A John Heskett Reader: Design, History, Economics, ed. Clive Dilnot (New York: Bloomsbury, 2016), 283–86. First published as “Creative Destruction,” I.D. International Design, September/October (1993): 8–9.

9 Cameron Weber, “What Is Good for General Motors Is Bad for America: The 2009 Bailout Through the Lens of Heskett’s Design-Oriented Theory of Value,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 183–98, DOI: http://dx.doi. org/10.1016/j.sheji.2016.11.001. 10 David Halberstam, The Reckoning (New York: William Morrow and Company, 1986).

11 Jordan Beck and Erik Stolter-man, “Examining the Types of Knowledge Claims Made in Design Research,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 210, DOI: http://dx.doi. org/10.1016/j.sheji.2017.02.001. 12 Ibid., 214.

13 Meredith Davis, “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 215–30, DOI: http://dx.doi. org/10.1016/j.sheji.2016.11.002. 14 William Bruce Cameron, “Tell Me Not in Mournful Numbers,” National Education Association Journal 47, no. 3 (March 1958): 173.

15 Mats Alvesson, The Triumph of Emptiness: Consumption, Higher Education, and Work Organization (Oxford: Oxford University Press, 2013), 89.

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rankings measure data that can easily be counted. As the sociologist William Bruce Cameron famously said, “Counting sounds easy until we actually attempt it, and then we quickly discover that often we cannot recognize what we ought to count. Numbers are no substitute for clear definitions, and not everything that can be counted counts.” 14 This applies well to university rankings.

In his critique of higher education today, Mats Alvesson writes, “the rapid development of a global commercial mass market for education, headed by US, UK, and Australian universities, means that rankings are becoming more important,” 15 citing Simon Marginson’s observation on the pyramid of rankings as “steeper in some nations than others, and more powerfully felt in some places than others, but [it] always exists.” 16 Highly critical of what he calls the “greasy rankings pole,” Alvesson 17 _{argues that rankings are yet another meaningless game that university} administrators play in an efort to impress governments, potential students—and each other.

We follow Davis with four astute commentators—Peter Murphy with “Univer-sity Rankings and the Coming of the Auto-Industrial Age,” 18 _{Pradeep Sharma with} “Outstanding in Your Field,” 19 Ninghua Zhong with “University Rankings Need Im-provement,” 20 _{and Carma Gorman with “College Rankings: Can’t Love ’Em, Can’t} Leave ’Em.” 21 Davis replies in “Making Judgments of Educational Quality.” 22

Scott Thompson-Whiteside takes yet another look at the same problem in “Zen and the Art of University Rankings in Art and Design.” 23

Thompson-Whiteside focuses more deeply on the question of what rankings mean and whether they measure quality, whatever that might be. What, indeed, is quality? Thompson-Whiteside starts with sources as divergent as Robert Pirsig, Frederick Winslow Taylor, W. Edwards Deming, and Joseph Juran. Moving on to discuss the main ranking systems today, his article provides useful visualizations that allow readers to contrast and compare the main, criteria-based systems now in use—as well as pointing to the U-Multirank system that allows users to develop a custom-tailored ranking system based on their personal criteria. Established as an initiative of the European Commission, U-Multirank now covers more than 1,300 universities in 90 nations, with data on more than 3,250 faculties and over 10,000 degree programs. 24

The articles and comments in this issue of She Ji, together with Thompson-Wh-iteside’s graphics and his discussion of the broad U-Multirank system ofer a useful summary to readers. While we focus on the design field and the design disciplines, we are confident that the broader and more general issues will interest scholars, scientists, academics, and professionals across a wide spectrum of disciplines and fields.

Nearly everyone involved in universities today is concerned with ranking schemes and league tables. These systems interest government leaders, those who make education policy, and university councils—sometimes to the point of obses-sion. As a result, we must all consider these issues. Davis, Murphy, Sharma, Zhong, Gorman, and Thompson-Whiteside bring years of experience and a broad global perspective to bear on these issues.

In this issue of She Ji, Christian Bason and Maria Camacho meet in conversa-tion to discuss “Design for Public Service.” 25 _{At a time when government agencies,} businesses, and organizations use design methods to solve large-scale problems, Christian Bason has been a thought leader on how to do this. Today, he is the head of the Danish Design Center, Denmark’s design council. 26 From 2007 to 2014, Bason served as Director of MindLab, a cross-governmental innovation consultancy in Denmark owned jointly by the Ministry of Industry, Business and Financial Afairs, the Ministry of Employment, the Ministry of Education and Odense Municipality, working as well with the Ministry for Economic Afairs and the Interior. 27

17 Alvesson, Triumph of Empti-ness, 79.

18 Peter Murphy, “University Rankings and the Coming of the Auto-Industrial Age,” commentary on “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 231–33, DOI: http://dx.doi. org/10.1016/j.sheji.2017.03.001. 19 Pradeep Sharma, “Outstand-ing in Your Field,” commentary on Meredith Davis, “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 233–35, DOI: http://dx.doi. org/10.1016/j.sheji.2017.03.002. 20 Ninghua Zhong, “University Rankings Need Improvement,” commentary on Meredith Davis, “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 235–36, DOI: http://dx.doi. org/10.1016/j.sheji.2017.03.003. 21 Carma Gorman, “College Rankings: Can’t Love ’Em, Can’t Leave ’Em,” commentary on Meredith Davis, “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 236–38, DOI: http://dx.doi. org/10.1016/j.sheji.2017.03.004. 22 Meredith Davis, “Making Judgments of Educational Quality,” response to com-mentaries on “Can College Rankings Be Believed?,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 238–42, DOI: http://dx.doi. org/10.1016/j.sheji.2017.03.005. 23 Scott Thompson-Whiteside, “Zen and the Art of University Rankings in Art and Design,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 243–55, DOI: http://dx.doi.org/10.1016/j. sheji.2017.01.001.

24 U-Multirank, accessed March 1, 2017, http://www.umultirank. org/.

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In this conversation, Bason reflects on his experiences—and on the ways that design methods can help business, industry, and government develop better sys-tems, services, and products. Bason is responsible for three groundbreaking books in the field—the most recent being Leading Public Design: Discovering Human-Centred Governance, published this year by Policy Press. 28

She Ji conversations focus on vital issues in design, economics, and innovation. This conversation ofers useful ideas on all three.

Finally, we feature a book review 29 _{by Cees de Bont on Guy Julier’s new book,}

Economies of Design. 30 Julier is the Victoria & Albert Museum Principal Research Fellow in Contemporary Design and Professor of Design Culture at the University of Brighton. In this book, Julier brings a broad and thoughtful perspective to the topic. De Bont is an economic psychologist and former senior executive at Phillips who is now Dean of the School of Design at Hong Kong Polytechnic University. De Bont’s review explains why this book is relevant today in political terms that tran-scend the economic.

Welcome to the latest issue of She Ji. We wish you good reading.

Ken Friedman Editor-in-Chief 26 Dansk Design Center,

accessed March 1, 2017, http:// danskdesigncenter.dk/en/ frontpage.

27 MindLab, accessed March 1, 2017, http://mind-lab.dk/en/. 28 Christian Bason, Leading Public Sector Innovation: Co-creating for a Better Society (Bristol: Policy Press, 2010); Christian Bason, Design for Policy (Milton Park: Gower, 2014); Christian Bason, Leading Public Design: Discovering Human-Centred Governance (Bristol: Policy Press, 2017). 29 Cees de Bont, “Economies of Design by Guy Julier,” She Ji: The Journal of Design, Economies, and Innovation 2, no. 3 (Autumn 2016): 269–70, DOI: http://dx.doi. org/10.1016/j.sheji.10.1016/j. sheji.2017.03.007.

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Keywords

General Motors Institutional economics Design as strategy

$VVHWVSHFLÀFLW\

Rent-seeking Creative destruction Economic nationalism

Received July 31, 2016 Accepted October 31, 2016

Emails

Cameron M. Weber (corresponding author)

cameron_weber@hotmail.com

What Is Good for General Motors Is

Bad for America: The 2009 Bailout

Through the Lens of Heskett’s

Design-Oriented Theory of Value

Cameron M. Weber_{, St. John’s University, USA}

Abstract

This research is an applied case study of the 2009 General Motors bailout using John Heskett’s economics as a starting point for analysis. In 1993, Heskett (1937–2014) wrote in International Design that GM’s myopic design vision at the corporate strategy level led to the company’s stagna-tion and an inability to compete. Professor Heskett had not only captured GM’s competitive position at the time—he had foretold its future decline. Shortly after that article was published, GM declared losses of $23 billion— the largest in US corporate history. In 2009, despite accumulated losses totaling $35 billion, GM was bailed out and nationalized by the US govern-ment in another unprecedented event. Through the lens of the GM bailout, this article examines Heskett’s critique of mainstream economics and uses his research into institutional economics and the national system to help define the rent-seeking asset regime that led to the GM bailout. Key obser-vations will benefit firm management, policy-makers, and those interested in political economics from an historical and institutional point of view.

Publishing services by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

The peer review process is the responsibility of Tongji University and Tongji University Press.

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Introduction

This research is an applied case study of the 2009 General Motors bailout using John Heskett’s economics as a starting point for analysis. 1 _{Prof. Heskett (1937–2014)} wrote in International Design in 1993 how GM’s lack of foresight at the corporate strategy level had led to a stagnating car company that was unable to compete. Heskett both captures GM’s competitive position at the time and foretells its future decline.

For example, GM’s US market share fell from approximately 43% in 1982 to nearly 20% at the time of its nationalization and restructuring in 2009 (see Figure 2). GM had accumulated losses in excess of $35 billion between 1982 and the re-structuring in 2009. 2 _{Later on in 1992, shortly after Heskett’s article was published,} GM declared losses of more than $23 billion, the largest corporate loss in US history. 3

Although some of the ideas used here lack empirical development in Heskett’s own work, this article takes a fresh look at how Heskett’s concurrent and subse-quent writings on economic theory can shed new light on the GM bailout. Heskett’s economic theory is a critique of mainstream neo-classical economics. He found that mainstream economic models could not adequately explore the ways that “creative destruction” 4 _{can create value in design-based entrepreneurship.}

“If designers are to cope with the demands of varying cycles of change, the concept of innovation must be understood on many dif_{erent levels—from}

radical and incremental innovation. Radical innovations are the basis of Schumpeter’s ‘creative destruction’ concept, which provides new industries and needs.” 5

In retrospect, the GM bailout in 2009 was a direct intervention against creative destruction. ‘Stability’ was prioritized over economic innovation using an unprece-dented combination of fiscal measures and national and monetary policy changes.

Heskett’s work leaves unexplored some of the economic concepts he contrasts with mainstream models of the economy. Tore Kristensen writes,

“According to Karl Popper’s ‘falsificationism,’ we may ask if he [Heskett] pro-posed falsifiable hypotheses and whether some important ones have indeed been falsified. If this is the case, then we may leave it here. We must admit that, although many of the writings are good approximations to an empir-ical reality, we find few real testable hypotheses; on the other hand many of Heskett’s descriptions, assessments and predictions seem well corroborated. Heskett himself did not test hypotheses as such and his style of research was explorative rather than corroborative. That is perhaps a very good idea, be-cause Heskett’s interest was much more to stimulate the fire of contemporary designers and others interested in these issues rather than digging up the ashes of the past.” 6

Through the lens of the 2009 United States federal bailout of General Motors, this article will attempt to fill in some of the missing empirics related to two of Hes-kett’s theses:

1) A user-focused design strategy at the highest levels of the firm is necessary for long-term value-creation, and

2) Heterodox thinking in economics is needed to better understand a de-sign-based economy. 7

In the 1970s, cars made by General Motors—and by smaller automakers Ford and Chrysler—came to lose their competitive edge to the more user-responsive designs of foreign competitors. This trend began and continued in earnest after the OPEC

1 This article draws on the economics of John Heskett as found in John Heskett, A John Heskett Reader: Design, History, Economics, ed. Clive Dilnot (New York: Bloomsbury, 2016), and John Heskett, Design and the Creation of Value, ed. Clive Dilnot (New York: Bloomsbury, 2017, forthcoming).

6HH*0SURÀWKLVWRU\LQ$S-pendix of this article. In addition to accumulated operational losses from 1982 to year-end 2015, GM has almost $83 billion in non-current liabilities—mostly for employee and employee UHWLUHPHQWEHQHÀWV³PRUH than half of GM’s total liabilities. “General Motors Co. (GM),” Stock Analysis on Net, last PRGLÀHG'HFHPEHU accessed November 30, 2016,

https://www.stock-analysis-on. REPORTS; G.M. Lost $23.5 Billion Last Year,” The New York Times, February 12, 1993, accessed November 30, 2017, http://www.nytimes. com/1993/02/12/business/compa- ny-reports-gm-lost-23.5-billion-last-year.html.

4 Borrowing from Max Weber, this article uses two “ideal types” to describe what happens during the downward portion of the business cycle. “Creative de-struction” is a process wherein assets are freed-up—typically through bankruptcy—to seek their highest return. A “bailout” is when the state steps in to subsidize bankrupt or illiquid in-vestments—usually in the name of stability, or to lessen unem-ployment. Creative destruction affords more economic growth over the long term than a bailout does. A bailout effectively prevents creative destruction. See Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 5th ed. (Abingdon, UK: Routledge Classics, 2010) for further information.

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oil ‘shocks’ in 1973 and 1979. It prompted buyers worldwide to opt for cheaper, more compact car models. The US automotive industry would never recover their earlier advantage, due to protectionist interventions (see below) fostered at the national policy level.

Heskett uncovered a major concept absent from mainstream “perfect compe-tition” models which can help account for the phenomenon of “state capitalism” in the United States— exemplified at its most extreme by the case of GM in 2009. Borrowed from new institutional economics, Heskett discusses “asset specificity”— investment in specialized or dedicated tools, production methods, expertise, and so on—which leads to market distortions and economic rents, as in the case of unionized wage increases, for example. Unlike the perfect competition model, asset specificity shows how factors of production can have specific historical trajectories where it can become political decisions and not economic (creative destruction) decisions which determine the allocation of resources. And this article draws upon that analysis. GM’s illiquidity, nationalization, and restructuring—its “bailout”— took place within a larger context of industrial relations, as also described by Heskett.

The following section draws on Heskett’s use of the National System category to place the historical evolution of the US political economy in context, and to show how the idea of “economic nationalism” might further explain the bailout of General Motors.

John Heskett on the National System

We know that nation states use industrial policy to encourage the development of domestic industries deemed to be of national interest, and/or which can provide economic rents under the categories of “national defense,” “energy,” or “food se-curity,” and so on. The failure of world trade agreements under the wto_{is due—}

broadly—to “rich,” “developed,” or “industrialized” nations subsidizing and pro-tecting domestic agricultural production, whereas “developing” or “poor” nations’ special-interests seek to prevent competition against local manufacturing produc-tion, whose means are usually under the control of domestic elites. Although most nations try to protect both, it can be a matter of degrees when making category judgments.

National trade protection regimes depend uniquely on each country’s circum-stances and historical development. 8 National interest industries have included railroads, rights in ownership and access to shipping and ports, military-industrial research and manufacturing, airlines and automobiles, aluminum and steel produc-tion, export bans on ‘strategic materials,’ and interventions into energy technology, food labeling, domestic content, intellectual property rights … and this is only a partial listing. These interventions occur with such regularity that the perfect-com-petition model cannot adequately explain many of the major historical changes in technology and markets.

Heskett’s research includes the relationships between design and national in-dustrial policy as related to dif_{erent forms of economic nationalism. For example,}

in his 1999 article “_{National Design Policy and Economic Change,”} 9 _{Heskett finds}

that, historically, there have been two types of national design regimes—those that fused the state with industry, seen in the fascist reaction to diminished power of the state relative to the power of the corporation, and those that were used to gain competitive trade advantage, seen in mercantilism and neo-mercantilism. He finds that countries such as Taiwan, South Korea, and Japan have been more successful in mercantilist interventions than has the U.K.

In his exposition of the national system in Design and the Creation of Value, 10

6 Tore Kristensen, “Creating Value by Design: John Heskett’s Contribution to the Business and Economics of Design,” in Heskett, A John Heskett Reader, 279.

7 It is important to note that Heskett’s critique of mainstream economics was meant to be con-structive. In his introduction to Design and the Creation of Value, editor Clive Dilnot states, “The critique of neo-classical eco-nomic models is not conducted merely negatively. What Heskett shows—and this becomes apparent in the key series of diagrams of economic models that illuminate the text—is that as one contrasts neo-classical WKHRU\ÀUVWZLWK$XVWULDQWKHRU\ and then with the insights gained from institutional theory and New Growth theory, that it is possible to see a successive deepening of understanding of economic relations.” Clive Dilnot in Heskett, Design and the Creation of Value, introduction.

8 “Americans tend to view the automobile (auto) as the archetypal American product. Not only does auto production loom large economically, but the automobile itself bears a unique social relationship to the national self image.” Douglas R. Nelson, “The Political Economy of U.S. Automobile Protection,” National Bureau of Economic Research (NBER), Working Paper No. 4746, May 1994, accessed November 30, 2016, http://www.nber.org/papers/ w4746, 1.

9 Originally published as “National Design Policy and Economic Change,” in MD-Mag-azine, August (1999, in German and English), reprinted in! Heskett, A John Heskett Reader, 229–32.

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Heskett draws from writings on German state craft during the early Republic in the mid to late 19th century—specifically the work of Friedrich List—to support the idea that perfect competition atomistic economic models miss the larger national context. He also finds that in the case of Germany and Japan, present-day national strategies have resulted in high quality design, export-oriented economies based on exceptional design and manufacturing.

Despite these results, Heskett does not call for active government subsidy and/ or protectionist programs to encourage economic growth. 11

“The evidence that design policy can promote economic competitiveness is therefore mixed. Success seems to depend on two factors—the existence of authoritarian characteristics in government, such as absolutist France, or the guided economy of Japan; and relative industrial stability, as in ceramics and tapestries in the eighteenth century, or automobiles and domestic electrical products in the late twentieth century, in which innovation tends to be incre-mental and gradual. How then can national governments handle the dramatic changes on multiple levels and technologies of global markets and business organization … that are currently causing major economic disruption and unemployment? The answer, I believe, is they cannot—government policy exercised through bureaucratic organizations is ill-equipped to understand and dynamically respond to change on any level. The world economy is at present so diverse and dynamic that attempts to control it through mercantilist-style policies will be not only be futile but extremely damaging.” 12

For Heskett, it is important for governments to signal that state policy prioritizes innovation and introduction of the new, and not protection of the old. “Estab-lishing clear concepts of entrepreneurial approaches to design in small companies should be at the heart of any national design policy.” 13 The creative destruction of user-based design—rather than inertia-causing producer-based design—is especially important in the new ‘sharing’ or ‘gig’ economy facilitated by novel mobile and Internet technologies. “Similar developments are currently apparent with compa-nies being established on the Internet on the basis of new approaches to interactive design.” 14

Governments should lead by example—not pick winners and losers. The US government did not prioritize creative destruction during the bailouts of 2009, nor in its industrial policies leading up to 2009, especially in the case of General Motors. It is also important to note today that vested interests—hotel and taxi-driver as-sociations, labor unions—and city, state, and national governments are making it dii_{cult for sharing apps such as Airbnb and Uber to compete with politically}

entrenched asset regimes. 15

“If governments wish to encourage such developments [designed-based value creation], they will need to understand what they can and cannot do well. They can continue on the basis of the status quo, attempting to control or influence overall trends, or they can encourage a diversity of new design initiatives. They can do this by building infrastructure and exploring possibilities of how to use design in their own activities, demonstrating in environments, communi-cations and products not just an aesthetic veneer for bureaucratic inertia, but leadership through an encouragement of possibility.” 16

“Above all, policies for promoting design and for design education are the most powerful tools available to governments, but these need to emphasize the new demands being made on business and design practice. Businesses that do not adapt to change disappear.” 17

11 John Heskett, “A Design Policy for the UK: Three Sug-gestions,” John Heskett Reader, 252–67. This article was origi-nally unpublished, and written as a contribution to The Cox Review of Creativity in Business: Building the UK’s Strengths, commissioned by the UK gov-ernment in 2005. In it, Heskett calls for changes in awareness and practices on behalf of businesses and designers, not for DQ\VSHFLÀFJRYHUQPHQWDFWLRQ Heskett’s is a “design entrepre-neurial” form of industrial policy where entrepreneurs—especially VPDOOEXVLQHVVHVZKHUHKHÀQGV growth—must be free to compete. The role of the state is to encourage education in design and policy that lowers the bar-riers of entry of change-making technologies to be introduced by designer-entrepreneurs. Hes-kett’s focus on entrepreneurship draws on Austrian economics. For more information see Chapter 4 of Design and the Creation of Value.

12 Heskett, A John Heskett Reader, 231.

13 Ibid., 232.

14 Ibid.

15 In July of 2016, The Economist reported that the city of San Francisco will be requiring that Airbnb renters register with the FLW\DQGLVWRÀQH$LUEQE per day for each renter not registered. Airbnb claims that it is not responsible for clients’ failure to register as renters. City and other governments and their vested interests do not like the sharing/gig economy because LWLVGLIÀFXOWWRORFDWHWD[DQG unionize. We also note that the US Treasury declares Bitcoin an asset, so that the IRS can collect capital gains taxes on it and prevent currency competition against the US dollar (USD), the Federal Reserve Bank being a trusted purchaser of US government debt denominated in US dollars. “Business this Week,” The Economist, June 30, 2016, http://www.economist. com/news/world-week/21701546-business-week.

16 Heskett, A John Heskett Reader, 232.

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John Heskett on Institutional Theory

This section discusses how Heskett’s engagement with institutional theory can help explain why a bankrupt GM might not disappear. Economic thought based on perfect competition models cannot explain why a bankrupt company receives bailouts. However, in the neo-classical synthesis—perfect competition in the short-term, with Keynesian macroeconomic management in the long-term—we can find an argument for government intervention intended to increase aggregate demand during times of economic slowdown, when the economy is not creating enough jobs to maintain acceptable levels of unemployment. 18

Keynesian economic fiscal intervention is, in theory, supposed to transfer resources from those who are saving to those will spend in the short term, in order to seed the ‘multiplier’ which will reverberate spending increases through the economy. Demand management provides the why for intervention, but we need insights from institutional theory for the how and who of redistribution.

Heskett starts with the work of Ronald Coase to illustrate the “transac-tion-based approach” 19 of new institutional economics. Firms are faced not just with the allocation of scarce economic resources—land, labor, capital, and entre-preneurial talent—but with management of social and political environments as well. He then brings in the work of Oliver Williamson to describe how decisions re-garding resource allocation—and the cost of managing these resources—are based on “asset specificity.” 20 _{Assets are not perfectly substitutable—they are specific to a}

given time and place based on the historically derived institutional environment. “In what has become known as New Institutional Theory (NIE), examining this pattern of complexity has given alternatives to Neo-classicism a new impetus. A seminal paper in this direction was by Ronald Coase in 1937, ‘The Nature of the Firm,’ in which he questioned the Neo-classical argument that the price mechanism is the determinant in how markets allocate resources. If this was so, he asked, what was the reason for the existence of firms? In examining the actual workings of firms he identified a layer of functions beyond those associ-ated with production that he termed ‘transaction costs.’ These, he argued, were of equal importance to manufacturing costs in explaining the existence and workings of a firm. By transaction costs, he included all the costs that were an essential part of how a firm undertook its business, such as purchases of mate-rials and supplies, banking, legal and insurance costs, information and promo-tion, design and delivery. Minimizing transaction costs was therefore suggested as the primary function for firms but Coase also envisaged how transaction innovations and ei_{ciencies contributed more widely to an economic model}

involving product innovations and dynamic imperfect competition.” 21

In a creative destruction policy environment, resources are allocated more by the market—and consumer sovereignty—while under firm-based allocation deci-sions resource allocation becomes more political. Heskett uses the work of Wil-liamson and Douglass North 22 _{to demarcate the limits to human rationality when}

making resource allocation decisions—entrepreneurs are not all-knowing, as in the neo-classical models—in modern capitalism, some economic actors have more information than others, and can use this information for strategic purposes to curtail competition or gain other economic rents.

“This is typical of modern economies, which are more impersonal, requiring complex contractual relationships for their functioning. Personalized relation-ships and codes of conduct might still be important but the returns for oppor-tunism and dishonesty require some form of coercive third party, which is best achieved by creating a set of rules that make constraints ef_ective.” 23

18 In Design and the Creation of Value—his most complete work on value theory—Heskett does not discuss Keynesian economics nor the neo-classical synthesis

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introduce Keynesianism here— the macroeconomic main-stream—to illustrate why the bailouts of 2009 are the result of conventional economic wisdom

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for statist interventions, and also to support the notion that this type of mainstream thought

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of resource redistribution during the downward portion of the business cycle. Heskett is correct in noting that institutional

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cases, while Keynesian theory is a general theory.

19 Ronald H. Coase, “The Nature of the Firm,” Economica

4, no. 16 (1937): 386–405.

20 Oliver E. Williamson, Markets and Hierarchies: Antitrust Analysis and Implications (New York: The Free Press, 1975); Oliver E. Williamson, The Economic Institutions of Capitalism: Firms Markets Relational Contracting

(New York: The Free Press,1985).

21 Heskett, Design and the Creation of Value, 96.

22 North co-shared the Noble Prize in 1993 for his research into the effect of institutions on long-period economic growth, see for example Douglass C. North, Institutions, Institutional Change and Economic Perfor-mance (Cambridge University Press, 1990), 101.

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It is this opportunism that concerns the presentresearch on GM. In the case of the GM restructuring of 2009, it is the US government—supposedly the impartially coercive third party—that is in fact party to the opportunism. Instead of creating value through user-centered design, we find that GM focuses attention on gaming the rule-makers to gain advantage. In return, the rule-makers get political pa-tronage and discretionary power. 24

To provide a pop culture take on GM’s legendary poor quality during the period discussed in this article, within the text are three examples (photos) of cars found by Jalopnik.com 25 to be among GM’s worst. The caption for the photo in

Figure 1 reads “Quite possibly the most-hyped car of all time turned out to be a classically GM nickel-and-dimed turd.” 26

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Until the oil shocks of the 1970s, US automakers had dominated the US market, and thus there was little call for economic rents. However, starting in the mid-1970s the United Auto Workers trade union begin to agitate for protectionism in the form of anti-dumping policy, and in 1976 the US Treasury Department announced that it would seek a “negotiated solution” with foreign automakers. 27 In 1977, the US Labor Department announced that workers in US auto plants af_{ected by}

im-ports were to be eligible for federal adjustment assistance. According to a National Bureau of Economic Research report, “The UAW was the first major player to ac-tively pursue protection.” 28 These interventions were deployed despite the fact that in the 1970s the foreign share of the US auto market was less than 7% (see Figure 2). 29

This situation changed in the 1980s, when the foreign share of the US auto market was greater than 20%. US automakers could not compete with more fu-el-ei_{cient, better designed, and less expensive Japanese cars.} 30 _{In 1977, the UAW}

began agitating for import restrictions unless foreign auto companies invested in the United States. In 1978, a US Trade Representative “pressured Toyota and Datsun to manufacture autos in the US.” 31 _{In 1980 (an election year), Chrysler received a}

$1.5 billion loan guarantee from the US government after “the UAW, the Michigan congressional delegation and Detroit mayor Coleman Young were actively mobi-lizing popular and congressional support for a bailout.” 32 Opposed to the Chrysler bailout was the strange—or perhaps not so strange—combination of “the National 24 Douglas Nelson uses the

notion of a “regime” to refer to what we would now call asset

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regime … refers to the insti-tutions, rules and norms that regulate relations among the members of the regime. We are interested here in the sectoral regime regulating relations among producers of

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and the US government. In addition … independent produc-ers of intermediate goods for the auto industry [especially the steel and parts industries] have

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participants in the politics of auto trade policy.” See Nelson, “The Political-Economy of U.S. Automobile Protection,” 1, note 3.

25 Jalopnik.com is a popular, non-executive blog owned and operated by the Gawker Media group.

26 Máté Petrány, “The Ten Worst Cars GM Ever Built,” ja-lopnik.com (blog), May 16, 2014, accessed July 19, 2016, http:// jalopnik.com/the-ten-worst-cars-gm-ever-built-1577414782. 27 Anne O. Krueger, “The Politi-cal Economy of the Rent-Seeking Society,” The American Economic Review 64, no. 3 (1974): 291–303. 28 Nelson, “The Political Economy of US Automobile Protection,” 3.

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Association of Manufacturers, Ralph Nader’s Congress Watch and the National Taxpayers Union.” 33

In his 1994 NBER study on the US auto industry, Douglas R. Nelson found a source of structural change in US political economy:

“By early-1980 many members of Congress had recognized that the issue of auto industry distress had widespread appeal as a political issue. That a core in-dustrial sector that had long been dominated by US firms was ‘threatened’ by Japanese competition, crystalized public concern with the nation’s economic performance and the role of ‘unfair’ foreign competition in that performance. These public concerns made the auto issue a focus of a much wider range of political activity than even an industry as economically significant as the auto industry would normally expect to generate.” 34

In 1980, Ford and the UAW filed for protection against Japanese competitors with the US International Trade Commission, voicing fears that foreign imports were the cause of low profits and the declining market share of the US auto industry. Instead, the ITC rejected the filing, stating that market stagnation was due to gen-eral economic recession. It voted against trade protections. 35 _{It is important to note}

that the economic recession argument was used as a justification for the 2009 bail-outs, showing that the asset specificity regime eventually allowed for more state discretionary power relative to management and bond- and equity-holders than it had in earlier periods.

The caption for the photo in Figure 3 reads, “Don’t believe the tires, those were not good years. Only 180–90 horsepower from a 5.7l V8? You must be having a laugh.” 36

The situation at the time can be aptly illustrated by an anecdote about William Niskanen (1933–2011). Niskanen became Ford’s chief economist in 1975, and spoke out against Ford’s rent seeking and movement towards a corporate policy against free trade. Niskanen believed—as Heskett later would—that the company’s prob-lems were the result of making cars that nobody wanted because they were poorly designed, used poor materials, and delivered poor performance. 37 Niskanen wrote a company memo arguing against protectionism, stating, “A common commitment to refrain from special favors serves the same economic function as a common commitment to refrain from stealing.” 38

Shortly after those comments were made, Niskanen was fired from Ford and went to work for President Reagan’s Council of Economic Advisors. The Reagan Ad-ministration announced a three-year Voluntary Export Restraint (VER) program for Japanese autos in 1980—later extended to four years, and not fully removed until 1994 39 —due to the perceived American public bias against “Japan, Inc.” Japan’s

November 25, 2016, http:// prudent-speculation.blogspot. com.au/2012/08/some-random-gm-thoughts.html.

30 See for example “The Bankruptcy of General Motors: A Giant Falls,” The Economist, June 4, 2009, accessed November 25, 2016, http://www.economist. com/node/13782942. As the article notes below, a major reason for this inability to FRPSHWHLVWKHDVVHWVSHFLÀFLW\ regime, which makes labor costs for US auto manufacturers 45% greater than the competition around the period of the 2009 bailout. The author thanks an anonymous reviewer for pointing out that these relative higher labor costs meant that, all things being equal, GM had less resources to devote towards R&D, again leading to less design quality and competitiveness.

31 Nelson, “The Political-Econ-omy of U.S. Automobile Protec-tion,” 4.

32 Ibid.

33 Ibid., 5.

34 Ibid.

35 According to Nelson, President Carter was against protectionism, as he believed competition was healthy for US automakers. Nelson, “The Politi-cal-Economy of U.S. Automobile Protection,” 4.

36 Máté Petrány, “The Ten Worst Cars GM Ever Built.”

37 For the period between 1980 and 1991, Ford autos needed repair twice as often as did Japanese cars, whereas for *0WKHÀJXUHLVDOPRVWWKUHH times as often. See Nelson, Figure 2 GM and Foreign Share of US Market. © 2012 by Prudens

GM Market Share vs Imports

GM Mkt Shr

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MITI would agree to the VER in 1981. 40

“Trade policy in the Reagan administration is best described as a strategic defeat. The consistent goal of the president was free trade, both in the United States and abroad. In response to domestic political pressure, however, the administration imposed more new restraints on trade than any administration since Hoover.” 41

Nelson surveyed results of VER policies to illustrate significant changes in the US auto industry due to asset specificity consolidation—and the entrenchment of special interest regimes—that led to huge GM losses in 1991 and 1992. 42 Protec-tionism meant that per-car costs for US automakers were 35% greater than Japanese cars, and that only textiles and steel had higher consumer costs. 43 In addition during the 10 year VER period, the ratio of shares to returns on labor and profits for US automakers remained the same over time, showing the consolidation of the regime through entrenched rent-shares for labor and profits. “However, it would also appear to be clear that those profits primarily reflect increased rent extraction from US consumers.” 44 Nelson also notes that Ford and possibly Chrysler appear to have become more competitive during the 1980s when compared to their Japanese competitors, but the larger GM did not.

“The Political-Economy of U.S. Automobile Protection,” Table 3, Appendix. Goolsbee and Krueger show the same results for the period 2007–2010 leading up to the bailout. See Austan D. Goolsbee and Alan B. Krueger, “A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler,” Journal of Economic Perspectives 29, no.2 (2015): 15.

38 David Segal, “William A. Niskanen, a Blunt Libertarian Economist, Dies at 78.” New York Times, October 28, 2011, accessed November 25, 2016, http://www.nytimes. com/2011/10/29/business/wil- liam-a-niskanen-a-blunt-libertari-an-economist-dies-at-78.html.

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The caption for the photo in Figure 4 reads “Nothing could hide the fact that the latest Pontiac was no more than an old Opel built in South Korea only to get rebadged and sold in the US. Imagine how the tooling must have looked at that point!” 45

Benjamin found that the major impact of the VER was felt from 1986 to 1990—a time when there were less macroeconomic drags on the economy. Japa-nese-made cars were 14% more expensive in the USA than they would have been absent quotas, and Big Three profits increased more than 8% per year—until the GM losses of 1990. 46 Also, this period saw a rapid increase in imports as a share of US automobile sales, a rapid increase in foreign automakers locating to the USA— in regions where the UAW had less power—and US auto parts makers, retail car dealers, and auto financing firms became part of the special interest regime.

John Heskett on Design and General Motors

John Heskett’s 1993 article titled “Creative Destruction” 47 was written at a time when US protectionist measures—and the resulting negative ef_{ects on design}

quality due to reduced competition—had come home to roost. The results were GM net losses and layofs after years of rent and steady and increasing profits. 48 For Heskett, protectionism—which eliminates the need to compete—leads to arrogance.

“But GM is not an isolated case. Rather it is symptomatic of a generation of companies once dominant but now struggling to adapt to competition and change. As the largest and most powerful of these firms, however, the prob-lems of the automobile companies are more public and painful. Sympathy for the automobile companies would flow more easily if they acknowledged their present woes as essentially of their own making, but such honesty is an excep-tion. It is simpler in dii_{cult times to blame problems on someone else.}

Scape-goats are easy targets, something Americans should well understand, having often been the butt of other countries’ discontents over the years. Yet it often seems Americans are collectively intent on proving the old adage about those who fail to learn from history being condemned to repeat its errors.” 49

Heskett also saw arrogance (or amnesia) in the way US automakers forgot their own beginnings, and blamed others for their myopic production-oriented vision of design strategy.

“An example is the resentful implication that the Japanese have ‘stolen’ or ‘copied’ designs and processes developed in the U.S. and somehow, through underhanded dealing, made a commercial success of them. This conviction can be hilariously funny until one realizes that many people take it extremely seri-ously. They don’t know, and maybe don’t want to know, that the foundations of American industrial power were laid by very similar means.

Detroit’s convenient amnesia, for example, omits mentioning that the au-tomobile was not an American invention—it originated in Europe. And Amer-icans did exactly what they accuse the Japanese of lately doing, namely, man-ufacturing a product invented somewhere else, in unprecedented quantities, to hitherto unknown standards of design and quality, at a price af_{ordable by}

millions, and with great benefit to themselves. It is a perfectly legitimate thing to do, and good business if done well. We should get back to doing more of it.” 50

In one text, Heskett compares the histories of GM and Ford. Henry Ford of course created mass manufacturing with the Model T in 1907 and dominated the US auto market for the next 20 years. However, the Ford Motor Company became

Fall 1999, accessed July 15, 2016, http://www.perc.org/articles/ voluntary-export-restraints-au-tomobiles.

40 Nelson, “The Political-Econ-omy of U.S. Automobile Protection,” 11. Niskanen would later fall out with the Reagan administration due to its economic policies—in this case, its tax policies, which increase corporate income tax rates—and became chair of the libertarian Cato Institute. See Andrew Sorkin’s article dealing with how car parts companies— indirect recipients of the $80 billion GM and Chrysler bailout funds and who advocated for the bailouts—are now using ‘inversions’ to reduce corporate income tax. “Ultimately, the only way inversions will stop is when the corporate tax code changes so it becomes more attractive for American companies to be American companies.” Andrew Ross Sorkin, “A Tidal Wave of Corporate Migrants Seeking (Tax) Shelter,” TheNew York Times, January 26, 2106, accessed November 25, 2016, http:// www.nytimes.com/2016/01/26/ business/dealbook/a-tidal-wave- of-corporate-migrants-seeking-tax-shelter.html?_r=0. 41 William A. Niskanen, Rea-ganomics: An Insider’s Account of the Policies and the People (New York: Oxford University Press, 1988), 137.

42 Nelson, “The Political-Econ-omy of U.S. Automobile Protec-tion,” 21.

43 Ibid.

44 Ibid., 24.

45 Máté Petrány, “The Ten Worst Cars GM Ever Built.” Petràny and Jalopnik may have erroneously labelled this image—it appears to feature the 1993 LeMans.

46 Benjamin, “Voluntary Export Restraints.”

47 Heskett, A John Heskett Reader, 283–86.

48 GM lost almost $2 billion in 1990 and $4.4 billion in 1991 after enjoying at least a decade RISURÀWDELOLW\VHH$SSHQGL[IRU *0SURÀWDQGORVVÀJXUHVVLQFH 1982.

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complacent with its production-oriented strategy, and Henry Ford is rumored to have said, “You can have any color you like, as long as it’s black.” Guided by Alfred P. Sloan, GM took an opposite tack shortly thereafter—prioritizing design as strategy. This strategy oriented production for the consumer through innova-tion and entrepreneurship, and would lead to monopolistic competiinnova-tion and GM’s market dominance instead of Ford’s. Sloan created an “Art and Color” division at GM, renamed the “Styling Section” in the 1930s, which is now called “GM Design.” By the 1950s, GM employed more than 1400 designers.

“The GM model of design was adopted by other automobile companies and by firms in other industries. Indeed, if one considers current arguments about promoting design in companies—support from the CEO, positioning design at a senior level, focusing on products, allocating adequate staf_{, facilities and so}

on—General Motors under Sloan was a pioneer and a model.

Apropos of introducing design into business school curricula, Sloan’s auto-biography is probably the only book with any reference to design read by sev-eral generations of business school students. As a result, his concept of design as styling still has enormous sway over American corporate consciousness.” 51

In his 1993 article, Heskett tried to take stock of what had gone wrong at GM. They had devolved from corporate innovator with a design-oriented strategy to a market imitator that would eventually suf_{er the largest corporate loss in US history—less}

than a year after his article was published. “So what went wrong? There are no simple answers. In part, Sloan’s emphasis on external form as a marketing device eventually lead to a gulf between form and function, between image and reality. The balance was lost.” 52

Heskett had noticed how GM grew into a bureaucracy that began to focus on financial returns and protectionism rather than competition and creative destruction.

“GM’s huge size and unwieldy bureaucracy also took a toll. Sloan had always sought a diversity of design ideas, insisting each division should have its own distinctive character. But his successors played it safe, massaged the numbers, and soon one product was indistinguishable from the next. Since all the auto-mobile companies followed GM’s lead, by the 1970s a depressing similarity and lack of quality had opened the door for overseas competitors.

And what of Sloan’s concept of design as the cutting edge in recom-mending products to customers? It turns out that it wasn’t design that was neglected, but the customers. Design became absorbed by a profound inertia stemming from success. It became parochial, refusing to acknowledge that other approaches might be valid. In 1989, the head of GM Design, Chuck Jordan, was quoted at the Tokyo Motor Show as saying, ‘The Japanese haven’t gotten their act together, design-wise. There are some ugly, ugly cars here.’ Buyers across the world were deciding otherwise.” 53

Japanese automakers were focusing on a “lifestyle” in their design-oriented strat-egies. Quality was taken for granted, and consumers’ values, both aesthetic and economic, had been incorporated into firms’ strategies.

“Above all, lifestyle expresses values, and requires a corresponding expression of values in the products of_{ered to meet that market’s needs. Although the}

engineering quality of American automobiles has clearly improved recently, measures of success based on statistical conformance may not be enough. In a lifestyle market, performance quality is something everyone takes for granted. Adding value by design will need to mean what it implies: a content of real value, expressed through both aesthetic and economic dimensions.” 54

50 Ibid., 184.

51 Ibid., 185.

52 Ibid., 186.

53 Ibid.