Consumer Sovereignty Rules in the Long Run and Competition Breeds Competence

Great post by Mark Perry of "Carpe Diem."

The data in the chart above come from a fascinating 2007 Bloomberg article "The Fall of Detroit: An Insider's Tale," by John Lippert, chief of Detroit' Bloomberg New bureau, and formerly a GM employee from 1973 to 1981. Customer complaints were so high for Ford and GM in 1980 because they were both selling everything they could produce, and so it was quantity of production that mattered, not quality. According to John Lippert, "For labor and management alike, moving iron out the door trumped everything," and "We didn't emulate Toyota sooner because we didn't think we needed to."

What are the economic lessons here?

1) Although "labor sovereignty" and "management sovereignty" may have prevailed in the auto industry in the short-run as they ignored quality and consumer complaints, that outcome was not sustainable over time in a competitive market. Ultimately it was "consumer sovereignty" that prevailed in the auto industry over the long run, as the dramatic improvements in quality and customer satisfaction demonstrate.

2) The intense competition from Japanese automakers was the best thing that ever happened for American car consumers, because it was that competition that restored American consumers to their rightful throne as the kings and queens of the market economy. Adjusted for quality and price, American car consumers today have never had it so good. Ever. They can thank international competition from Toyota, Honda and VW for that.

HT: Chris Douglas