Detroit: Break up v. Bail out

My fiction writing "career" taught me a valuable lesson about the book publishing industry: It's a mess, largely because the companies that stand to make or lose money on a book don't really know what people want to read.

And so I thought (circa 2002-03), "Well, that's a very 20th-century problem. Why don't we try solving it with 21st-century tools?" My solution was to let the fans of a particular genre form an online investment pool and then decide what books to publish. These groups would then contract with the companies that run printing presses, etc., to make and distribute their titles.

In other words, my idea makes money for book publishers by getting them out of the book-selecting business. It spreads around risk. It makes decision-making better. I called the idea "virtual publishing groups," and though nobody else has ever endorsed the idea, I'm confident it's a good 21st century idea with a future (you can download a version of the proposal as a 14-page PDF here).

Which brings us to the Big 3 domestic automakers, and what should be done about them. In this corner, Dave Winer. In the other, Seth Godin. The idea that rebooting the system (letting the industry fail, perhaps taking the American and world economies wiith it) is a traumatic, unnecessarily destructive solution, v. the insight that breaking up three big companies into a thousand little companies could be a very good thing.

My dilemma: I believe both are right.

But what if we chose a third path, one based on my VPG concept?

1. Congress could use its crisis leverage to broker an agreement that essentially puts our automobile production infrastructure into a form of receivership, to be directed by a board. Its mission: To license our national automobile production capacity to the most competitive automobile designs.
2. As a condition of the deal, The Big 3 would have to divest themselves of their R&D departments, which would now be run as independent firms.
3. Anyone could submit a car design to the production board and request a share of the annual production capacity. The selection process would be open and transparent.
4. In the short term, design teams from The Big 3 would likely get most of the contracts, since these R&D teams are already in place. But by 2010, it's likely that third-party designers with innovative ideas would win a share of that production capacity.
5. Over time a new kind of auto industry could emerge: The Big 3 would still be "in business," as the companies that profit from providing manufacturing and other services (yes, I'm describing manufacturing as a service) to the best and most desirable lines of automobiles. There would be no mass shut down, no sudden shock to the economy, no destruction of our unions, yet the automobile business would be revolutionized.

How is that different than what we have now? Because it changes the nature of the competition within the system.

All good capitalists believe that competition is good. But political rhetoric aside, most competition between big companies isn't a meritocracy in which the best idea wins. Companies compete more like bacteria colonies, which have this nasty little trick: They literally poison their environment in order to limit healthy competition.

This isn't a new development, either. If it's new to you, please rent Tucker: The Man and His Dream.  Preston Tucker had a better product, and had he succeeded, Americans would have had better, safer, more affordable cars sooner. The Big 3 would have lost money and been forced to change.

Now, imagine for a moment that The Big 3 automakers had a financial interest in making sure that the very best cars got built every year, regardless of nameplate. Give the people what they want, rather than pushing whatever you happen to have in stock.

In my system, Tucker's team would have competed in front of an impartial board for a share of the national automobile production capacity. The Big 3 would still own the plants, and would still be paid as a contractor for every vehicle they produce. Everybody gets their share of the profits.

Result? Car design companies would come and go, but the companies that built those cars would always make money. By giving up control over R&D, The Big 3 would reap the benefits of true competition (by the way, this is the same solution I proposed for the newspaper industry, not that anyone noticed).

VERTICAL INTEGRATION v. THE DISTRIBUTED NETWORK
American autoworkers are extremely productive, but if you give them crappy vehicle designs to build, they still lose. And The Big Three have got enormous capital investments in production lines, many of which are world-class. There is no shortage of talented designers and engineers. And yet auto companies keep picking bad designs.

Vertical integration of companies seems like a great deal, because it provides an economy of scale that looks unbeatable (and is, in some cases, probably necessary). But when any function in a vertically integrated company starts to fails, the whole company suffers. We accept a certain amount of this, because some things require huge concentrations of wealth to function.

But the 21st century frowns on that compromise. What we need are enterprises that encourage the formation of start-up companies that will make profitable use their services: Book publishers, music cooperatives, movie companies, yes, but why not corporations that rely on heavy manufacturing too?

I believe networked media allows people of similar talents and interests to form highly efficient groups around the topics that interest or profit them. What we need are smart business relationships that translate areas of expertise into real-world products.