Why Detroit Can't Keep Up

Washington should also work with Detroit's management to make critical R&D programs (for batteries, fuel cells and so on) more transparent and less vulnerable to battles over intellectual property -- which would let university labs and freelance inventors join in the quest to innovate. Washington should encourage supplier companies to find new ways to share intellectual property, such as global ideas exchanges that apply something similar to copyright rules to unpatented technological innovations. And the United States should create incubators especially tailored for new auto suppliers and offer tax holidays for all new manufacturing businesses.

None of these actions will guarantee that U.S. car companies will use funds from a bailout to create cars that customers will actually want to buy. But think of these measures as the roads and bridges of a knowledge economy. If, after several years, U.S. auto companies don't improve, some of their key assets and manufacturing capacity could be sold to global firms such as Toyota (which is not exactly a Japanese company anymore). Such sales might reinvigorate these plants and suppliers, and they would keep their workers afloat. Of course, entirely new automakers may emerge from among innovative suppliers, as they have in the computer industry.

The question is not whether the U.S. auto industry faces extinction or whether GM is too big to fail. The question is how the healthy parts of Detroit's behemoths might survive into a new generation and in a changing business landscape. The time it takes to generate a new car, like the life span of a company, is only going to get shorter. During the 1980s and '90s, as Arie Lewin of Duke University discovered, it took about 13 years for a third of the Fortune 500 to be "selected out" -- to fail or be acquired by other firms. Today, it takes about four years.

The coming contraction need not spell disaster for Detroit. But we must understand that financial capital isn't the only kind that flows around the world or is managed and regulated. The same is true of intellectual capital -- the sheer capacity to turn learning into stuff. The good news is that the United States still has the world's largest proven reserves of intellectual capital. The bad news is that, unlike oil, the fact that we have it doesn't mean that others do not.

bavishai@gmail.com

Bernard Avishai is a former technology editor of the Harvard Business Review and a former international director of intellectual capital at KPMG.