In my youth, the British automobile company British Leyland was an iconic example of what was wrong with Britain before the advent of Margaret Thatcher. It had merged most of the British automobile industry with government encouragement, only to achieve zero economies of scale, ever-worsening product quality, ever-increasing losses that caused it to enter public ownership in 1975 and about three new wildcat strikes a week. Post-Thatcher, it appeared that such paragons of management ineptitude had disappeared. However, in the United States today, several companies have entered at least the early stages of British Leylandization; the future of the U.S. economy and the prosperity of its people depends on this being reversed.

First, a little on British Leyland and how it became a byword for corporate failure and spiraling losses. Before 1950 – this may astound younger readers in both Britain and the United States – the British motor industry was quite successful, having several healthy companies, including Austin and William Morris, Lord Nuffield’s Morris. Those two companies and their associated brands (Wolseley, MG, Riley) together formed around 40% of the British auto market, while Leyland Motors dominated trucks. The Austin and Morris groups merged in 1952 to form British Motor Corporation.

From the start, BMC had too many models, almost all of them underpowered, with low top speeds and risible acceleration (my father’s mid-size Wolseley 4/44 did 0-60 in 29.2 seconds, which is why I saw my whole life flash before my eyes every time he tried to overtake something). Although Nuffield kept a fatherly eye on the company until his death in 1963 while Austin’s capable Leonard Lord had operating control until 1961, almost all models had production runs well under 100,000 so the company never attained economies of scale equivalent to its U.S. and later German and Japanese competitors. The company’s labor cost advantage over the U.S. was offset by very uncompetitive British steel prices from the dozy nationalized industry. Finally, high British taxes on both automobiles and gasoline led British cars to be underpowered for the world market, dependent on an Empire/Commonwealth market for which the protections were rapidly disappearing, as Imperial Preference was sacrificed on the altar of Keynesian globalism.

After Nuffield’s death, BMC management became completely bureaucratized and the Harold Wilson Labour government from 1964 played a wholly malign meddling role in strategy. Meanwhile, its mediocre labor relations deteriorated to a legendarily catastrophic level, with the Communist shop steward “Red Robbo” (Derek Robinson) holding the company to ransom on innumerable occasions. The company hoovered up upmarket brands Rover and Jaguar, wrecking their quality reputation, and merged with Leyland Motors, doubling the resulting firm’s bureaucratic overlap and union militancy; when nationalized in 1975 it was losing billions annually. Only Margaret Thatcher’s fierce determination to sell it or close it stemmed the losses, with its much-diminished volume car operation sold off as Rover Group to British Aerospace in 1988.

The archetypal U.S. company that went the way of British Leyland was General Electric, which appointed “Neutron Jack” Welch as CEO in 1981. GE had been a highly profitable and innovative engineering company for the entire 20th century, but Welch changed that, focusing business units on short-term profits, leveraging the balance sheet, indulging in massive stock buybacks and leading a gigantic push into financial services. Because of Welch’s manic short-term orientation, his financial services business was of very poor quality, focusing on aircraft leasing, real estate and other games that benefited from the long-term decline in interest rates but were bound to go wrong if interest rates reversed or a downturn occurred. Real estate lending and similar businesses, where large amounts of capital can be deployed in a “martingale” bet, profitable in the short-term but with huge long-term risks, is irresistibly appealing to short-termist bank management, who are confident they can escape the situation before the inevitable long-term disasters arrive.

Welch’s focus on short-term profits and finance goosed the stock price during his tenure (showing the irrationality of the funny-money late 1990s stock market) but proved fatal for his successor Jeff Immelt. Immelt tried to rescue the company by buttering up political connections, whether Democrat or Bushite Republican – he essentially ran GE in the same politically-motivated way as British Leyland had been run in the 1960s. The result was disaster, just as it was for British Leyland, but the fault was mostly not that of the hapless Immelt but of his thoroughly destructive predecessor, whose stock-price-goosing but value-annihilating management theories have now been copied all over American business.

In the last few years, Boeing (NYSE:BA) has been the most obvious British Leyland clone (Disclosure: I own a modest position in Boeing put options). Even by 2018, when it was still profitable, it had hollowed out its balance sheet to the point of zero net worth by mindless stock buybacks, most of them at prices above $400 per share. Now its share price is below $160, and with its debt above $60 billion and threatened with a downgrade to “junk” status, negative cash flow and sharply negative equity, the chance of an emergency share issue of $30 billion or so is very high. Naturally, such an issue would hugely dilute current stockholders, who would have been forced by Boeing management to buy back stock at $400 and sell it below $160, never a winning strategy.

Operationally, Boeing is also very British Leyland-ish. It moved its headquarters from Seattle to Chicago in 2001, thus removing management 2,000 miles from its main base of operations, while worsening their local political environment and personal tax position (Illinois has a 4.95% personal income tax, Washington state still does not have one). A succession of finance-oriented CEOs cut back on innovation, product development and quality, outsourcing much production to other countries and less reliable companies. Consequently, Boeing from 2019 suffered a series of catastrophic quality problems on its new 737-MAX aircraft and elsewhere, is rapidly losing market share to Airbus and other producers and has no substantial new products in the pipeline. Now it even has a serious strike by its workforce, though presumably “Red Robbo” has yet to move in.

In the modern funny-money stock market, it is possible to suffer the early stages of British-Leylandization while maintaining a sky-high stock valuation. One company that has achieved this is Apple (NYSE:AAPL), currently with a market capitalization of $3.4 trillion. Apple was rescued from near-bankruptcy in 1997 by the return of its founder Steve Jobs, who proceeded before his death in 2011 to invent and design a series of brilliant products that, introduced in careful sequence, would long outlast him. He also followed a policy of keeping all design and (during his initial tenure) most manufacturing in the United States. His successor Tim Cook was originally hired as a specialist in international supply chains and was thus the obvious candidate from the dozy shareholders perspective to increase profitability further through heavy use of outsourcing.

That is coming to an end. As the recent introduction of the iPhone 16 showed, Apple’s innovation is now not something for which consumers will pay a premium. Its Chinese market, previously a huge source of sales and profits, is being squeezed by Chinese manufacturers who have much lower costs and have caught up technologically. Manufacturing in Asia and selling in the U.S. will be hit by any new tariffs, which seem likely. The balance sheet is heavily leveraged, and Apple cannot bring back much of its cash without a huge tax liability. In short, $3.4 trillion or no $3.4 trillion, Apple has gone ex-growth and is showing many of the signs of decay into British Leylandism. Like British Leyland, it would probably take Apple a decade or more to go bankrupt, but the trend is decidedly downwards.

Intel (NASDAQ:INTC) is another tech company whose British Leylandism is more advanced than at Apple. Like British Leyland, Intel was for many years a highly profitable company, with top management in Andy Grove that bore considerable resemblance to Nuffield (which Steve Jobs, for example, did not). Like Apple however it failed to maintain domestic production capability at the cutting edge and is now decisively behind the true market leaders like Taiwan Semiconductor (NYSE:TSM). Like British Leyland in the 1960s, it benefits from cozying up to government and receiving massive subsidies, notably from the 2022 CHIPS Act, but as British Leyland found out, that merely causes its position in the free market to decay further. Intel is further down the British Leyland path than Apple; whereas Apple is the British Leyland of about 1960, when it had just introduced the Mini, Intel is more like the British Leyland of 1970, when it was staggering inexorably towards bankruptcy.

Finally, Amazon (NASDAQ:AMZN) is also rapidly British Leylandizing, probably at about the 1962 stage, with Jeff Bezos’ departure resembling the retirement of Lord and the death of Nuffield. Its retail business has decayed, with the quality of the products it sells now a problem and costs inexorably rising, and it has a labor problem similar to that of the British auto plants in its immense army of low-paid distribution workers. So far, its profitability has been hugely boosted by its “cloud” business, which is still expanding rapidly and has high margins, but the cloud business is now well understood technology, with consequently low barriers to entry and a heavy reliance on an electric power grid that is increasingly overstretched, particularly if nonsensical “climate change” restrictions are imposed. With costs and quality under pressure in retail and margins under pressure in cloud provision, Amazon is well down the British Leyland path.

I could give other examples – General Motors (NYSE:GM) as a British Leyland clone is a fish in a goldfish bowl rather than a barrel, so not worth shooting at. Disney (NYSE:DIS), the big banks, IBM (NYSE:IBM) and Adobe Inc. (Nasdaq:ADBE) also fall into the British Leyland category, at different stages and in different ways. Thus, the overall picture is of a U.S. corporate sector that is at the top full of arthritic dinosaurs, not yet fully ready to be put out of their misery but heading rapidly towards extinction.

The cause of this outbreak of corporate decay is very clear – low real interest rates, which have prevented the healthy Schumpeteran replacement of rotting companies by new healthy ones and have been accompanied by a glut of meddling regulation. Real interest rates were low and regulation intrusive in 1960s Britain also, because modest nominal rates were offset by inflation accelerating from a brisk trot to a gallop as the 1970s arrived. Only a bout of high real interest rates and massive de-regulation under the early years of Margaret Thatcher removed the rot (mostly through bankruptcy) and allowed new healthier businesses to emerge, mostly in new sectors. The pain of change, however, was immense, in high unemployment that lasted a decade.

The United States may be about to suffer a similar transition. Let us devoutly hope so!

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)