Monday, October 25, 2010

Last one out turn off the lights

Fordism. Many people believe Henry Fords greatest contribution to modern economics to be the invention of the assembly line. This is not the case. The assembly line had been in existence for centuries in one shape or another. Even if we narrow our focus to the use of the assembly line for producing automobiles, the credit still goes to a man gloriously named Ransom Olds, who produced Oldsmobiles. It's true that Ford and his team developed and refined the concept making it ever more efficient, but Fords contribution lies elsewhere. His genius, even if he didn't realize it until later, was to pay his workers higher wages than his competitors. In this day and age it seems completely illogical that paying higher wages makes your business more efficient but this is precisely what Ford discovered. He could pick and choose the best mechanics and workers for his factories, and they travelled from across the country specifically to work for him. Those that did manage to secure a position with Ford tended to be motivated and hang on to their jobs for longer, leading to lower turnover. But the most surprising, unintended and important consequence of all was that he paid his workers well enough to afford the products they had themselves made. He created his own loyal customer base.

Contrast this with our modern age and the business concept of outsourcing. Here the business sees employees as a cost base and does everything it can to reduce wages, to the point of only employing overseas workers as long as they are cheaper. The motor industry embraced this concept greedily and whole heartfelt decades ago. The outsourced the manufacturing jobs to robots. Almost everything else was outsourced overseas to places where labour cost one tenth as much as the US. Notably the executive positions were kept in house. End result being those loyal consumers no longer had jobs to pay for the objects being consumed.  

Today, Detroit, home of Fords once glorious factories is now no more than a ghost town. It's possibly the worlds first ghost city.


Post a Comment

<< Home