Most would argue that Economy of Scale (Bigger is Better) is the only viable economic model. That argument does no prove out in history. That philosophy lead to the firms which were "Too big to fail," and the socioeconomic blow-back (predicted in detail in Wealth, Women, and War) from TARP and the GM Bailout. We are still seeing the ramification from the bad behavior of Casino Capitalism. It is more appropriate to point out that the high risk financial games have not been brought under any kind of control. The Too-Big-To-Fail Firms as still allowed to play their games unabated, and with our approval -- like it or not, we are the government.
The Chicago Tribune reports, "The Treasury Department signed off on General Motors pay packages that broke a pledge to cap cash salaries at $500,000 in most cases at companies bailed out by the federal government" (Plungis, J. (2014, September 24). GM 2013 salaries exceeded U.S. bailout limit, watchdog says, [Electronic version]. Chicago Tribune). Haven't we learned anything since 2011, or are the global protest of hundreds of thousands around the world consider an anomaly by the experts in the think tanks?
Wealth, Women, and War was written in 2007. It was published in July 2008. A copy was sent to President Obama in March 2010. This is September 2014, and no one is listening. Henry Ford had the better idea! That idea is covered in this chapter.
Cliff Potts
September 25, 2014
The Chicago Tribune reports, "The Treasury Department signed off on General Motors pay packages that broke a pledge to cap cash salaries at $500,000 in most cases at companies bailed out by the federal government" (Plungis, J. (2014, September 24). GM 2013 salaries exceeded U.S. bailout limit, watchdog says, [Electronic version]. Chicago Tribune). Haven't we learned anything since 2011, or are the global protest of hundreds of thousands around the world consider an anomaly by the experts in the think tanks?
Wealth, Women, and War was written in 2007. It was published in July 2008. A copy was sent to President Obama in March 2010. This is September 2014, and no one is listening. Henry Ford had the better idea! That idea is covered in this chapter.
Cliff Potts
September 25, 2014
Backbone
The wisest course of action
for corporations today is to create opportunity for employment at the local
level by supporting redundant but economically viable companies. To some degree
that was Henry Ford’s approach 100 years ago. This is commonly referred to as
Vertical Integration.[1]
This was in conjunction with Welfare Capitalism,[2]
driven by a philosophy that that humanity mattered. This gave Henry Ford a long
term prosperity, and loyalty, which is unheard of in corporate halls today.
Ford created, or invested in, companies which supplied the parts to
build Ford automobiles. Ford made spark plugs for his automobiles; he also
produced spark plugs for other automobiles as well. He not only built cars, but
he also built companies. In the distribution of his products he created
franchises which allowed others to invest in his product line and become part
of the Ford success. This process allowed workers and owners to become vested
in his successes. General Motors followed the same course of action so effectively
that it was eventually called before Congress in the 1950s to explain how it
had manipulated the market against competing interest.
In the drive towards economy of scale and the elimination of redundancy,
this humanistic approach has been lost. Or more to the point, it lost the
appeal of being novel in the minds of the corporation. It was so successful
that it became mundane. If it were applied today, Microsoft would be producing
the Windows Operating System, but the remaining software products would be
produced by separate but equally lucrative software firms owned in large part
by the same investors who owned Microsoft. This would guarantee an abundance of
employment opportunities while making substantial income for the owners.
Ford also made sure that the workers who were “good enough” based on
the work they did were paid a substantially higher wage than other assembly
workers. He literally doubled the wages of his line workers. This was in the
unregulated free market of the early 1900s. Ford understood something else that
that has been lost today: give people employment, give them good wages, and
they will stay with their employer. He went from a 300% turnover in his plants
to no turnover and was the last of the major manufactures in the U.S.
to unionize.
Unionization was a social trend brought about by the marriage of
socialist ideals and capitalism in response to managers who were abusing their
authority. Industries had a propensity to promote abusive people to low level
management positions. This is illustrated in Upton Sinclair’s fictional exposé The
Jungle, and in Studs Terkel’s Hard Times: An Oral History of The Great
Depression. The arbitrary and abusive nature of line managers at the time
is often overlooked in a discussion on unionization. Human relations and
quality of work life are seen as more esoteric and subjective, opposed to the
numeric value attached to the job classification and performance.
In present time, the operation model in the days following merger mania
has diminished employment opportunities, produced questionable products and
services, created a wide gap in the income levels of individuals, removed any
semblance of employment security, stagnated industries into monolithic cultures
of form over function, and produced a dominant culture where fellow citizens
are seen as pariahs in society if they lack the social contacts to become
employed within the few remaining monopolies. This is why, today, Ford and G.M.
are in financial straits, and Microsoft’s founder, Mr. Bill Gates, is begging Congress
with, “Please, Sir(s), more ….”
This fixation on competition at the individual level has severely
damaged the social contract at the local community level. It has damaged the
market through a narrow focus of innovation, flooded the market with shoddy
goods, virtually destroyed any positive philosophy associated with hard work,
as sited by Kevin Phillips in American Theocracy, and diminished the
security associated with the quality of life an individual can gain through the
pursuit of higher education.
When the children of today, grow up in households where they watch
parents struggle at a frenzied pace just to maintain their socioeconomic
status, and see them sink lower and lower on the economic ladder, these
children are not inclined to believe the assurances of the establishment that
security is gained through hard work and good citizenship. Moreover, the
generation which watches success metered out for petty larceny and fraud at the
primary economic level, is not inclined to follow the line of reasoning that
education is a deciding factor in economic success. Thus far the proponents of
education are losing the argument to the scam artist and contraband sales
proponents.
It cannot be a surprise that the internet, giving opportunity for
bombastic posturing through the anonymity of a screen name, also reflects the
current culture’s trend towards social indifference, and the over all
acceptance of behavior which leads towards classically immoral debasing sexist
consumerism. Exhibitionism is still an economically viable trade. If a person
debases herself for gain, then how can there be any true limit to the lows that
one will go to become economically stable? Many people in the working class are
aware of individuals who “made it” by, in part, trafficking drugs as well. All
of this is because the old values are no longer reflected in the economic
mainstream of the United
States .
To the current business school graduate, the installation of redundant
business looks wasteful. Admittedly, from the narrow view of the accounting
ledger it may very well be. However, from the standpoint of survival through
decentralization, and providing for the common good, creating jobs for people
to find satisfaction in their own labor, it is a definite goal within any
national agenda. That, of course, presupposes that the nation, and the interest
of the nation, has any bearing on business. It is a goal that fosters stability
and security, and if nothing else, these cannot be set aside for some
idealistic approach to economic prosperity.
IBM’s initial success in the computer field followed Ford’s model to
some degree. They contracted the manufacturing of sub-systems to outside firms.
They did not exert control over the various sub-contractors (Microsoft being
one of them) to prevent the sub-contractors from becoming direct competitors to
the parent company. Open architecture, as it is commonly called, worked well
for the expansion of the industry. And it worked well for the consumer. It paid
off for Microsoft, but IBM who pioneered the Personal Computer for the office
environment lost all advantage in the marketplace. It must be understood that
this was not due to any intentional error, but by playing by the “rules of
life” that existed in the 1980s. Today, Microsoft is the PC, and IBM is out of
the PC business. The manufacture of goods is not a main component of wealth
building in the world today. It is but one pathway to the capital acquisition
necessary to engage in the high-end market of investment manipulation.
Within this discussion one cannot negate the effect of the market
pressure towards open architecture. Open architecture is the trade description
for the policy of allowing other firms to have access to the circuitry diagrams
of the primary product in order to manufacture enhancements for the primary
product. In this example, the product is the Personal Computer, or PC.
The TRS-80 Model One, was first introduced in 1977. Tandy Radio Shack
should have been the primary player in the PC arena. They failed because they
forgot that their primary customer was the electronics’ hobbyist. Beyond them,
there was no market for the PC. Tandy decided, for reasons which still remain
somewhat a mystery, to approach the PC with a closed architecture application.
If the end user even unscrewed the case to see what was inside it voided the
warranty. This decision was not widely supported by the narrow consumer
community. These individuals had just paid about 22.7% of their median income
and felt stifled in their technological exploration of the digital computer.
This opened the market for a small garage start-up project known as
Apple. The Apple model was the model which IBM followed. Apple, as the product
developed was no longer the domain of the hobbyist, and reverted to closed architecture
to protect their development from cut-throat competition in 1984.
The real failing was that IBM underestimated the wild popularity of the
own product. According to the February 2007 report published Purchasing.COM,
“In the U.S. ,
PC shipments grew just 1.2% to 61.1 million units because of market
saturation.” That translates, in a saturated market, to something akin to a
staggering $12,220 Million ($12.2 Billion in 2006 alone). The same article
sites that, “Global unit shipments of PCs increased 9.5% to 239 million units
in 2006.”[3]
One cannot fault Microsoft for winning at the capitalist game based on “the
rules of life” in the dominant cultural expression of the era. Microsoft
obviously did not make the same mistake that IBM had made.
In a wider view of competitive business models, Ford did not lose
control of its market until the 1970s, when the consumer demanded high quality
fuel efficient automobiles. Ford responded with the Pinto, and GM responded
with the Chevrolet Vega, but the apparent winner was the Honda Civic Coupe.
Human response to stimuli does determine the fate of the corporation.
"The
Japan That Can Say No" (Japanese title: no to ieru nihon)
is a 1989 essay co-written by Sony chairman Akio Morita and politician Shintaro
Ishihara in the climate of Japan's economic rise. It took a critical look at
the United States business
practices, and advocated for Japan
to take a more independent stance on many things, from business to foreign
affairs.[4]
[1]
vertical integration, definition: Merger of firms at different stages of
production and/or distribution in the same industry. When a firm acquires its
input supplier it is called backward integration, when it acquires firms in its
output distribution chain it is called forward integration. For example, a vertically
integrated oil firm may end up owning oilfields, refineries, tankers, trucks,
and gas (petrol) filling stations. Also called vertical merger. See also
horizontal integration. ("Vertical Integration." BusinessDictionary.Com.
WebFinance Inc, n.d. 7 Mar. 2008
<http://www.businessdictionary.com/definition/vertical-integration.html>).
[2]
Brandes, Stuart. "Welfare Capitalism." Encyclopedia of Chicago Chicago : Chicago
Historical Society, 2005. Chicago
Historical Society. 7 Mar. 2008 <http://www.encyclopedia.chicagohistory.org/pages/1332.html>.
[3]
Staff (2007). PC shipments grew 9. 5% in 2006. Purchasing.Com. Retrieved June
17, 2008, from http://www.purchasing.com/article/CA6412276.html
[4]
The Japan
That Can Say No. (2007, April 8). In Wikipedia, The Free Encyclopedia.
Retrieved 19:29, May 1, 2007, from
http://en.wikipedia.org/w/index.php?title=The_Japan_That_Can_Say_No&oldid=121198746
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