He cut the work week from 6 days a week to 5 days a week. He maintained the pay for his workers the same as it was for 6 days. Mr. Ford’s company prospered. There were driving principles that lead to Mr. Ford’s actions. They were good for business, and good for America. Over the last few decades, American companies have ignored those principles and government policies have supported those decisions. The American economy is now paying the price.
Henry Ford’s Motives
There is controversy over Mr. Ford’s motives. One motive attributed to him is that higher wages would allow more people to be able to buy his cars. Other motives involve the difficulty in retaining workers for jobs of a repetitive nature and reducing the high costs of turnover and ongoing training of new workers.
Mr. Ford also believed that increased leisure time would lead to more consumption. Workers that worked long hours at low pay could not afford consumer products, nor have the time to develop a desire for such products.
The decisions to raise wages and lower hours did not seem to be the result of some altruistic desire to benefit the workforce. Mr. Ford’s motivations seem to be the result of enlightened self-interest, and improved the performance of the Ford Motor Company followed.
Creation of the American Middle Class
The result was not only improved performance for Ford Motor Company. Mr. Ford’s business decisions are widely credited with the creation of the American middle class that today’s politicians speak to as a voting bloc and the manufacturers of the world desire as a market for their products.
The Roots of the Current Crisis
Government policy and manufacturer business decisions over the last 20 years have not followed the principles of Mr. Ford. The current economic crisis is the direct result of those policies and decisions. The crisis has deeper roots and more fundamental problems than the conduct of the financial industry.
American manufacturers have sought out cheap labor in foreign countries for the production of goods consumed by Americans. Government tax, trade and regulatory policies have primarily rewarded these decisions or created disincentives to locating manufacturing here in the United States. The United States has become an economic shell that lived on first savings from years as a net exporter of goods and then credit from the countries from whom we bought goods that used to be American made.
The Myth of the Service Economy
America has been left with a service economy. Prime among those services that came from American ingenuity was financial services. When there were no longer any real American products to sell, services were created that gave the impression of actual commerce. This commerce was not backed up by hard goods, but rather legal creations.
As each dollar was shipped overseas for a pair of Michael Jordan sneakers, there was a need for those dollars to return in some way. Those dollars returned in the form of debt as American had little to sell back to the people that made the shoes. The debt took many creative forms as American ingenuity was turned to the creation of financial instruments to facilitate the flow of money, rather than the flow of goods.
It was a shell game, and eventually there was nothing under any of the shells.
America Needs to Make Things
Mr. Ford’s principle that someone needed to be able to afford to buy the products produced was violated. Bailing out financial services that are not backed by the production of goods can be only a temporary band aid. American policy needs to support the return of American manufacturing to maintain the middle class born of Henry Ford’s business policies.
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