Monday, August 14, 2017
Why it's important to know history
Last night I saw an interesting show on TV about the origins of the American auto industry. I pretty much knew the story, but a couple of things that were pointed out brought into focus for me how we got to where we are today.
Before cars, city streets were largely dirt, horses and buggies were common, and cleaning the streets and disposing of the constant horse excrement was an industry in itself. Then came the Model T. People now had wheels! Roads needed paving, which required concrete, creating two new industries. And gas stations, and much more oil refining capacity. And dramatically more steel production, and lots of tires, too. Everything was inter-connected. New industries and jobs were appearing everywhere.
Henry Ford was a visionary.* He was the first to adopt the modern assembly line (from the meat packing industry) for industrial use. The repetitive work was boring, but wow, could they pump out cars! So fast, the unit cost to produce a "T" was cut in half.
Here's were it got interesting:
Instead of just pocketing the savings for himself (and his rich shareholders), Ford DOUBLED the pay of his assembly line workers, to $5 a day. Henry Ford shared this improved productivity windfall with his employees, and this was the birth of America's middle class. All of a sudden the repetitive work seemed more bearable.
People were literally walking off other jobs to go stand in line for a position with Ford. Other employers eventually were forced to increase their pay to match Ford's or lose all their workers. It was a ripple that became a tidal wave.
More people making more money bought more "stuff", which created even more jobs. America's middle class / consumer driven economy became a juggernaut the likes the world had never seen, all because Henry Ford shared with his employees the savings realized from his more efficient assembly line. Ford's workers could now afford to buy the cars they were making. By "sharing the wealth" with his employees, Henry Ford didn't lose money (as his shareholders and Board of Directors feared) but made even more money for them all.
Sometime after WWII things changed. Companies began seeing great savings thanks to technology developed during the war. But unlike Henry Ford, they kept their productivity windfall for themselves. By the 1980's the rich were just getting richer, while the middle class began to stagnate. The wealthy business owning class obviously didn't recognize the problems they were creating. All they cared about was maximizing today's profits. This marked the beginning of the long decline of the American middle class.
Factories began moving out, cities went into decline, workers lost benefits such as health insurance, etc. It was the exact opposite of the economy Henry Ford created. This trend, too, began as a ripple, but grew into a tidal wave.
An increasingly fragile and unstable middle class has now turned mean, blaming "others" for their difficult situations, and are voting for candidates who promise to "get even" for them. We've developed an "us vs them" mentality. The number of hate groups is rapidly increasing, resulting in confrontations such as what we saw in Charlottesville, VA over the weekend.
Any student of history should have learned from Henry Ford that spreading the wealth is a net money-maker, not a money-loser. My personal corporate hero, Southwest Airline's Herb Kelleher, saw this and shared SWA's wealth with his employees, and they've been on 40-year profit roll!
But most of the rest in industry didn't, and their greed is directly responsible for the currently declining American middle class. If it wasn't for cheap foreign labor, "creative" accounting, a rigged tax system, and easy credit, most would already be underwater.
Contrary to what Gordon Gekko (Michael Douglas) said in the movie Wall Street, greed is NOT good. It's taking the middle class down, and will eventually precipitate a revolution (in some form) that will take down the upper class, too. Of course it's much more complex than what these few paragraphs might suggest, but still, greed is at the core of it all.
Capitalism is great. But capitalism corrupted by greed can eventually ruin it for us all.
I myself may not live long enough to see how it all plays out, but things can't go on the way they are now. The shrinking middle class will eventually stand their ground.
* He was also an asshole, an anti-Semite, and more, but that's for another blog post.