The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor
Page 57
The Ford principles became the basis of the American automobile manufacture, and of other branches as well. The American car industry became the world bellwether: biggest maker and exporter, tastemaker and style leader, mass producer of vessels of freedom and love.*
The number of registered motor vehicles in Japan in 1917 was 3,856; in 1923, the number had risen only to 13,000, all imported. The big movers were still rickshaws and horse-drawn carriages and wagons, plus trams, and trains for long-distance travel.† But the war, as everywhere, sharpened the sense of need and opportunity. The military had learned to value trucks and now moved to develop a home manufacture. They spoke to the leading zaibatsu (conglomerates)—Mitsui, Mitsubishi, Sumitomo—and found them singularly uninterested. So they recruited lesser players, and the Japanese automobile industry came largely into the hands of “new men.”
Entering a fallow but fertile field, Ford and General Motors built auto assembly plants in Yokohama (1925) and Osaka (1927). The Japanese came to see these not as an advantage to their consumers but as a deterrent to the development of their own industry, still unfamiliar with mass-production technology. Low as were wages, a Japanese-made vehicle cost 50 percent more than an American-assembled car or import. Between 1926 and 1935, these last accounted for more than 95 percent of new vehicle registrations.15
Meanwhile the state, with aggression aforethought, had focused on manufacture for military use: hence the Military Automobiles Assistance Law of 1918, which offered large subsidies for utilitarian vehicles that met specified standards.** Passenger cars could wait. But could they? A decade later, when private enterprise had not yet shown interest, some officials began to worry. In 1929, the Ministry of Commerce and Industry (predecessor of the Ministry of International Trade and Industry [MITI]) published a study, “Policy for Establishing the Motor Vehicle Industry,” and this was followed by renewed overtures to the biggest business groups.
By way of example and encouragement, the government designed and started making in 1931 a small 45-hp car that would do 40 kilometers an hour. This slowpoke did not catch on, however, and in 1936 the two American giants still accounted for some three quarters of national output. Now the Japanese army proposed that these foreign firms be purely and simply expelled. After all, war is war, and trade is war.* The pusillanimous politicians found this a little indelicate, though, so the Diet passed a law, drafted by the army, offering big subsidies to Japanese makers and requiring that auto companies be owned and directed in their majority by Japanese citizens. At the same time, the government laid heavy duties on import of complete vehicles and knockdown sets for assembly. These tariffs did the job: by 1938 the production share of Nissan, Toyota, and Isuzu was up to 57 percent. The Americans tried to stick it out, seeking to merge with Japanese makers. No way: all plans to merge, dissolve, or get around these discriminations were subject to government approval. In 1939, the American firms gave up and cleared out. For the Japanese, this turned out to be a good exercise in mercantilism and a preparation for the trade wars of the future.
Where all this would have led, we can guess. But war changes everything, including the best-laid plans. In 1945, plants and equipment lay in ruins, and the American occupation authorities saw no reason why Japan should bother itself with an auto industry. Some officials at the Bank of Japan and the Ministry of Transport agreed. But MITI saw automobiles as the focus of a whole range of related branches and worked out a stimulus package: low-cost loans, tax privileges, protection against foreign competition. For tax purposes, export sales were deductible from income; imports of tools and equipment were exempted from duty.16 (Later on [1960s], the General Agreement on Tariffs and Trade would forbid some of these discriminatory practices. No use; the Japanese stayed ahead of all efforts to level the playing field. Every economist knows that there’s more than one way to skin an international bureaucrat.)
This time, the home industry, led by Toyota and Nissan, did catch fire. In 1950, Japan made 32,000 vehicles—about one and a half days of American manufacture. At that point the Korean War brought a rush of orders and gave the automobile industry an impulse that it never lost, the more so as the American occupation ended in 1952, leaving Japan free to pursue its own industrial destiny. This was that of a major exporter, not only because bigger sales meant lower unit costs and higher profits, but because greater productive capacity enhanced the power of the nation. Defeat—the first ever suffered by Japan—had left a bitter taste. The Japanese knew they had lost the war not because the Americans were better or braver fighters, but because of America’s industrial output.
By 1960, car output stood at 482,000 units, 39,000 of them exported, about 8 percent. A decade later, Japan made an astounding 5.3 million cars, of which 1.1 million sold abroad. By 1974, Japan had replaced West Germany as the world’s largest exporter of automobiles. By 1980, it was shipping some 6 million vehicles, 54 percent of total output, and had passed the United States as the biggest carmaker in the world.17 What’s more, other things equal, these Japanese cars were not winning market share by lower prices. Japanese cars actually cost more, often more than sticker price, while American cars typically sold for less than list. Why so? Because Japanese cars had fewer defects and stood up better to wear, hence sold higher on the used-car market.
These growth rates of 30 and 40 percent a year in the face of immensely rich and firmly entrenched competitors will be studied in the future as a lesson in energy, ingenuity, and enterprise. Henry Ford must have been spinning in his grave.
Americans, looking for explanations (excuses), pointed to Japanese state subventions and protectionism. They helped; but they did not make the industry. That was the work of the people who made the cars—the labor force, the engineers, the entrepreneurs. Also of the ineptness of American car makers, who had been going from triumph to triumph, who equated their enterprises with their country, who thought the American consumer owed them a living, and who paid themselves salaries and bonuses that bore little relation to profits.18 For them, this Japanese ascent was lèse-majesté on a global scale.
How did the Japanese do it? First, they made a virtue of handicaps. Since their home market was too small for the long runs that justified the mass-production methods of the American industry, the Japanese diversified their product, catering to special needs and tastes and switching models as demand dictated. To this end, they learned to design and test faster: 46 months in Japan vs. 60 in the United States (1.7 million man-hours vs. 3.1 million) to craft a new model; 1.4 months vs. 11 to return to normal quality after introduction of the new model.19 The latter comparison is crucial. Haste makes waste, quality is decisive, and the annals of American car production are dotted with instances of quick savings swallowed by long repairs.*
These quick-change techniques made it possible for Japan to gain first-mover advantage;† to copy quickly the successes of other makers; to drop mistakes in a hurry. Here was the flexible production that some have put forward as the technology of the future.20 It was not a shift to small scale (“small is beautiful”) as some have thought; on the contrary, big firms had the resources to do it better and pay the costs of variation. But it was a major change from “any color, so long as it’s black.”21
Variety required a suitably versatile technology. After the war, the Japanese needed new equipment, and this gave them the opportunity to imagine and combine ingenious tools and machines—most of them, ironically, made to order in the United States. It also opened the way to the latest devices—automation, robotics, computerization. The key change took the Japanese from single-purpose to multipurpose machines, which required a workforce trained to deal with a range of jobs, shifting quickly from one to the other. The Japanese did this by adapting the equipment and learning the drill, so that by the 1970s, for example, they could change dies in stamping presses in five minutes, compared with eight to twenty-four hours in an American plant.22 This strategy had profound implications for labor-management relations. American emphasis on single
-purpose machines and hard assignments had the effect of deskilling; it also led unions to insist on job segmentation and management to accept it.
Multiple models, of course, multiplied inventories, and inventory idles capital, increases storage costs, invites delays. Where American car makers, with their long runs and rare changeovers, dreaded interruption (from strikes, for example) and accumulated a buffer of ready components, Japanese makers strove to minimize stocks by using the system we know as “just in time.”* The idea, we are told, came from visits to the United States—not to the automobile plants but to the supermarkets, with their extraordinary diversity of products. They watched American housewives, who kept track and bought as needed; and the markets also kept track and did the same. The goods were pulled through rather than pushed. Why couldn’t cars be made that way? (They were, in American auto plants, but the Japanese refined a procedure that had room for improvement.) All of these ideas testify to the value of curiosity, observation, and lateral thinking; in short, to the importance of the human actor.23
The Japanese also worked to exclude error, aiming at the unreachable goal of zero defects. Instead of pulling cars off the line, they tried to catch the mistake when it happened, stopping the line if necessary. That might have been expensive, but the point was to prevent rather than repair. “Where are the inspectors?” asked an American visitor. “We have no inspectors,” came the answer. “The workers do it.”
These innovations completely turned around Japan’s reputation as manufacturer; whereas before the war, the Japanese had been associated with five-and-dime ticky-tacky and tin-can vehicles, now their products were quality leaders. American car manufacturers found it hard to accept the new reality, clinging to their cherished stereotypes past the point of no return. They also ridiculed the idea of small cars; the very name “Toyota” made them smile. Americans, they knew, wanted big cars you could love and make love in. When someone at Chrysler designed a low-slung model, the top exec sneered: “Chrysler builds cars to sit in, not to piss over.”24
Meanwhile Japanese compacts took a growing share of the American market, and when trade measures set bounds on the number of cars the Japanese could ship, they just moved upscale, first to midrange vehicles, and then to the best. So, the foilers foiled. This was also a way to build customer loyalty, bringing them up as their income and social status rose.25 When the Japanese announced that they planned to compete with German luxury cars, it seemed a joke. A year or two later and Mercedes and BMW were no longer laughing. The Japanese had just about swept aside their higher-priced success symbols.
It would be wrong to see these gains as simply a matter of technique, there for the taking or copying. People made all the difference. For anyone who has ever visited Japan and suffered in the traffic that is one of the vexatious, even nightmarish features of overcrowded urban and industrial agglomerations, the ability to run a just-in-time system comes across as miraculous. How can anyone deliver parts on call and on time? The answer: by sleeping on the job. The driver takes his lorry close by the factory gate and parks there overnight, curling up in the cab. On the morrow he’s there.
But that makes another point: what’s sauce for the goose is not for the gander. The just-in-time mother plant is saving its time. Very smart. But the supplier is spending his time. The whole Japanese system of outsourcing rests on pressing down, on squeezing the purveyors while they in turn squeeze their workforce. All is not immaculate, then, in the Japanese industrial heaven. On the other hand, the mother firm is not unreasonable: it squeezes, but it also helps with equipment, technique, and funding. These are tough, resilient people, as always very hierarchical, but with a strong sense of reciprocal obligation up and down the scale.
In the automobile manufacture, all of this depends on a team approach that unites management and labor, in a commitment not only to efficient performance but to continuing improvement. Labor is not expected to oppose innovation, even of the labor-saving variety,26 and in the big firms every worker feels obliged, indeed is pushed, to make suggestions, mounting to the tens of thousands, for saving effort here and money, even a few yen, there. (One can only wonder how management vets this flood of ideas.) Everyone on the line, moreover, is trained to do a range of tasks, and an interruption is not an opportunity to rest but rather to do something else. (None of this segmentation—“that’s not my job”—which can be “murder” in work that brings together different trades.)* In Japan, the worker has and feels a duty to be useful at all times.†
All of this may sound good, but it is not easy, nor is it kind to the organism or the ego. It entails a rigorous subordination of the person to superiors and to the group. The company has a thousand ways to reward the cooperative worker, to punish the nonconformist. Groups that make trouble can see their tasks turned over to an outside supplier. Firms like Toyota swallow their employees; they have their own calendar, independent of national holidays and weekends (but most Japanese have no religious sabbath). What with overtime and commuting, workers are often away from home eleven and twelve hours a day; but that goes for cadres and bosses too. That’s where wives come in: they rear the children and put them to bed before Father comes home. Off can mean on: 40 percent of the manufacturing employees work more than one of their days off each month; 30 percent more than five extra days a month. Most of them engage in company-sponsored activities on at least one holiday a month; a third do more than that. The company makes this easy, what with private recreational facilities, organized activities, and assiduous monitors. Ask a Japanese worker what he does, and he’ll tell you the name of his company.27
Observers have justly contrasted this teamwork, this sacrifice of the individual to the group, and yes, this hyperintensification of labor, to the adversarial relationship that embodies and sanctions the self-respect of Western labor. In effect, the American firm is pluralistic: the bosses have their aims; the workers, theirs; the shareholders, theirs. And while all are theoretically united by loyalty to the enterprise, the meaning of that loyalty is subject to competing interests. Hence a constant, latent tension, punctuated by conflicts and showdowns.
Japan does not work that way. Japanese company unions almost always obtain their wage demands because they have been negotiated with management in advance.* Such strikes as occur are often symbolic, one-day affairs, just to show that the workers are serious.† Contrast the United States: there the talks are often pro forma, and issues are resolved by test of force. Sometimes, by miscalculation, the battle ends in closure of company or plant—who needs all this trouble? Too often the combat leaves a residue of hard feeling that embitters relations and invites another round. Both sides proclaim victory, but just wait until next time.28
Is this Japanese mode of “lean production,” quality control, and labor-management partnership exportable? Can Americans learn new ways? We have the beginning of an answer in the performance—in the United States but also in Britain—of Japanese affiliates: Honda, Toyota, Mitsubishi, et al. These plants owe their origin to trade barriers; they were built to get behind the walls. They pay about the same wages as American firms, but they have been able to keep out the unions with their task segmentation and divided sovereignty. They also have relied extensively on imported components, to the point of raising questions about the nationality of the product. But that is the nature of global industry: one buys cheapest. In the meantime, these transplants seem to show higher labor productivity and quality than ail-American firms, though Japanese factories in Japan do somewhat better.29
These results tell us what American workers can do starting from scratch. These non-unionized transplants are free of suspicions and negatives left by generations of combat by the United Auto Workers. On the other hand, some of the contrasts between Americans and Japanese workers go back to child rearing. Union or no union, people are different. Douglas Fraser, president of the UAW and a reasonable man, when asked if American workers had to adopt Japanese values and attitudes to compete, said he thought not, a
nd argued from temperament: “…the American worker has an individuality and a willingness to dissent that does not respond to dictatorial instruction.”30 “Dictatorial”? The word proclaims the gap.
Plenty of blame to go around. Much of the initial failure of the American auto industry to hold its own against this bull of a competitor was its own fault—of labor partly, because of its hormonal reluctance to change ways or give way; but of management even more. The list of sins is long: (1) complacency (we’re the best, have always been the best); (2) want of empathy (did they really expect the Japanese, with their often narrow roads and left-side driving, to buy big cars with steering on the left?); (3) residual, two-faced reliance on government support (we’re all for free enterprise, but how else counter official favors to the Japanese auto industry?);* and (4) a short and selfish time horizon that led American management to use respites from Japanese competition to raise prices and dividends rather than invest and improve techniques.
But the Americans have been learning and are doing better. Here and there, increasingly, car makers have adopted Japanese methods—to much oohing and ahing and self-congratulation, as though they had discovered America. Example: Ford’s decision to stop the assembly line at its Louisville truck assembly plant long enough to allow workers to lower the body onto the chassis. Simple enough, and it meant more accurate work and less damage: “You just line up two pins and drop it.” The idea came from workers on the line. In the old days, management would have paid no heed. Now they were listening.31