Reckoning

by David Halberstam

  “What happens if you don’t reach it?” Drucker asked.

  For the first time the labor leader spoke up. “His successor,” he said, referring to the manager, “will run a plant in the Philippines.”

  50. THE JOBS DEPART

  IN THE LATE SEVENTIES no one watched the reaction of the American auto industry to the Japanese challenge more closely than Harley Shaiken, a young professor at MIT. Shaiken, an expert on technology, had gained exceptional insight into the dramatic changes taking place in the American workplace, in part because of his formidable intellect and in part because of the years he spent, before finding his place in academia, as a worker on the line at a GM plant. By 1980 Shaiken had become very pessimistic about the future of the American blue-collar worker.

  Most other academics and industrial experts, concerned with the decline of American heavy industry, were focusing almost exclusively on Japan. But Shaiken believed they were looking in the wrong place. The loss of jobs to Japan was just a part of a vast new change in the American work force, albeit the most obvious and dramatic part. The concentration on Japan, he said, reminded him of the story of the man who had lost a coin. His friend asked him why he was looking in one area when he had said he was sure he had lost it in another. “Because the light is better here,” the man answered. Shaiken felt that those who had become obsessed with Japan were neglecting other changes—subtle but crucial—such as the export of jobs, under American corporate seal, to other countries in East Asia and to South America, and the coming of high automation both here and abroad.

  Gradually, in the early eighties, Shaiken came to believe that the Japanese challenge had given many American companies an excuse to do something they had always longed to do, which was to locate their factories in underdeveloped countries, beyond the reach of American labor unions. Until then only the most labor-intensive industries, such as the garment industry, had been able to escape the nation’s borders. Until then abandoning the American worker had been socially and politically unthinkable. But now, because of the coming of the Japanese, the tactic had become acceptable. No one could protest the opening of a factory in Singapore or Taiwan anymore, because it was held to be the only way to compete with the Japanese. What surprised him, as the transformation began to take place, with one major American company after another setting up plants abroad or signing contracts with low-wage Asian firms, was how little domestic protest there was. Great and powerful unions like the United Auto Workers were clearly on the defensive, the UAW fighting as hard as it could to hold on to jobs in the Big Three auto firms, but steadily losing its leverage.

  Shaiken, in this period, evolved his theory of superautomation. Superautomation was a reflection of profound recent changes wrought as powerful computers became small and inexpensive, and could guide robots. One result of superautomation was to permit an American company to export technology, and thus in effect a factory, much more readily. In the past, American executives, looking eagerly across the ocean, were restrained not just by domestic political forces but by the fact that third-world countries had few skilled workers and weak mechanical and industrial traditions. One did not lightly set up an engine or a transmission factory in one of these countries, for fear of all the things that might go wrong. Shaiken estimated that in the past it had taken as long as ten years to build a factory in the third world and make it truly profitable, to get out all the extra bugs that turned up in a factory in places like that. Now, he realized, the advance of computer technology had cut that time drastically, to as little as two years. In addition, the surge of competition from East Asia had shown American managers that other countries had enviable work ethics and systems of authority.

  For one thing, in the new world of superautomation, factories required fewer skilled workers. The level of skills among those few had to be even higher than in the past, but training them was worth the money, because many other jobs could be automated. For another, there were no powerful local unions to argue against the introduction of high technology. Finally, because of the power of modern, highly computerized communications, one didn’t have to put so much faith in the local managers who were so far away. The factory could be run (or at least monitored) from the home office, say Detroit or Stamford, Connecticut. Thus in the early eighties the exporting of factories had become at once technologically feasible and politically legitimate.

  Shaiken was struck by what happened when in 1981 Chrysler opened an engine factory in Mexico. At first it decided not to manufacture the camshaft there because it was such an important part and had to be machined within such fine tolerances. So the camshafts were made in the United States and shipped down. But in about two years the level of skill at the Mexican plant was so high that Chrysler started making the camshafts there as well.

  By 1982, Shaiken was convinced that something quite profound in terms of the migration of jobs was already taking place. It was not yet noticeable to the naked eye, but he was sure that in top managerial offices across the country, the decisions were being made, and that the men who were making them were not even aware that they were a part of something basic, of a new industrial revolution, the slow but steady de-industrializing of America. He was not sure where this would all end up, which country would emerge as the major winner as the satellite American manufacturing base, but he was convinced it was going to happen.

  There were, that year, some 250,000 autoworkers on indefinite layoff from the Big Three auto companies, in addition to a vast number from supplier companies, and he believed that most of those jobs were never coming back. These workers had not been laid off because of technology, but the layoffs would become permanent in no small part because of technology. He also believed that within five years there would be an erosion of employment in the companies that supplied the auto companies, and that the general work force would become older, with fewer and fewer young workers hired.

  Shaiken started with the belief that the men who headed these large American industrial companies would not stand and fight against the Japanese, or at least would not fight very hard. They had not stood and fought before, when other important issues were at stake. Indeed, the degree to which they had conceded the low end of the market, the market in small cars, had been astonishing. In his opinion they had virtually quit the battlefield without firing a shot. It was significant, Shaiken thought, that they were not men of the plants, not manufacturing men who, finding that they had lost the lead, would push hard and fight to regain it. Rather they were men of finance, and they were trained to think in terms not of loyalties to product and to factories and locales and men who worked for them but of profit and profit alone. It was not that they were bad men, it was simply that that was who they were and the way they reacted, to find the quickest and easiest way to generate profit.

  Shaiken’s studies showed that the Japanese had made their great surge in the sixties and seventies, by which time the financial men had climbed to eminence within America’s industrial companies and had successfully subordinated the power of the manufacturing men. When the Japanese advantage in quality became obvious in the early eighties, it was fashionable among American managers to attribute it to the Japanese lead in robots, and it was true that the Japanese were somewhat more robotized than the Americans. But in Shaiken’s opinion the Japanese success had come not from technology but from manufacturing skills. The Japanese had moved ahead of America when they were at a distinct disadvantage in technology. They had done it by slowly and systematically improving the process of their manufacturing in a thousand tiny increments. They had done it by being there, on the factory floor, as the Americans were not.

  In that opinion Shaiken was joined by Don Lennox, the former Ford manufacturing man who had ended up at Harvester. Lennox had gone to Japan in the mid-seventies and been dazzled by what the Japanese had achieved in modernizing their factories. He was amazed not by the brilliance and originality of what they had done but by the practicality of it. Lennox’s visit had been an epiphan
y: He had suddenly envisioned the past twenty years in Japan, two decades of Japanese manufacturing engineers coming to work every day, busy, serious, being taken seriously by their superiors, being filled with the importance of their mission, improving the manufacturing in countless small ways. It was not that they had made one giant breakthrough, Lennox realized; they had made a thousand and one quite modest ones.

  When Ford and GM showed profits in 1983, for the first time in several years, Shaiken was not impressed. He believed it an illusory profit in terms of true industrial response, a profit based on built-up demand, on the temporary restrictions on the Japanese, on some accumulated tax credits, and on forcing their break-even costs way down. There was a lot of talk about improved quality, but, as far as he could tell, U.S. quality programs were still marginal compared to those of the Japanese. What the American companies had really learned, he felt, and in a brief time, was how to cut costs and how to make money while selling fewer cars. That was a triumph of accounting and middle management, and it could be only temporary. On the factory floor he believed the battle had barely begun.

  He was sure, then, that the American auto companies would not respond the right way. The first bad sign, as far as he was concerned, came in 1982 when it became clear to him that they weren’t really going to contest the Japanese on small cars. As a former autoworker he dissented from that decision. He had no doubt that it would be difficult to compete with the Japanese in small cars, that it might take as many as five years to turn the tide, but it would be worth it, not just in recapturing lost ground but because the lessons learned in fighting back would be applicable to making not only small cars but larger cars as well. The only way to learn, he believed, was to do it, to struggle through and make endless mistakes but, as you did so, constantly improve your process and your workers. That was what the Japanese secret had been.

  Instead, the Americans in 1982 were using that new buzzword, robotics. But robots weren’t what was making the critical difference. The American robotics craze, he realized, was about trendiness and wealth—we’re not as good as they are, and we’re richer, so let’s go to robots. It was the panicky response of men who did not really know the factory, and who had little confidence, despite their public statements, in the quality and attitude of their workers.

  In 1984, GM announced its plans for the Saturn program. That was precisely what Shaiken had expected, an attempt to beat the Japanese with high technology—the creation of the superfactory. The intriguing, revealing thing about Saturn was that its union agreement, though complex and sophisticated, was clearly intended eventually to eliminate as much human labor as possible. It was GM’s vision of 1995: Very expensive machines would do everything. It was a high-tech-and-money solution, the natural one for GM because in high tech, America was still more competitive than Japan, and because GM certainly was still richer than the Japanese companies. Saturn was a brilliant and unusual risk, a commitment of billions of dollars, but Shaiken remained dubious. To him it was an example of throwing money at a problem. It reminded him of the American response to Vietnam; confronted by a clever, relentless, dedicated enemy they could not understand, the Americans had tried to win by throwing their technology at the war, smothering both ally and enemy with it. That had not worked, and to Shaiken these auto executives seemed the lineal heirs of that Vietnam approach—virtually the same men, in some cases—coming up with the same responses, drowning a problem with money and technology.

  That was the beginning of the American reaction. Shaiken watched the American companies carefully and, despite their advertising and their public statements, he decided that almost none of the American executives believed that America could be competitive anymore, either in the small-car field or in parts supply. They would not say that publicly, but they said it privately among themselves, and their every financial move pointed that way.

  By 1985, Shaiken decided what the real American response to Japan was going to be: an escalation in joint production with emerging nations, which he spoke of symbolically as the Korean connection. The Americans would either buy or build their own factories there outright, or they would make joint deals with Korean companies. Indeed, he began to call Korea “Saturn Two,” because of the avalanche of deals and the prospect of even more. The hot new phrase for it was “outsourcing.” He saw the following scenario: The American parts supplier, pressured by one of the Big Three (which of course was pressured by the Japanese), would seek a joint-production deal with a Korean company. It would supply badly needed technology, badly needed expertise, and badly needed capital; the Koreans would supply the work force. The cost of the worker would drop from $20 an hour in a union shop or $12 an hour in a nonunion shop to $3 an hour. The American companies would contract with the Koreans for auto parts made by high technology at exceptionally low cost; the parts would be assembled in America; and no union could throw up roadblocks to the installation of the high-tech, labor-saving machinery as had happened in America. Besides, the more manufacturing work the American auto men moved abroad, the greater their leverage on the American workers they still employed, who would be told to take the contract management offered or see their factory exported. There was already a great deal of that going on. It was the ultimate weapon against both the American unions and the Japanese. The part of Shaiken that was blue-collar had thought, “America to these managers is going to be just a place where they’ll receive their mail.”

  The rise of Korea as an American industrial satellite in just a few short years had stunned Shaiken. In 1979 and 1980, Korea had been merely one of several countries that the Americans were thinking about. If anything, countries like Mexico and Brazil, with a more sophisticated skill base, seemed to be more likely to succeed. But Mexico and Brazil, after all, skills and other strengths aside, were still Latin countries; their peoples, it was believed, were of volatile temperament, the nations themselves vulnerable to revolution and political upheaval at the worst and uncontrollable inflation at best. Then Korea began to catch on. American executives, looking at Korea, saw the coming of the next Japan—the dutiful, hardworking, ambitious Confucian workers who were willing to labor for little. The Koreans, like the Japanese, seemed born to manufacture, seemed to have innate industrial energy, and their society was even more controlled than the Japanese. Korea was not some small Asian country limited to textiles and ceramics; it had a good steel industry and a good shipping industry, among others—and it acutely needed foreign capital. It was also full of desire to compete with its historic rival, Japan. For that reason American companies that had often been frustrated in their attempts to do joint ventures in Japan found that Korea was far more receptive to their investment.

  Throughout 1985, Shaiken watched as the number of deals between the American auto companies and the Koreans mounted. Sometimes the American company bought a Korean factory outright. More often than not, there was some form of coproduction. GM had Dae Woo producing some eighty thousand small cars for 1987—a small deal but a beginning, a test run of sorts. Ford signed a Korean truck manufacturer to produce cars for export to America in 1988—not many at first, but there were plans to expand the relationship. At the same time, Ford announced plans to build a radiator factory in Korea; a radiator factory was not the ultimate in sophistication, but it was a way of finding out how good the Koreans were, what these workers were like, whether they were a match for the Japanese, and whether their skills could be applied in the more refined levels of auto manufacturing.

  Nor were Ford and GM alone. Lee Iacocca visited Korea in 1985 and tried to work out a deal with Samsung, a general manufacturing company not yet in the auto business. The deal was to be basic: Iacocca offered Chrysler’s expertise and technology and said it would provide the plant, and the Koreans would make some 300,000 small cars for shipment to the United States. The Korean government, wary of overextending the nation’s industrial capacity, at first blocked the deal, though eventually it was expected to go through. But Iacocca’s attempt le
ft no doubt that Chrysler, vulnerable as it was, saw its future in increased relationships with suppliers in East Asia. At meetings with stock analysts, Iacocca now boasted that what had once been a weakness—the lack of vertical integration of Chrysler, the dependence upon outside suppliers—was actually a strength in the new age. He did not need to mention East Asian suppliers; everyone there knew what he was talking about. In sessions with their American parts suppliers the Chrysler people were more blunt: If you want to supply Chrysler in the future, the message went, you have to get your costs down and your quality up, so you’d better start exploring joint ventures with someone in East Asia.

  None of what Ford or Chrysler was doing surprised Shaiken. The only thing that surprised him was how quickly it had happened.

  51. INSTANT REPLAY: THE RISE OF KOREA

  THEY CAME TO SEOUL not for pleasure but for their future. They were nervous on arrival, for by and large they were small-town Midwesterners, owners of modest companies, and many of them had not traveled very much. Now not only were they in a distant and strange land but they had arrived there vulnerable, almost beholden, needing to make a deal, and they might have to give away part of their company in the process. They came because they feared they could no longer compete at home, and they had been told by their most important customers, the giant American assembly companies, to get their costs down. Korea was to them, like it or not, their best hope. Korea, they had been told, was the new Japan and for them a way of holding off the Japanese challenge.