David Leonhardt: The Economics of Henry Ford May Be Passé
HENRY FORD was 50 years old, and not all that different from a lot of other successful businessmen, when he summoned the Detroit press corps to his company's offices on Jan. 5, 1914. What he did that day made him a household name.
Mr. Ford announced that he was doubling the pay of thousands of his employees, to at least $5 a day. With his company selling Model T's as fast as it could make them, his workers deserved to share in the profits, he said.
His rivals were horrified. The Wall Street Journal accused him of injecting "Biblical or spiritual principles into a field where they do not belong." The New York Times correspondent who traveled to Detroit to interview him that week asked him if he was a socialist.
But the public loved it. The country was then suffering a deep recession, and the Ford news seemed to offer hope. Within 24 hours, 10,000 men were lined up outside the Ford employment office in Michigan. The following year, Mr. Ford was mentioned as a future presidential contender.
The mythology around this story holds that Mr. Ford wanted to pay his workers enough so they could afford the products they were making.
In fact, that wasn't his original reasoning. But others made the point, and, in time, it became part of Mr. Ford's rationale as well. The idea became a linchpin in an industrial philosophy known as Fordism.
More production could lead to better wages, which in turn would lead to more spending by the public, yet more production and eventually even higher wages.
"One's own employees ought to be one's own best customers," Mr. Ford said years later. "Paying high wages," he concluded, "is behind the prosperity of this country."
This turned into a pillar of 20th-century economic wisdom. It's time to ask, though, whether Mr. Ford's big idea is as ill suited to this century as his car company seems to be.
By any reasonable standard, the last few years have been bad ones for most people's paychecks. The average hourly wage of rank-and-file workers — a group that makes up 80 percent of the work force — is slightly lower than it was four years ago, once inflation is taken into account. That's right: Most Americans have taken a pay cut since 2002.
But you would never know it by looking at the headline numbers on economic growth. From the standpoint of the broad national economy — the value of the goods and services the country produces — the last few years have been stellar. Despite two wars, soaring oil prices and business scandals, the economy has been growing more than 3 percent a year.
Henry Ford would have no idea what to make of this....
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Mr. Ford announced that he was doubling the pay of thousands of his employees, to at least $5 a day. With his company selling Model T's as fast as it could make them, his workers deserved to share in the profits, he said.
His rivals were horrified. The Wall Street Journal accused him of injecting "Biblical or spiritual principles into a field where they do not belong." The New York Times correspondent who traveled to Detroit to interview him that week asked him if he was a socialist.
But the public loved it. The country was then suffering a deep recession, and the Ford news seemed to offer hope. Within 24 hours, 10,000 men were lined up outside the Ford employment office in Michigan. The following year, Mr. Ford was mentioned as a future presidential contender.
The mythology around this story holds that Mr. Ford wanted to pay his workers enough so they could afford the products they were making.
In fact, that wasn't his original reasoning. But others made the point, and, in time, it became part of Mr. Ford's rationale as well. The idea became a linchpin in an industrial philosophy known as Fordism.
More production could lead to better wages, which in turn would lead to more spending by the public, yet more production and eventually even higher wages.
"One's own employees ought to be one's own best customers," Mr. Ford said years later. "Paying high wages," he concluded, "is behind the prosperity of this country."
This turned into a pillar of 20th-century economic wisdom. It's time to ask, though, whether Mr. Ford's big idea is as ill suited to this century as his car company seems to be.
By any reasonable standard, the last few years have been bad ones for most people's paychecks. The average hourly wage of rank-and-file workers — a group that makes up 80 percent of the work force — is slightly lower than it was four years ago, once inflation is taken into account. That's right: Most Americans have taken a pay cut since 2002.
But you would never know it by looking at the headline numbers on economic growth. From the standpoint of the broad national economy — the value of the goods and services the country produces — the last few years have been stellar. Despite two wars, soaring oil prices and business scandals, the economy has been growing more than 3 percent a year.
Henry Ford would have no idea what to make of this....