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The Mythology of Ford



January 24, 2014 – Comments (1)

Board: Berkshire Hathaway

Author: Goofyhoofy

This is a great story and I have heard it before.
Someone versed in business and economics should do a post sometime ripping it to shreds.

Glad to. The idea that you pay your employees double so they can afford your products is beyond absurd. If it were true, the people at Foxconn would be making double, and the floor walkers at the Apple Stores would be driving Mercedes, not Toyotas.

Ford doubled wages because the employee turnover on his production lines was exceeding 400%. That's right, the average employee lasted just 13 weeks before leaving. Some stayed longer, obviously, but some left after only a couple weeks, the work was so grueling, dehumanizing, and monotonous.

It goes without saying that the first few weeks of an employee's tenure are the least productive. Even in Ford's plants, they had to be trained to match the rhythm of the line, use the proper tool, and do it without meaningful break or mistake for ten hours running. When there were timeouts or absences, someone had to stand in - and be trained - all over again.

Ford's "economies of scale" were collapsing under the pressures of his system, and since his wages were at parity with other producers, he found that he was training people to go off and work for his competitors, who offered less demanding positions at equivalent wages.

Ford's solution was to double the pay, which had the intended effect, at least temporarily. Thousands thronged to his plants, and his turnover fell to about 100%, a dramatic improvement virtually overnight. (It was actually more clever than that: to qualify for the production bonus workers had to have at least 6 months tenure. The former 10 hour day was reduced to 8, which allowed Ford to run three shifts a day rather than two. The wages were staggered on a bizarre ladder of qualifications: men supporting a family got priority over single men, while single men supporting a widowed mother were higher yet, and so on.)

All of the complexities were lost in the blare of the simplistic headlines of "The Five Dollar Day", which turned out to be chimera for most workers anyway. That fantastical wage was rolled back after a mere 3 months, since even the doubling of wages was not enough to stave off the turnover (although it did produce enough to start the third shift.)

An "economic analysis" at the time showed that Ford could have afforded to pay $20 a day and still be more profitable than he had been, the wonders of the assembly line resulting in such vastly increased production (and his competitors had not yet caught on to the magnitude of that marvel.) In other economic terms, the turnover returned almost to where it had been prior: he needed to hire 900 men to retain 100 for the line. (In 1913 the BoD decided to award a bonus to workers who had been there at least three years. Of 15,000 employees, around 600 qualified.)

The apochryphal story of Henry Ford as beneficent is a creature of his own invention, masterfully spun by a compliant press and his own retellings in his own pamphleteering. Ford was a control freak, who (as is widely documented) sent goons into workers homes to monitor their consumption of alcohol, proper diet, and church practices, among other things. He was a virulent anti-semite, and miserly beyond belief - until he realized his practices were interfering with the profitability of his company and the ability to affect social mores.

Henry Ford always like to present the Five Dollar Day as a hardheaded matter of "efficiency engineering" with "no charity in any way involved." and he took pleasure in subsequently reporting it to be "be of the finest cost-cutting moves we ever made." But he also believed that the natural mechanisms of free enterprise have moral consequences, as he explained to the minister of his local church ..."

blah blah blah, wherein he says "There are thousands of men out there in the shop who are not living as they should. Their homes are crowded and unsanitary. Wives are going out to work because their husbands are unable to earn enough to support the family. They fill up their homes with roomers and boarders in order to help swell the income. It's all wrong..."

Curiously, until Ford needed greater productivity out of his ceaselessly absent and turning-over employees, his beneficence was entirely absent. He thought nothing of paying workers as little as possible, even as his shareholders reaped millions and he became one of the wealthiest men in the world.

Then, at a turning point, Henry Ford thought of himself as "the someone", the Emersonian hero "to make us do what we can do." One well known quote is "we want to make men in this factory as well as automobiles." and, quoting again from p122 of "Ford, The Men and the Machine" by Robert Lacey, this was "the key to his exercise in human restructuring and the careful distinction between the basic wage and shared profits, which newspapers had tended to overlook in their fixation with the miraculous $5.00 figure."

Indeed, Ford's wage remained the same, at $2.35, consistent with other factory work. But there was a "production bonus" of a similar amount, awarded only after the "Sociological Department" visited worker homes, questioning wife and neighbors to make sure the workers were not "high living", being frittered away on extravagances and "wild living." It was also paid less frequently, a sort of proto-golden-handcuffs-for-workers as we have become accustomed to these days with executive bonuses.

Ford didn't pay his workers "so they could buy a car." He paid them so they would show up at work in horrible working conditions, and as a measure of dictatorial control of the workers' lives. Eventually the unions showed up, competitors got wise, and working conditions improved (and those were virtually all of the early union demands) and Henry Ford's world changed.

But he never increased wages so his workers could buy a car. Didn't happen. I wish this story would die, but I suspect it will live forever along with "Al Gore invented the internet" and "George Bush didn't know what a supermarket scanner was." Spin, you're in. Truth, you lose.

More than you wanted, probably, but there is it.

1 Comments – Post Your Own

#1) On January 27, 2014 at 3:49 PM, lemoneater (57.41) wrote:

Very interesting! Thanks :).

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