Productivity Problem



Hold the phone, Tom. Wages didn't drive automation. Competition drove automation. And if you want to see a perfect test-tube experiment that proved the point, look at the US car makers. Their wages went through the roof but they dragged their feet on automation for decades. Being an oligopoly (something like a monopoly, only with several players who have little real interest in competiting with each other, except at the margins), they weren't even trying hard to control labor costs as long as their supposed competitors weren't controlling labor costs, either. That's why they're in the fix they're in today. Ford put up little fight against giving the unions anything they wanted as long as Chrysler and GM got nailed the same way.
It wasn't until the Japanese started to give them real competition in the late 1970s that they got serious about cutting costs, which included serious automation. Until that time the unions and the big three had established an equilibrium that produced a healthy car industry, well-paid workers, and customers who kept buying more cars along with more houses, educations, Bahamas vacations and so on.
The US car industry operated in a hermetically sealed sub-economy, with little foreign competition. The deals they made with the unions set the basic cost parameters. As long as the customers kept buying cars at prices that were profitable to the car makers, the sub-economy of the automobile industry was on cruise control and everybody was pretty damned well-off.
What global competition did was to re-set the equilibrium. And because most of the countries that gave us high-volume competition in core industries were low-wage developing countries, the new equilibrium compelled the car makers to squeeze labor costs first. That was one big bite they could take without additional investment. They bit as much as they could but contracts for long-term benefits, and the resistance of labor to rollbacks and layoffs, limited how much they could bite. So the next path was a combination of rationalizing manufacturing organization (zero-defects, the Toyota system, etc., etc.) and automating.
When I hear people complain about how high labor costs, and unions, make us uncompetitive, I wonder what kind of competition they have in mind. You seem to accept the idea without question that we have to compete with companies in low-wage countries that pay their workers $0.80/hour, that we have no choice in the matter. That may be true, if globalization is to be left in the saddle to ride mankind, but I would expect you to at least question it. I don't hear a peep. Everyone seems to accept the fact that, in terms of wages, we're doomed to what Alan Tonelson calls "the race to the bottom."
And the discussion breaks down because we mix up and confuse macro effects with micro effects. The US Commerce Dept. tells us how wonderful globalization is for our GDP. It may be -- that's one argument. But then labor points out that we're losing high-paying jobs, and that the people who are benefitting are those in the ultra-thin slice of top income earners. GM and Ford workers are in relatively worse shape than they were 30 years ago.
Both are true, apparently. Macro effects don't determine micro effects. Unions are frustrated because we had a system that worked and it's broken down. That tells them that globalization and union-busting are wrecking their lives. They're quite right about that, at the micro level -- and the micro level means at the level of individual human beings, working for individual companies.
Are you so willing to let low-wage competition sit in the saddle and ride the rest of us? Don't you have some objection? When the next wave of low-wage competition comes along (Africa? Outer Mongolia? The huge number of peasants in China's interior, who are hardly a factor yet in the Chinese miracle?), how much more will you be willing to squeeze labor to meet the competition?
I'm surprised NOT that you resent what labor wants -- most business owners seem to resent that, now as always -- but that you don't even mention the fact that we've knuckled under to the interests that are driving globalization. And their interests are not your interests, or my interests, or Ron's interests, except in the abstract of GDP and the delusion of trickle-down economics. All that's trickling down is a lot of debt, longer work hours, and fewer benefits. Some trickle-down, eh?
Or do you see us getting on top of it somehow, and restoring wages and benefits at some future time? If so, how do you think that's going to happen? Meantime, just how much do you want labor to give up, in order to play the globalization game that we've been told is so good for us?
-- Ed Huntress
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I speak from a narrow point of view, but not exclusive.
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Ed, I remember a bunch of used robots I bought and used in manufacturing processes at ET. Clearly marked GMF General Motors Fanuc. http://en.wikipedia.org/wiki/FANUC_Robotics
I think they got into robots to eliminate labor, expensive labor. We didn't eliminate labor with our use of the robots, just some of the physical stresses on the employees while getting more output.
Wes
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wrote:

GM got into robotics when they felt the competition from Japan, Wes. I was reporting on the car industry for American Machinist while all that was going on, so I remember the events well.
One of those years -- '77 through '80 -- Japan was reported to have 70,000 robots in manufacturing, while the US had fewer than 5,000. GM was copying Japan as fast as they could so they implemented a crash program to put robots into spot-welding and painting. As it happens, most of those 70,000 "robots" in Japan actually were gantry loaders and other simple machine loaders, all of which the Japanese counted as "robots."
Of course the reason GM got into robotics was to reduce labor costs. But that came about only because they were feeling the heat of competition from the Japanese builders. At that time Japanese autoworkers were making less than half what US workers were making, so we had the same situation on a smaller scale that we have now with China. The EU at that time (I think it actually was the EC then) sent a team to Japan and reported that Japanese workers were (and these are their exact words) "workaholics living in rabbit hutches." That's what we were competing with.
The Japanese had very sophisticated manufacturing by then, so our choices were to try to beat them at their own game, or to cut wages until *our* workers were workaholics living in rabbit hutches. GM thought we could beat them, but they really didn't get it. There was more to the Japanese miracle than technology. And they didn't have healthcare to deal with, especially the legacy costs for retirees. The Japanese government was paying for healthcare.
So now we have the second round of this stuff going on, only now the wage disparity is really huge. We have the same problems we had then only our manufacturing is now world-class. Still, you don't cover 30:1 ratios of wages with technology alone. The European and US car makers in China are polishing up Chinese manufacturing, in at least the auto-related industries, very fast and very effectively. We're left with the workaholics-living-in-rabbit-hutches alternative, with nothing else to lean on at all.
As a point of interest, the European reaction to this was protectionism. They limited Japanese car makers to 10% - 12% of their markets for a lot of years. Free-trade theory says they were self-destructing. Only they didn't. The European manufacturers used the opportunity to strengthen their car industry.
BTW, I had dinner with Hamei and his...er, assistant a few nights ago, and the assistant said that the Chinese people all want to own a German car. I guess the Europeans car makers positioned themselves well for the coming years, eh?
-- Ed Huntress
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Well written Ed. Many people these days are more interested in assigning blame than applying critical thinking skills to these complex problems.
You are indeed correct that there is more to this than wages. Standards of living, ecological considerations, and overall product quality play an important role. How many times have we seen discussions on this NG about the poor quality of imports?
It has been said that every time you spend your money you are voting for the kind of world you want to live in.
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Thanks, Kelly. It would be nice if the critical thinking led clearly to solutions. Unfortunately, in most cases like the one we're discussing, it doesn't. But it's a lot more productive than looking for scapegoats.

Right. And a lot of the things we're getting from China really are poor quality. But not uniformly, of course. Their hair dryers suck, but their bluejeans can be really good. Fortunately for me, I work mostly in jeans, and I have less use for a hair dryer all the time. d8-)

That's an interesting thought. I'll work on that one.
-- Ed Huntress
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To survive productivity has had to increase. We are now competing against the third world and very cheap labor. Sadly our union education system is not putting out students that are world class. It is damn sad that a union electrician does a far better job than a union teacher. We need very smart and educated workers in our economy.
At least the electrician has skills since the union has a pretty good training program. Union teachers, well there is one failure of monumental proportion.
A union teacher is nothing but a tool for the left. Someone that desperately wants to maintain a monopoly on teaching our children or indoctrinating them as I see it, paid for by our tax dollars.
People that have to pay for a failed school system (union) and then pay for private schooling have a real hatred for unions for good reason. If you notice the NEA opposes freedom of choice, AKA, vouchers with a passion.
It is going to shock you but I do think the ceo's are raking off a bit more cream than they should. I'm speaking as a stock holder in various companies.
We seem to be able to use illegal's and H1B's for tech work, I'm thinking some Japs that get 10:1 ratio pay would be perfect executives for many American businesses. My dividends and stock price on holdings would go up.
Wes
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