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  • These Job Makers are Going, Boys, and They Ain’t Coming Back

    Posted by Shannon Love on July 20th, 2009 (All posts by )

    Now main streets whitewashed windows and vacant stores

    Seems like there aint nobody wants to come down here no more

    They’re closing down the textile mill across the railroad tracks

    Foreman says these jobs are going boys and they ain’t coming back to

    Your hometown, your hometown, your hometown, your hometown

    — Bruce Springsteen and E-Street Band, Your Hometown

    Obama in Michigan

    “The hard truth is that some of the jobs that have been lost in the auto industry and elsewhere won’t be coming back,” he said in a speech at Macomb Community College in Warren, Mich. “They are the casualties of a changing economy. And that only underscores the importance of generating new businesses and industries to replace the ones we’ve lost, and of preparing our workers to fill jobs they create.
     
    He added, “For even before this recession hit, we were faced with an economy that was simply not creating or sustaining enough new, well-paying jobs.”
     
    But some economists believe Obama is training people for failure.

    Well, perhaps training people for his failure. The real problem is that neither Obama nor The Bruce understands what jobs really are.

    We talk about jobs as if they are physical objects. We find jobs. We lose them. We trade them. We save them. We export them by shipping them overseas. Occasionally, we believe they are stolen. Metaphors are common in language and usually harmless, but sometimes we seem to forget that they are metaphors. This in turn causes us to misunderstand the phenomenom under discussion.

    In the case of jobs, the metaphor stops us from asking what physical event actually occurs when jobs “go away” and “don’t come back.” Examining this metaphor tells us something that is very important and ignored in most political discussions.

    First, what is a job? A job is a task you perform for someone else’s benefit in return for compensation of some kind. If you mow your own yard it’s not a job. If you mow your neighbor’s for $10 it is. If you grow food for your own consumption, that’s not a job. If you grow food and sell it for money, then it is. A job requires that an economic exchange for the results of labor occur between two or more people.

    Here we see the limits of metaphor. In the metaphor jobs are treated as objects, but in reality a job is an event or an action. It is the act of exchanging labor for money. The word job should be a verb instead of a noun.

    If we think of job as a verb, then how does a job “go away”? If two people collide on the street, we don’t say the collision “went away.”  We don’t say we export conversations by shipping them overseas. Collisions or conversations “go away” when the people engaged in them leave. Likewise, a  job “goes away” only when a person in the exchange goes away.

    When we talk about jobs leaving, moving, shifting etc., or being exported, we’re really talking about a particular subset of people leaving, moving, shifting etc. Who are these people? They are the job makers.

    For example, a job in a factory does not exist before someone invents the technological item to be manufactured, designs the assembly line, buys the land, builds the factory and does all of the other thousands of tasks necessary to make, distribute and sell a product in the modern world. Until a job maker does all of that creative work, no job exists.

    The ugly truth is that although we work hard, most us don’t create jobs for ourselves or others. Instead we rely on a small minority of job makers to create tasks that we can perform in exchange for a living. Only about 20% of us make any jobs at all. Of those 20%, about half, 10% of the total, are self-employed and make a job only for themselves. The remaining 10% make all the jobs for the rest of us. We rely on this small minority to identify solutions to problems and to create organizations that can implement those solutions. They then hire us to carry out the tasks associated with that solution. Without them, the rest of us would still be subsistence farmers.

    When jobs “go away” it’s really the job makers, as living and breathing humans, who go away.

    Henry Ford and other economic creatives created the auto industry that made Detroit for several decades the premier industrial city on Earth. No one else contributed anything unusual. Everyone else just showed up to carry out the tasks that Ford et al invented and organized. The city continued to prosper as a place in which successive generations of economic creatives could come and make new jobs. The city began to die when it became a place in which economic creativity was not welcomed. The political culture of the region became one focused on extracting as much wealth as possible from tasks created decades ago, instead of focusing on creating new tasks to solve new and more lucrative problems. Eventually, technology passed the old solutions by. Without a new crop of economically creative job-makers to create new jobs, Detroit and other politically similar cities died of technological old age.

    It’s easy to see why leftists would eagerly adopt the metaphor of jobs as objects. It lets them ignore the fact that a small minority of economically creative people create jobs for the rest of us. In turn, this lets them advocate policies that drive away job makers, without being held responsible for the loss of the jobs the job makers create.

    The leftmost 25% of the American political spectrum do not for the most part consider themselves Marxist but they clearly work from a model strongly influenced by Marxist thought. Marx asserted that the economy and technology were the results of impersonal natural forces. No human created a job or any other economic good. Instead, the jobs and goods just happened, and a minority of evil people unjustly claimed the lion’s share of the benefit of these natural resources for themselves by shear brute force. The entire intellectual and moral argument for Marxism stands upon the idea that business people don’t actually create anything. This is why contemporary leftists honestly don’t understand why taxing and over-regulating the economically creative destroys the jobs of the economically uncreative. They think jobs just happen like the rain, and that the only real decision to be made is how we distribute the benefits of those jobs.

    When the job makers leave, and the non-economically creative no longer have work, leftists do not wonder what they did to drive the job makers away. Instead, they treat the loss of jobs-as-objects like some act of God or natural disaster.

    Had Obama been less ideologically blinkered he would have told the suffering people of Michigan, “The hard truth is that some of the job makers who have left the auto industry and elsewhere won’t be coming back.” Of course, had he done so, the people of Michigan might have started asking, “How do we get the job makers to come back?” They might have asked why the job makers weren’t making new jobs in new industries in Michigan. Those questions would have started a discussion that Obama doesn’t want to have.

    The rest of us should have that conversation. We should stop talking about impersonal and abstract “businesses” as creating jobs, and instead make explicit that a small and valuable minority of individual human beings creates the jobs and and wealth that the rest of us depend on. We should make it clear that the proper role of government economic policy is to support the creativity of such individuals, and it should do so mostly by getting out of their way.

    The world has become “flat” in the sense that the geographical advantages no longer exist that once made one region inevitably wealthy and another inevitably poor. Today, one can build a factory or almost any job-creating system almost anywhere in the world. Today, prosperity simply requires that you have a sufficient mass of economically-creative job-makers.  The great tragedy of Michigan, the other rust belt states and California is that nothing physical or material whatsoever prevents them from becoming economic powerhouses again. All they need do is change their political culture and laws such that instead of vilifying, hounding and looting job makers, they encourage them to create.  If the states do that, then nothing can stop their rise to prosperity.

    If they do not, then nothing can save them.

     

    35 Responses to “These Job Makers are Going, Boys, and They Ain’t Coming Back”

    1. Jonathan Says:

      Brilliant post, thanks.

    2. Lexington Green Says:

      I agree with Jonathan.

      This cuts right to the heart of most of what is wrong with the thinking of Mr. Obama and many people who voted for him and think like him.

    3. Shannon Love Says:

      Jonathan,

      Thanks

    4. Joshua Says:

      People don’t go into business for the purpose of creating paying jobs for other people. People go into business for the purpose of making money. Period. To that end, they usually end up having to hire others to help out, thus creating paying jobs – but this is a fortunate byproduct of business and economic activity, not its be-all/end-all. It seems to me a big part of the problem is that both major parties (especially, but by no means exclusively the Dems) have been thoroughly conditioned to view job creation for its own sake as an end in itself, if not the very raison d’etre for the economy in the first place.

    5. Lexington Green Says:

      “… conditioned to view job creation for its own sake as an end in itself, if not the very raison d’etre for the economy in the first place.”

      If the private economy did not (usually) create jobs it could not survive in a democracy at all.

    6. Whitehall Says:

      while Henry ford deserves a mountain of credit, the people who worked for him were not helpless. Companies are really teams and people at all levels contribute to its growth and success. Who is to say that one or two critical employees could have made or broke Ford Motors somewhere in its life?

      Your point is valid that we owe a great debt to the few who create jobs but lets not get too far into “Great Man” theory.

      Anyway, good post in spite of my comments above.

    7. Brett_McS Says:

      Excellent post. More Austrian than Chicagoan, though! ;)

    8. Shannon Love Says:

      Whitehall,

      Companies are really teams and people at all levels contribute to its growth and success.

      True but it is still true that a relatively small minority of people create and organize the work for the rest of us.

      …but lets not get too far into “Great Man” theory.

      I’m not. I merely mentioned Ford because this discussion touched upon Detroit. Most job-makers are small business people. I worked for a small family owned coffee shop in college. The owners created and organized that business, not me. I knew nothing about small business not to mention the coffee business. If not for the skill and creativity of the owners, I would not have had a job.

      My main point is that we have to foster and environment in which this minority can create or we all suffer. Big hitters like Ford are the superstars but in the long run, the more ordinary businesses owners are just as important.

    9. david foster Says:

      Especially in a large business, there’s a continuum rather than a binary divide between the job-creators and the non-job-creators. The factory worker who suggests a better materials-handling process, thereby improving the company’s unit cost and facilitating increased revenue, may not be as much of a job creator as the executive who starts a successful new venture within the company–but he is indeed a job creator to a certain degree, as contrasted with the guy who just does his job and never suggests anything new. Similarly, the financial analyst who improves the cost-analysis methods may wind up indirectly creating a lot of jobs, as opposed to the analyst who just takes existing methods as a given.

      The difference between the job-creator and the non-job-creator is partly personal inclination, partly a function of education (more does not automatically mean better), and partly a function of corporate culture and management.

    10. Bill Waddell Says:

      “We should make it clear that the proper role of government economic policy is to support the creativity of such individuals, and it should do so mostly by getting out of their way.”

      Government got out of the way of banking and took the shackles off of Wall Street in a very big way during the Clinton and Bush administrations and created an environment in which anyone with any brains and initiative goes to the financial sector. Who would want to build a factory or even open up a coffee shop like the one you worked in when you can become an overnight millionaire through derivative schemes, or by pooling and selling high risk loans? There is far more money to be made leeching off of existing businesses than there is in creating one.

      And the latest buzzword? Inovation – but not manufacturing. The economic philosophy du jour is to think of the next Blackberry or iPod – then have it made in China. The guy holding the patent and the venture capitalists who backed it get wealthy – but no one else. Without manufacturing jobs, the rest are left to the service sector, which means waiting on the patent holders and financiers in Starbucks.

      The fundamental lesson from Henry Ford and the like is that gave Detroit a one-two punch of innovation and manufacturing. No we have crushing environmenatl regulations, out of control energy costs and absurd labor laws – all on the backs of manufacturing. None of those burdens affect the financial services.

      Obama says that we have to get America’s “best and brightest” back to technical (innovation and manufacturing) professions, rather than financial services. Then he turns around and fires the CEO of General Motors, puts their CFO in charge, and has them report to a government appointed banker and economist. The managment of GM and Chrysler lose their jobs ad take pay cuts (rightfully), but the management of the banks, brokerage firms and insurance companies are declared to be “critical to the economy” and get bonuses paid from TARP funds. America’s best and brightest are certainly bright enough to know that creating wealth and jobs in manufacturing or the coffee shop business is for suckers.

    11. Gina Says:

      “When we talk about jobs leaving, moving, shifting etc., or being exported, we’re really talking about a particular subset of people leaving, moving, shifting etc. Who are these people? They are the job makers.”

      I work in a publishing company that is an amalgam of five previously independent publishing companies. The owners (I guess you would call them the “job makers”) of this company are in the process of sending 70% of the layout, composition and printing to India and China, putting thousands of people who used to create all of these books out of work.

      The owners of this company are not creative. They haven’t created anything. They’ve simply taken existing companies by force of borrowed money and sent the creative jobs overseas to cut costs to pay back the money they borrowed.

      “The ugly truth is that although we work hard, most us don’t create jobs for ourselves or others. Instead we rely on a small minority of job makers to create tasks that we can perform in exchange for a living.”

      The people I’ve known for thirty years in the publishing business didn’t create jobs, they created books.

      I don’t disagree that the government should get out of the way of people who can put together companies that hire people to create the product. But these companies aren’t creating jobs. They’re bringing in people to create the product they want to sell. Without those people there is no product.

    12. sol vason Says:

      Entrepreneurs create the most jobs when government is absent. Industries flourish wherever there are no regulations. Witness the dot coms; before them , Silicon Valley; before them, the movie industry; before them, the steel industry. There are thousands of examples of new industries strangled by well-meaning regulation. The Highway to Hell is paved with powerful regulations.

      Regulations exist to preserve the status quo, but by preserving the present we shut down the future because the world (our environment) is constantly changing and if we refuse to change with it we die. Even Cap and Trade can’t stop the world from changing.

    13. Shannon Love Says:

      David Foster,

      Big businesses are in many cases the end stage of the life cycle of a technology. As I pointed in a previous post the real money is in new innovative technologies who are just entering the market. We’ll always have computers from here on out but I strongly doubt well ever see another boom time or figures like Jobs or Gates again.

    14. Ginny Says:

      Shannon, I really enjoy the way you move our points of view and help us really “see.”

      I was blind for a long time. But moments like reading your stuff (and just growing up, belatedly). As a small businessowner, I didn’t start the business to give jobs to people; soon, however, I realized the weight of the responsibility – I wanted those people to be able to count on their checks. I didn’t like Reagan (actually that would have been almost a business necessity since most of my customers were academics doing reports for research grants). I didn’t know what was going on. But I did know what the Xerox salesman, my accountant & banker told me: the tax discounts on equipment in the eighties meant I spent more money with Xerox and I improved productivity so I could hire more people. Kids came, worked, most of them graduated and moved on; some got pregnant and some got married. And every two weeks twenty or more people cashed their payroll checks. Meanwhile, I bought a house and paid contractors to get air conditioning, plumbing, etc. put in. Because of the policies of those years, we could negotiate a fair but relatively low interest loan. Would I enlarge a business like that now with the weird and totally unpredictable future? Hardly. It was risky and scary enough as it was.

      Sure, I didn’t do health insurance except for my managers – people were on their spouse’s from the big school or their parents. . . Getting the local managed health facility to add those people at reasonable costs is a new and pretty good idea. But the plans that are rumbling around in Washington could be death to businesses like mine. and if it hadn’t happened, it wouldn’t have been a tragedy – but a lot of people got through school without taking out loans, a lot of kids got married, a lot of kids learned what it was like to take responsibility to close or open or deal with an irate customer. All that would be hard to learn at a government job. And I can’t imagine what the future lies for people who were always on the blurred line in copyright problems, a business dependent upon power to run the big copiers and I can’t imagine that toner is all that good for the lungs. Oh, well.

    15. Shannon Love Says:

      Gina,

      The owners (I guess you would call them the “job makers”) of this company are in the process of sending 70% of the layout, composition and printing to India and China, putting thousands of people who used to create all of these books out of work

      There not putting thousands of people out of work, they’re just shifting which people have the work. India and China are getting jobs that have become so low margin that you can’t support an American lifestyle with them. Honestly, do you think someone could actually make a living screwing together happy meal toys at a price people who buy happy meals would pay?

      Economic stasis is undesirable. Everyone who has a job today has it because some economic creative destroyed someone else’s job sometime in the past. Everyone who will have a job in future will have that job because some creative will destroys a job today. As long as the process continues, we will always have jobs enough to go around.

      We always have.

    16. onparkstreet Says:

      Somehow this ties into my previous comment on the Lisa Hannigan music post, where I wrote that I *love, love, love* the creative class, whether artists or business people. I mean, I love what they create, the energy, the vitality!

      Yes, I know artists don’t always see themselves as part of the small business class, but I think some could be made to see the connection. I try and do that here in my little corner of arty inner ring suburbia, a place full of trendy progressives, and a place that I love. The hood is full of quirky types and they DO listen. Either that or they are humoring me in some kind of diversity-fest way(look, a brown libertarian/conservative!).

      I dunno what I’m trying to say here, except that those of us who favor less governmental regulation need to illustrate our case in a way that resonates with the most people. Like you just did, Shannon, brilliantly. You are on a roll these days.

      On a related note, lots of Ayn Rand in all the quirky, progressive bookstores I visit. Instapundit should do a photo contest – most interesting place you’ve seen Ayn Rand!

    17. Bill Waddell Says:

      Shannon,

      There is no doubt that spectacular booms (and busts) come from innovative technologies, but I think you dismiss existing businesses way too lightly. As I sit here and write this, I look around at a room full of furniture and books, and a kitchen full of fairly traditional appliances; and when I contemplate where my money was spent last month the overwhelming majority went to ‘old’ tech products. There are huge markets for basic things that are built on old technologies. There may not be another Steve Jobs, but as you say, there will be a market for computers – a huge, multi-billion dollar market. We can’t ignore it because it is not going to have a meteoric spike.

      When we let furniture making and kitchen appliances leave, and we let auto parts go to China because we have become myopic on finding the next Steve Jobs, we are giving away the store.

      There are many companies (like my old employer Wahl Clipper) that are growing incredibly fast making and selling something as pedestrian as hair clippers – deploying a technology that is continually improving but is essentially the same concept Leo Wahl invented in 1919. They make them in the United States, dominate the domestic market, and export as fast as they can line up containers to do so.

      We have become so focused on innovative technologies, and have bought into the idea that price is all that matters and labor cost is the sole determiner of price so we have to run to China, that we have let basic manufacturing slip away.

      Look at the charts on my post on Evolving Excellence – they should make us want to jump off the nearest bridge.

      http://www.evolvingexcellence.com/blog/2009/07/a-few-misconceptions.html

    18. Bill Waddell Says:

      …and I would be interested in hearing your thoughts viv a vis regulation on the question of balance.

      I certainly agree that regulation kills job creation and business growth, but I believe that balanced regulation or deregulation is a major consideration.

      In recent years, we have greatly deregulated the financial sector, and excessively regulated manufacturing … so we have a rush of talent and capital and an over-emphasis on financial businesses, and we have manufacturing rushing for the border.

      I believe that when we deregulate a narrow sector while keeping the shackles on others, we should not be surprised that things get out of kilter.

    19. veryretired Says:

      Terrific discussion on a very interesting post.

      A few observations—

      The economies of the developing countries are recapitulating the stages we went through in the 19th and 20th centuries. They are moving from algricultural societies to heavy industry to manufacturing, assisted all along the way by ideas, procedures, and equipment bought or borrowed from the developed nations.

      Meanwhile, the post-industrial west has moved from the kind of heavy industry that made Pittsburg and Detroit to high tech and financial services industries. The move is from heavy physical to heavy mental, low education to high education, heavy pollution to low pollution.

      Whereas capital investments in buildings, machinery, and raw materials used to be the most significant factors on the balance sheet, and, of course, still are in some cases, modern service and high-tech firms find that people are their most expensive element now, and a great deal of effort is made to reduce labor costs, often by hiring people in developing countries to perform routine jobs.

      It is often overlooked that capitalism has consistently elevated people over things, and this is reflected in the current situation in which organizations find that labor costs of wages plus benefits are often the largest part of their operating expenses, in contrast to past eras, and other economic systems, in which people were cheap and disposable.

      The old adage is, “Shirtsleeves to shirtsleeves in three generations.” The meaning is that the first generation creates the family business, as Shannon describes in his post, the second generation tries to manage what it has inherited, but often cannot maintain the success achieved by the first, and the third generation finds itself back working in their shirtsleeves trying to start all over again.

      I believe that this is what has happened to us on a societal scale. The industrialists and bankers of the last two centuries created an enormous wealth producing entity that was inherited by a succeeding generations which neither comprehended, nor matched, the intensive creative labor required to build an economic structure that could lift millions of people from the backbreaking labor of agricultural life to the educational and skilled labor lifestyle of the typical middle-class family.

      Since WW2, we as a society have been attempting to manage, and milk, the great cash/job cow we found among us. In the process, we have piled burden after burden on its back, cut back on its feed, and are now surprised to find it staggering, dried up and feverish, towards total collapse.

      We have eaten the seed corn, and butchered the calves, and now are starting to realize there is nothing left to plant, and no growing livestock to take to market. We’re tapped out, and there are very few, if any, friendly places we can look to for help.

    20. Plumpplumber(balding) Says:

      Shannon, that’s as good an explanation as I’ve heard. Capital and creative flight are dooming California and New York. Ayn Rand writ large, as I live and breathe. The Ooover can’t admit that he’s a job killer, so he’ll shed plenty of crocodile tears.

    21. Shannon Love Says:

      Bill Waddle,

      There is no doubt that spectacular booms (and busts) come from innovative technologies, but I think you dismiss existing businesses way too lightly

      Yes, I can see how I conveyed that impression. I focus on the role of creatives in young booming areas because that is when their role is the most dramatic and easy to see. However, creatives keep all businesses running no matter how old. In a mature industries, creatives focus less on the technology and more on efficiency of organization and in finding new uses and markets for old products. Some of the invisible heros of business are people who take fading companies and turn them into successes without changing the core product at all.

      The real point I was trying to make was that creativity in economics follows Pareto principle in that 20% of the total population create 80% jobs and wealth for the rest of us. Most people don’t see their owner of their local hardware store as a member of a valuable minority who creates jobs and wealth for the rest of the community. I want to change that perspective.

      I also wanted to point out that localities create political structures and expectations based on the boom years of a young technology but then cannot change those structures and expectations when that boom inevitably ends. I saw this in microcosm with the boom and bust of oil in Texas during the 1980’s. Texas built up all kind of expectations on government spending based on the idea of future in which permanent oil scarcity would generate high tax revenues forever. The rust belt underwent a similar but longer frequency boom and bust following the WWII. They built up expectations about what level of compensation, taxation, regulation and political graft the private sector could provide during an area when the Great Lake states were the only surviving industrial area in the Free world.

      In flush times, creatives are not as important. If a company or region has no serious competition a dullard who never had an original thought can make a company and locality prosperous. This causes the region to devalue the role of the creative because from outside, people assume that individuals who hold the same positions in a company produce the same results. In the 1980’s Texans didn’t believe the boom to result from the genius of the Texas oil man but rather from the planetary exhaustion of oil. Likewise, most people in the rust belt stopped thinking of the wealth of heavy industry as arising from creative business people and instead thought of it more as a natural phenomena. When competition returned to the region in the late 60’s, they didn’t understand that they needed economic creatives to maintain their competitive edge and their standard of living.

      You see the same type of thinking today in California. Way, way to many people believe that the wealth of California springs from something innate to region itself. For example, it rare to find a discussion of California’s economy in which someone doesn’t bring up the mild climate. That can’t seem to make the connection between the political and social encouragement of economic creatives in the forty years following WWII and California’s historic prosperity. Much as Texas thought of oil, Californian’s essentially view some innate quality of “California-ness” for the states historic prosperity and assume that that quality will continue to produce high levels of wealth forever. With this belief, they see no reason to create an environment in which economic creatives can create.

      …and I would be interested in hearing your thoughts viv a vis regulation on the question of balance.

      I’ll give it some thought. Government action that causes creatives to switch from one area of endeavor to another would appear to poise a similar problem to actions which drive creatives form physical regions.

      However, looking at long term history, it would appear that the recent growth in the Financial sector is just part of the long term trend from manual labor to information production. The amount of information processing necessary to produce physical products today is much, much larger than in the past and despite rampant computerization, those jobs require human judgement.

    22. david foster Says:

      “Metaphors are common in language and usually harmless, but sometimes we seem to forget that they are metaphors. This in turn causes us to misunderstand the phenomenom under discussion”…see the power of metaphor and analogy.

    23. Shannon Love Says:

      David Foster,

      Yes, your post covers exactly what I was thinking of.

    24. Bill Waddell Says:

      Shannon,

      On a similar line of thought to your regional perception theory (which I believe is dead on)is the affect of anomaly type events – in particular World War II.

      At the local level I have come across many small Midwestern towns that had a good, small regional manufacturer prior to the War which served the local ag industry – tractor parts, fencing, farm supplies, etc… When the War came there was an ‘all hands on deck’ economy that loaded every factory everywhere with all they could handle.

      One factory in particular I recall is in a small town in South Dakota that began by making small machines – lathes, grinders and so forth – for local farmers to use to maintain their equipment. When the War came they were ramped up as fast as possible and eventually made small grinders for every ship and every shipyard in the Navy – thousands of them. After the War they kept busy for a while feeding post-War demand for machines, but soon went into a long, steady, downhill slide. The local government has poured thousands of dollars into trying to keep them alive. General Manager after General Manager has been brought in to resurrect them. The local people complain and theorize over what went wrong and what it will take to return to the glory days, and the local retirement homes and barber shops are full of old guys who gave their families middle class lifestyles working at the plant, now blaming the whole thing on the lousy work ethic of the current generation.

      They don’t seem to understand that they never should have been a good sized grinding manufacturer in the first place. Logistically they are wrong for both their necessary raw materials and for the markets they try to serve. There is no local source for engineering and manufacturing talent. They never should have grown beyond the small, local tool provider they once were, and all of the tax money and emotional energy spent trying to bring the glory days back has been wasted.

      In that case it had nothing to do with entrepreneureal skills – it was just being at the right place at the right time to profit from a temporary condition in the world economy.

      On a larger scale, GM rode a similar tide. They haydays of GM – from 1945 to 1980 – mirrored the post-War period when Japan and Europe were in ruins – same with Ford and Chrysler who operated as GM mini-me’s with exactly the same management, marketing, finance and manufacturing schemes. When the Jpanese and Europeans finally dug out of the rubble and had sufficient resources to manufacture beyond their own borders, they have steadily and relentlessly outperformed the American auto companies. GM’s inability to change their way of doing business – their notorius insular culture – is in large part a failure to recognize that War-induced lack of competition – not the inherent brilliance of their management – that drove their success.

    25. Shannon Love Says:

      Bill Waddle,

      There can be no doubt that America’s manufacturing dominance following WWII made American management complacent. However, I think the real complacency settled into the unions, the governments and the general culture.

      I think management began to shake off that complacency starting in the late-50’s in steel and in the late 60’s with autos. You see a flurry of activity in those times and industries in which the companies attempted to update technology, process and organization to increase efficiency. The lion’s share of those improvements were blocked by unions and the government because improved efficiency without a rapidly expanding market means employing fewer people. The unions blocking of these improvements (the effect was particularly dramatic in the steel industry) set off a chain reaction of stagnation throughout the design, manufacturing and distribution processes.

      Here again I would contrast the experience of Texas and the oil industry. The oil industry was always highly competitive owing to price sensitivity of oil consumers. Unions never really took hold owing to regional culture and the built in boom and bust nature. The oil industry pushed innovation like mad and the oil states governments never stepped into regulate the industry with an eye for keeping jobs, protecting dealers, protecting consumer etc.

      Most of the oil in Texas is gone but oil is still big business in Texas because much of the world’s oil field equipment and technical expertise comes from Texas based companies. Texas doesn’t sell oil anymore, we sell oil field equipment and expertise. Even so, the oil industry is a much smaller player overall in the Texas economy than it was even 30 years ago but that is in large part because the total economy has grown faster than the oil business. None of that would have happened if Texas had tried to use unions and the government to hold onto oil’s glories days.

      If Michigan had followed a similar path, the auto industry would be a much smaller player in Michigan’s economy because Michigan would be making a lot other things. But, Michigan would still make a lot of cutting edge cars.

      Instead, Michigan tried to freeze itself into 1960 and fought any change that deviated from those halcyon days.

    26. Tatyana Says:

      They think jobs just happen like the rain, and that the only real decision to be made is how we distribute the benefits of those jobs.

      Or even better, they sincerely believe that it is the government which is a job-maker. A lot of elderly emigrants from Soviet Union, forever damaged by living for 50+ years under “planned economy”, certainly think so.

      Related: excellent visual illustration and a comment to it.

    27. david foster Says:

      Tatyana…just about all the same arguments made in the linked visual could also be made in favor of my “plan” to create jobs through elevator retrotechnology.

    28. Tatyana Says:

      David: excellent plan; the only omission I can see is that <i.certification process will include paying the State (or even the feds) certain sum for the license and records-keeping. Exact formula will be determined by a special congressional Committee and a new Department with approx. $2bln annual budget.

    29. kurt9 Says:

      Bill Waddle has a good point that I have heard from others. WWII mashed flat the industrial capability of Europe and Japan, thus handing the world market for manufactured good to U.S. manufacturers. The WWII generation was lucky.

      It was the 70’s that the Japanese, and to a lesser extent, the Europeans started to become competitive internationally and even in the U.S. market. The arrogant corporate management of the Big 3 failed to respond appropriately to this trend and, instead of improving the quality of their cars, lobbied the government to push the Japanese into “voluntary restraints” on exports. This was intended to protect Detroit (from the necessity of corporate change and having to build quality vehicles) but in reality got the Japanese to build all of their transplant factories here in the U.S. as well as pushing them into manufacturing more upscale vehicles, which they did very successfully.

      I also think the stagflation of the 70’s did considerable harm to U.S. manufacturing. Inflation requires that all companies become fund managers rather than manufacturers in order to keep up with the “treadmill” of inflation. This, combined with huge amounts of regulation, resulting in the formation of the conglomerates and the growth of corporate bureaucracy in the 70’s. This is the reason why I am absolutely opposed to monetary inflation, for any reason whatsoever.

      We had considerable unreported inflation under Greenspan starting around 1994, although not as bad as that of the 70’s. This allowed Greenspan to increase the money supply way beyond anything rational and, in turn, fuel the two huge speculative bubbles that we are now suffering through the collapse thereof. This excessive expansion of the money supply, coupled with lax SEC enforcement under Clinton, allowed the Fortune 500 to grow way beyond anything they ever would have done in a more “rational” economy.

      The suffering we are experiencing right now is the self-correction of the marketplace distortions resulting from the past two bubbles.

    30. Shannon Love Says:

      Kurt9,

      The arrogant corporate management of the Big 3 failed to respond appropriately to this trend and, instead of improving the quality of their cars, lobbied the government to push the Japanese into “voluntary restraints” on exports.

      I used to think it was primarily management incompetence that doom the auto industry but the more I read about manufacturing the 1960’s the weaker that case becomes. The primary argument against the idea is that the falloff in manufacture and overall loss of market share occurred in virtually all if not all heavy industry based in the great lakes area. On the other hand, companies that successfully moved operations out of the area or were never in the area managed to adapt. This strongly suggest it is a matter of local culture and law that was the primary culprit.

      More and more I think the unions strangled off innovation because it threatened head count. In the early 70’s the UAW struck over the auto industries attempts to relocate to right to work states. The UAW shut the companies down until they agreed to bind workers in those states to the UAW. Why the hell should workers in one state get a veto over the rights of workers in another?

      I think the unions destroy a companies culture of innovation because management grow very shy of experimenting with any new procedure that might set the union off. Eventually, they just gave up and tried to build cars in the 70’s with the plants, procedures and work rules of the early 60’s or late 50’s. I imagine the restrictive atmosphere caused them to loose a lot of innovative talent to other industries. Why stay in Detroit and do what your predecessor did when you can strike out for a growing adaptive company somewhere else?

      Contrast this with the no holds barred innovation culture of Japanese companies. Every person in those companies from top to bottom looks for improvements. In unionized American companies, nobody wants to rock the boat.

    31. kurt9 Says:

      Shannon,

      I think the blame is with both the unions and the management. It is true that the unions hamstrung any innovation. However, the management was certainly not focused on improving the quality of cars produced. Ford did improve its quality starting with the Taurus in the mid 80’s, which suggests that the management at GM was as much to blame as the UAW.

      The old Tauruses are the only 80’s vintage U.S. made car I occasionally see on the road these days.

    32. John Galt Says:

      The looters will stop the engine of the world.

    33. Shannon Love Says:

      Kurt9,

      However, the management was certainly not focused on improving the quality of cars produced.

      The question is why. I would argue that the unions and government created an environment that favored stasis over innovation. This in turn created a corporate culture afraid of innovation. What happened to the careers of the corporate officers who advocated innovations that triggered strikes or drew the ire of government officials? From my reading, innovation became viewed as something likely to provoke an external attack on the company instead of a means for company to improve itself.

      In the early 80’s, American business theory and education became obsessed with innovation and continuous improvement. All the literature focuses on how business people have to continuously change an adapt. Anyone who entered the automotive industry since that time would have come in with that attitude, yet the companies had a very hard time changing even when the profit potential was obvious. I think they couldn’t adapt because of strong external incentives not to.

    34. Micha Elyi Says:

      “Government got out of the way of banking and took the shackles off of Wall Street in a very big way during the Clinton and Bush administrations and created an environment in which anyone with any brains and initiative goes to the financial sector.”–Bill Waddell. (#10)

      False and false. First, the number of laws and regulations imposed on banking and Wall Street grew enormously “during the Clinton and Bush administrations.” Second, neither Bill Gates, Steve Jobs, nor the fellows who started Google – certainly guys with “brains and inititiative” – went into financial sector jobs.

      Try again.

      “Who would want to build a factory or even open up a coffee shop like the one you worked in when you can become an overnight millionaire through derivative schemes, or by pooling and selling high risk loans?”–ibid.

      Ha ha, funny you should mention somebody who did “open up a coffee shop” – thousands of coffee shops – and became “an overnight millionaire” during the very period when your rhetorical question implies that no one could possibly have done that, Bill. Who was that? Why Starbucks, of course!

      Try again.

      “America’s best and brightest are certainly bright enough to know that creating wealth and jobs in manufacturing or the coffee shop business is for suckers.”–ibid.

      Intel is spending over a billion dollars to open a new semiconductor wafer manufacturing plant in America, I hear.

      Try again.

    35. Micha Elyi Says:

      “It was the 70’s that the Japanese, and to a lesser extent, the Europeans started to become competitive internationally and even in the U.S. market. The arrogant corporate management of the Big 3 failed to respond appropriately to this trend and, instead of improving the quality of their cars, lobbied the government to push the Japanese into “voluntary restraints” on exports. This was intended to protect Detroit (from the necessity of corporate change and having to build quality vehicles) but in reality got the Japanese to build all of their transplant factories here in the U.S. as well as pushing them into manufacturing more upscale vehicles, which they did very successfully.”–Kurt9. (#29)

      My recollection is that a major part of the pitch for pushing those “voluntary restraints” on Japanese auto exports was to give Detroit some temporary breathing room while they improved their competitiveness on cost, quality, and product mix. I’m not saying that the Big 3 genuinely intended to do that, just that this was part of their pitch for this favor from Washington, D.C.

      I also recall when President Reagan’s trade negotiator appeared on PBS’s McNeil/Lehrer News Hour to tout what a big victory for America’s car makers he’d scored by negotiating those “voluntary restraints” with the Japanese government and car makers. It so happened that Milton Friedman was also on the program. He tut-tutted against this scheme by the Reagan Administration and warned that the Japanese would broaden their base from small cars (e.g. Honda Civic – remember how tiny they once were?) that competed against small Fords and Chevrolets (remember the Chevy Chevette?) that Detroit couldn’t profitably make anyway and start competing against their bigger cars like Oldsmobile. (I specifically remember Friedman using Oldsmobile as his example.)

      Events proved the Chicago Boy correct. Toyota sold more Camrys. Honda sold more Accords and fewer Civics. Not too many years passed before Honda introduced its Acura line. Then came Toyota with Lexus. Oldsmobile disappeared; so did Plymouth. GM and Chrysler are bankrupt. Ford is struggling. (That old News Hour video is probably still around somewhere…)