A Modern Parable. (?)

[chknltl]

(Please note my "?"
I got this as another "passed along e-mail" in an endless run of "passed along e-mails" that a close chum loves to send me. I have posted only one other here, that one was a chain letter with an overly simplistic method for forcing down gas prices at the pump by boycotting Exxon gas. (Thank you my fellow DUers for setting us straight on that one!) This one says it is just a "parable". Like many of these letters I get, it looks reasonable enough and part of me wants to post this with my namesake's usual exuberance: "Lookie here what I found gang!" So what is up? Is this a reasonable parable regarding Ford's failures and why or is this another oversimplification designed to lead the uninformed reader down the wrong path?)

A Modern Parable.

A Japanese company ( Toyota ) and an American company (Ford Motors) decided to have a canoe race on the Missouri River Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The pension program was trimmed to "equal the competition" and some of the resultant savings were channeled into morale boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid-off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might, the lone designated rower was unable to even finish the race (having no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year's racing team was out-sourced to India.

Sadly, the End.

Here's something else to think about: Ford has spent the last thirty years moving all its factories out of the US , claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside the US . The last quarter's results:

TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.

Ford folks are still scratching their heads, and collecting bonuses.

IF THIS WEREN'T SO TRUE IT MIGHT BE FUNNY

[drmeow]

1. hmmm

Sounds to me like an appropriately Dilbert way of looking at American industry.

I do know that American car manufacturers response to the surge in sales of Japanese cars in the 70's was not to look at what was appealing about said cars to the American public or to start developing more reliable and efficient cars but instead to demand higher tariffs. Despite the higher tariffs people continued to buy more Japanese cars.

[chknltl]

2. Generally I think I am FOR higher tarrifs...

...because the American worker should not have to compete one on one with the foreign worker manufacturing the same product but at ridiculously reduced wages.

In this case, I agree in part: The second part of the solution during the mid-70s was to manufacture cheaper products. Cheaper not in cost to the consumer but cheaper in: "it broke sooner"
Autos prior to the mid '70s made in America had a bit of pride put into them. That pride has been gone ever since yet the American consumer wanted the cars they bought to last as long as possible. That is why I think those consumers turned to Toyota. Where we should have made products as reliable as a Swiss watch, we were turning out Pintos and Neons and Monzas and etc.

That is, imo, why the Japanese auto-manufacturers did so well here after the mid-'70s. They filled the niche once held by products built with "American Pride".

So it sounds like you agree that this is an oversimplified parable...but like me you are not sure why either. I confess that I am no economics genius but I don't want to believe that Americans are this silly as the parable suggests. Another-words, I am having issues with this parable but I lack the tools to tell you why. Hence my "?" at the end of 'parable'

[drmeow]

5. I'm mixed about tariffs

higher tariffs prevented the American car manufacturers from revising their business plan and what types of cars they made - they prevented inefficient businesses from becoming more efficient. On the other hand, keeping American workers employed is also important. Perhaps tariffs should be tied not to the product but the means of production. Treat your workers right and pay them a good wage and we'll lower your tariffs. Use slave labor and we'll tariff you to no end.

As for the parable, I do think American business is middle management heavy.

But the other problem is that American business is short sighted. I don't think it has always been this way. But over a number of decades the notion of instant returns on investments has taken hold in the American mind. Business leaders don't seem to recognize that higher costs now will yield greater increases in revenue in the long run. All they see is that that quarter's bottom line will look bad and people will sell their stock. So they do nothing to damage their short term bottom line.

Then there is greed. When CEOs are paid huge bonuses by sending manufacturing overseas to increase dividends, you know greed is the defining factor. It is also short sighted in the sense that you can't sell products here if you don't employ people. Ford (not the company, the man who started the company) had it right - pay your employees enough money to buy your product. Its a surefire way to stay in business.

The argument that we can't stay competitive if we pay people a living wage is bullshit. Companies can't expect to may disgustingly high CEO salaries and bonuses and stupidly high rates of return on investments if they pay people a living wage but cut that CEOs salary and redistribute it to the workers and, viola, a living wage with no loss of revenue!

[chknltl]

6. I have no problem when tariffs are used to protect the American manufacturer

I am a rabid fan of Thom Hartmann. In his book "SCREWED The Undeclared War Against The Middle Class", Hartmann uses this parable, well not word for word, I paraphrase: "Take two manufacturers of shoes both creating the exact same shoe and both charging the exact same price for their shoes. Let's say it costs them a dollar to manufacture their shoes and they sell them for two dollars, a gain of a dollar in profits. Now take one of those companies and remove it to China. Construction cost for the shoes have been reduced to 25 cents with an additional 25 cents for shipping. This company can now undersell it's American counterpart to the point of forcing it to lower its wages or go out of business. Because neither option is good for America in the long run, we impose a 50 cent tariff on those imported shoes thereby leveling the field allowing the American to remain competitive."

From what I understand, the followers of the false god reagan have removed such leveling tariffs making it easier for folks to take their companies offshore. Because of this, America's once proud manufacturing base has been cut down significantly.

What I don't get is how Toyota and others are able to put manufacturing businesses here and yet remain profitable. See I told ya I sucked at economics...that's why I posted the parable, it sounds ok but then I have learned long ago that what sounds OK generally reflects something I would not like if only I knew what it was! (The Old "If it's too good to be true-it is likely not true nor good")

From what I gather from the parable, there are too many chiefs and too few indians. If that were truly the case, we would have a stronger upper middle class. The reality is that America's middle class is being decimated, not by mid management but by the upper 2%, the greedy ones who want more but can not possibly spend more...well not spend in the same way as the millions of folks who if given even a sizable portion of that money could spend it in a way that keeps America happily humming along. (Another-words that upper 2% only needs a few pairs of shoes where on the other hand the lower 98% could buy 98% more shoes and would do so if that upper 2% didn't have 98% of the cash.)(Yeah I know over simplified but I need such models for my simple brain to wrap around without getting overwhelmed)

[drmeow]

9. In general I do agree with you

about the tariff example you give. My problem with the automobile manufacturers is that they didn't make any effort to investigate why the Japanese cars were in such high demand. To apply it to the shoe parable - after moving the company to China, that company redesigns the shoes to provide better arch support and last longer. This makes the Chinese shoes more popular - they are better for American's health and they last longer making them better for the environment. So the American company demands a higher tariff making the Chinese shoes suddenly are more expensive for the American public. The American company has the technology to improve their shoes, too, but doesn't want to because it means an initial outlay of money. Because the Chinese shoes now cost more, the American company has no incentive to improve their shoe. The people can afford to buy the Chinese shoes will do so but the people who can't afford to will not have access to the healthier shoes because the American company has negated both the unfair competition (the lower wages) and the FAIR competition (higher quality) by demanding higher tariffs. Now, in a efficient competitive market, another American shoe company will start making shoes like the Chinese shoes but it will take a long time before the economies of scale will bring the cost of those new shoes in line with the cost of the shoes from the company that already has the infrastructure in place.

Anyway, some reasons why Toyota may be profitable with plants here:

1) if CEO salary is lower
2) if there is less middle and upper management
3) if Toyota pays lower dividends to its investors
4) Toyota has developed an extremely strong reputation such that people are willing to pay more for the cars giving Toyota a larger profit margin per car sold.

Saying that there may be too many 'chiefs' and too few 'Indians' is definitely an oversimplification but may be a factor that contributes to the problem. However I think a WAY bigger factor is the obscene CEO salaries. in 2007 Ford paid its CEO $28 million for 4 months of work (included a hiring bonus, salary, bonuses and base salary - base salary alone was $2 million). Take just a month of that salary ($7,000,000) away and you could pay 700 people $10,000 more a year. Give him nothing but his base salary ($2,000,000 - MORE than enough to live on) - and you could pay 2600 people 10,000 more out of what was left of just his 4 months worth of pay. And that's just one overpaid executive - how many others are there at Ford?

As for the middle class, the reality is that the part of American's middle class that is being destroyed is the 'Indians' who had middle class union jobs but now are being paid less and losing their jobs. Also, many of the better paying upper middle class jobs still aren't 'chiefs.' Until you become a partner in a law firm, you are still an 'Indian.' Same with programmers, tech support, etc. The well paid skilled labor that is not management has been a driving force behind the strong upper middle class and those jobs are being outsourced. There is also the change to a two income family which significantly strengthened the middle class and is all that is keeping many families afloat as they lose one but not both of those incomes. Finally there is the debt burden. People have gotten used to keeping up with the Jones and living beyond their means.

[datopbanana]

3. too modern wait 50 yrs

[chknltl]

8. I'm not so patient...

...besides if I live that long, I'll be 103. Do ya think that we will have a Democratic nominee by then?

[tomreedtoon]

4. One of the few spam e-mails that sounds right.

Most of these blame you for not supporting the Republican candidate, or for not shunning some kind of racial equality scheme, or for not sending all of your money to Jesus via some evangelist.

This one is not quite a parable. More like a satire on American business management. The awful thing is that it's right.

But unfortunately, it is indeed a Dilbert cartoon. In those cartoons, disastrous business decisions have no effect but to trouble people. In the real world, bad business decisions by Ford...or Microsoft or Disney or the other big guys...means lots of workers will lose their jobs, their pensions, their health benefits, their health and ultimately their lives. And so will their spouses and children. Which is why the artist who writes Dilbert (I don't follow the strip and don't care who he is) deserves to be relocated to the flood zone of New Orleans for the rest of his freaking life.

[chknltl]

7. hmmm

I just said in the response above yours that one of the points I got from this 'parable" is that America's big problem was too many 'chiefs' and too few 'indians'. I don't really see that as our problem. I see as our problem a restructuring of America's wealth out of the hands of the middle class and into the hands of the upper 2%. We are where we once were with a group of corporations seeking to control our government in such a way that they maximize their profits at the expense of ALL of America's working class. This was one of the contributing factors which brought about the Great Depression. Many feel that we are on such a brink again and for the same reasons.

I don't see a significant increase in 'chiefs' so much, just a significant increase in the amounts of cash those chiefs are able to make. This is a part of the 'parable' that I disagree with. I am left with the impression that if we just increase the number of 'rowers' drawing them down from the mid management level we will do just as fine as Toyota! That notion bothers me! America does not need more workers, we need more decent paying jobs. (More oars to row with...we got the rowers and they are quite capable of winning the race if only they had the right oars-jobs which payed out a reasonable living wage).

Perhaps the parable reflects a DELIBERATE disruption of the internal structure of our corporations. Perhaps this restructure is designed to fail, giving the neo-cons the 'proof' that deregulations and lowered taxes to the corporations is the only way to fix things. Then the 'parable' makes a bit more sense...but I don't think that is what the author intended.