America's Roaring Twenties:Begin with the "American system of manufactures." In the middle of the nineteenth century English engineers viewing production on the Western side of the Atlantic Ocean noticed some regularities in the way Americans seemed to do things. Their manufacturing industries made simpler and rougher goods, used much less skilled labor, seemed to incorporate much more of the knowledge needed to run the process of production into machines and organizations, leaving much less in skilled workers' brains and hands.
Some of this was simply economizing on the relevant margin-skilled workers were exceedingly scarce, and it seemed worthwhile to follow production strategies that used skilled workers as little as possible. Some of this was finding new and more productive ways of doing things-ways that would have been profitable for British, or other manufacturers, even facing lower costs for skilled labor, to adopt.
Mass production, as it was developed in the United States in the early years of the twentieth century, was the carrying of the American system on to its logical extreme. In planning for large scale production of the Model N in 1905, Henry Ford became a believer in the "American system" of trying to reduce skilled work to as small a part of production as possible. In "moving the work to the men" by means of the assembly line, a second fundamental tent of mass production, the Ford engineers found a method to speed up the slow men and slow down the fast men.
This was, originally, an unintended benefit of mass production: that the factory considered as a machine would monitor the progress of its human elements, and immediately signal where a unit was not accomplishing its job satisfactorily by the buildup of work by that station-a process undergone by Charlie Chaplin in Modern Times. The pace of work was increased. Unskilled workers were substituted for skilled labor. Fixed overhead costs were spread out over larger and larger volumes of production-hence lower and lower prices.
The same set of forces can be seen at work in other industries as well. For example, Theodore N. Vail, A.T.&T. President, argued in the 1908 A.T.&T. Annual Report that the telephone business exhibited enormous economies of scale: "The particular circuit connecting any subscriber with the exchange is what might be termed a convenience to that particular subscriber, but a necessity to all other subscribers.…It is the ability to communicate with others that makes the exchange valuable." And the realization of these economies required the highest possible output, and thus the lowest practicable prices.
As Vail wrote in a 1913 article, "Public Utilities and Public Policy," for the Atlantic Monthly (March): "Net revenue can be produced in two ways: by a large percentage of profit on a small business, or a small percentage of profit on a large business.…[B]ut with a large population with large potentialities, the experience of all industrial and utility enterprises has been that it adds to the permanency and undisturbed enjoyment of a business, as well as to the profits, if the prices are put at such a point as will create a maximum consumption at a small percentage of profits." This strategy-invest heavily in fixed costs, try to produce the maximum output at low prices, use the expertise thus gained to forge technological leadership and lowest cost positions-was to become characteristic of American industry throughout the twentieth century.
In the labor literature, the adoption of the American system is often called deskilling. Knowledge of how to run the factory and the production process is taken out of the hands of skilled craftsmen and put into the hands of the managers and the machine makers. Jobs become more boring and more alienating. And wages fall. Historians' accounts of American industrialization often see the coming of mass production as a fight between the process of deskilling, tending to lower wages and make the distribution of income more unequal, and the process of unionization and collective solidarity, which is seen as powerful enough in the end to keep wages from falling.
But high wages for skilled craftworkers who have relatively low productivity implies high prices for everyone else. By contrast, "deskilling" opens jobs that are relatively high-paid (albeit not as high-paid as the original craftwork jobs) to people who were outside the magic circle beforehand: unskilled farm laborers, immigrants, minorities, and women now have more options on the production side. And, most important, higher productivity leads to lower product prices-massively expanding options on the consumption side as well.
If the Model T was supposed to be changeless, how can the company use "improvement" as a selling point? "New and improved" was perhaps the one advertising slogan that Ford could not use-especially because Henry Ford adhered to changelessness for ideological as well as production-based reasons. This became an especially knotty problem because consumers did, it turned out, want novelty. They were willing to pay a premium to have a car, not of their own, but a car not identical to every other car on the street.
As the twentieth century passed, U.S. manufacturing turned its skill to making differentiated products-not all the same-using mass production. The first to do this was the management team, headed by Alfred P. Sloan, at General Motors. Make the guts of the cars the same-that is, sell to everyone as many Chevrolet parts, made in extraordinarily long production runs to take full advantage of economies of scale. Put the guts in differently colored boxes, and change the boxes-so that someone who wants to stay up to date has to buy a new car relatively rapidly. Rely on advertising to create different images and different auras surrounding the different lines of cars.
Now it is natural to be of two minds about this surge of product differentiation. It seems wasteful-sacrificing potential economies of scale for diversity-and deceptive: Coke doesn't "really" "add life," does it? Wearing L.A. Gear sneakers while listening to one's walkman does not "really" bring one closer to Paula Abdul than listening barefoot, does it? This echoes George Orwell's complaint: that the cheap luxuries of the modern world create the illusion that you have gotten something valuable and worthwhile for your money, but that in reality-as opposed to in front of the veil of illusion-it just is not true.
The only "real" benefit to buying Reeboks is that they give you permission to dream certain dreams. Yet dreams are, or should be, free: the mind is its own place, and can make a heaven of hell, or a hell of heaven.
On the other hand, product differentiation is popular: consumers are happy to be able to order a blue car with a sunroof. Given the immense wealth of the industrial economies, why not use some of it to create more color and variety? The anti-utopias of the twentieth century, from Modern Times to We, Brave New World, and Nineteen Eighty Four, achieve a form of grey inhumanity by removing even small individual differences and making everything the same: mass-produced. To be able to achieve almost all of the gains of mass production without imposing the cost of endless uniformity can be seen as a major accomplishment.
As industries in the industrial core became more and more mechanized-more and more characterized by "mass production"-they should have become more and more vulnerable to foreign competition from other, lower wage countries. If Ford can redesign production so that unskilled assembly line workers do what skilled craftsmen used to do, why can't Ford also-or someone else-redesign production so that it can be carried out by low wage Peruvians or Poles or Kenyans rather than by Americans, who are extraordinarily expensive labor by world standards?
Industries do migrate from the rich industrial core to the poor periphery, but they do so surprisingly slowly. One reason is added risk-political risk of all kinds tends to make investors wary of committing their money in places where it is easy to imagine political disruptions from the left or the right. Moreover, there are substantial advantages for a firm in keeping production in the industrial core, near to other machines and near other factories making similar products. It is much easier to keep the machines running. A reliable electric power grid is much more likely to be found in the industrial core. And so are the services of specialists needed to fix the many things that can go wrong-minimum efficient scale for an industrial civilization can be far larger than the apparent minimum efficient scale for a plant.
These factors are an order of magnitude more important for industries that are in technological _ux than for those that have a settled, relatively unchanging technology. A principal advantage of locating near the firms that make your machines comes from the interchange and feedback of users and producers-feedback that is valuable only if designs are still evolving. And the principal advantage of a machine-knowing and relatively well-educated labor force is the ability to adapt to using slightly different machines in somewhat different ways-once again, valuable only if small changes are constantly being made. As industries reach technological maturity, freeze their production processes into set patterns, and become businesses in which sales are made on the basis of the lowest price, they tend to migrate to the periphery of the world economy: handed down to poorer countries as, in the words of a Japanese development advisor, older siblings hand down to younger ones clothes they no longer need.
Thus the maintenance of American industrial preeminence throughout the twentieth century depended on the constant introduction of new products and processes that did require immediate feedback, and that could not be easily copied or reproduced outside the United States. This requires that the United States continue to be the locus of invention and innovation. The process of technological change does not make leaps. Continuity of development and the importance of hands-on experience are crucial. In this context, "continuity" means that most innovation and productivity growth is the result not of single, discrete, major inventions or borrowings but rather of a continuous and ongoing process of improvement and adaptation, no one step in which is particularly important or noteworthy. In this context, "experience" means that the skills needed to handle and productively use modern technology are most easily and rapidly gained by using modern technology.
As Nathan Rosenberg puts it: "…most inventions are relatively crude and inefficient [at first].…They are, of necessity, badly adapted to many of the ultimate uses to which they will eventually be put…they offer only small advantages, or perhaps none at all." Consider that, that over the forty years from 1870 to 1910, the lion's share of cost reduction in American railroads was contributed by incremental changes in the design of freight cars and locomotives. One by one, these changes were small and barely noticed: most of them have origins that are unknown today. But over forty years they added up to a doubling of the effective power of locomotives and to a tripling of the capacity of freight cars. There is a similar pattern in the CAT scanner industry: only the explosion of incremental improvements and developments in the decade after invention made the CAT scanner a useful device rather than an intriguing toy.
How are incremental improvements made? Clearly they are made by those who are already very familiar with the technology and its uses. Without workers and managers with hands-on experience, the process of technology transfer and technological adaptation becomes impossibly difficult. The principle that hands-on experience is the best, and perhaps the only, way to develop expertise at the technologies of the industrial revolution, and indeed to develop the technologies themselves, is not limited to technologies narrowly embodied in machines. It applies to the "technologies" of modern business organization as well, to the Ford Motor Company's attempt to transplant mass production to Great Britain in the period during and after World War I as well as to the attempts of Japanese producers to transplant what is called "lean production" back to the United States in the 1980's.
It is worth noting that mass production had similar difficulties diffusing throughout the United States in the beginning. Only one firm-General Motors-could even come close to matching Ford's productivity levels in the 1920's and the 1930's, and General Motors found its transition to mass production eased by its ability to hire the production management team that had invented mass production at Highland Park as its individual members, one after the other, fell out of favor with Henry Ford.