The Hollow American Economy

[David Dodd]

Bill Waddell, a well-known lean consultant and one of the principal authors at the Evolving Excellence lean blog, recently wrote a paper titled "The Hollow American Economy." This paper deals with the loss of manufacturing jobs in the US, and the implications of that loss. Waddell believes that lean principles and practices can help revive manufacturing in the US, but this paper is more about bad policy than lean itself. Waddell's paper is very opinionated, and I don't completely agree with all of his positions. But the paper is well worth reading. A copy of the paper is attached.

 

[gordo]

Thanks for sharing, I found it to be very good reading.

BTW, Regarding the Electric Light Bulb. Thomas Edison did not came up with the idea of a light bulb. Henry Woodward and Matthew Evans invented an electric light bulb in 1874 and sold the patent to Thomas Edison.

best, gordon p

 

[Ritter]

Mr. Waddell is overly optimistic about business schools outside of the Ivy league. As as recent student of two public university business schools I can only affirm that the same out of date material with a skew towards wall street is being proliferated. In fact I had a professor who bragged to have been a professor to Robert Nardelli of Home Depot/Chrysler when he was working on his MBA (this being only weeks after Mr. Nardelli was given his severance package at Home Depot). The Jack Welch mentality might as well be considered religion. GE is an interesting example as they leveraged/cooked their books to always match expected EPS. This was Mr. Welch's major contribution to his proteges in which supposedly he gave Jeffrey Immelt quite the scolding for not being able to do. The religion in our business schools is by the numbers, for the numbers, and most of all do not question the numbers. Critical analysis of these measurements is neither encouraged nor tolerated. Short-term thinking is taught, and thus proliferated when undergraduates and MBA graduates enter the management chain. Please the shareholders or they'll make a noose for you is what you are taught. Do not think, do not care, just do what you are told and make the numbers go up and go home.

Many (I dare say most) of business schools students that are in school only so they can buy a McMansion, drive a porsche, and make it with the hot blond. They do not care about principles, the consequences of their decisions or the future of their country. The problem underlying is social and vast. We need engineers, research scientists and entrepreneurs not more status-quo MBAs and yes men.

 

[Deleted member 16349]

Bill Waddell, a well-known lean consultant and one of the principal authors at the Evolving Excellence lean blog, recently wrote a paper titled "The Hollow American Economy." This paper deals with the loss of manufacturing jobs in the US, and the implications of that loss. Waddell believes that lean principles and practices can help revive manufacturing in the US, but this paper is more about bad policy than lean itself. Waddell's paper is very opinionated, and I don't completely agree with all of his positions. But the paper is well worth reading. A copy of the paper is attached.

Thanks for the article, David. It was interesting and I also agree with much of it but not all.

There are major problems but I think blaming big business and government, which is a commonly heard complaint, is not totally valid.

There is a problem in the American society that is hard to explain to Americans but is fairly easy for foreigners to see and understand. I believe that it has to do with the great American ideal of individualism that has unfortunately pushed out social responsibility. The ideal of individuality has become more a condition of self interest. There is not much honour in being a self interest motivate person as there is in trying to be a strong individual.

The problems that the American people have with government and the economy are of their own making.

The average consumer thinks nothing of buying a lower cost product from China because it is in their own selfish interest. No one forces them to buy it. They don't think of the consequences of the lost jobs for their fellow citizens.

The average voter, votes for the politician that promises lower taxes. They don't care and don't want to pay for the expense of getting the services they have or the services someone else gets. They will make all kinds of excuses why taxes should be lower but if the government dares reduce services to reduce taxes, they get booted out of office. So the politicians have to play the game and lie and the voter know it but as long as those taxes don't go up, the voters don't care.

Don't allow the business cycle to work normally. Outlaw recessions by monetary policies that distort the economic health of the country so the politicians can stay in office. Voters don't want recessions. Don't blame the politicians.

And don't get me going about the fear of socialized medicine.

There is something missing lately. I don't see the drive of individuals to make their society better. I don't see a rational measured discussion of what needs to be done and how to do it, without having to lie to placate voters that expect some simple, quick and painless solution.

The economic crisis is probably going to get worse but maybe this will bring change in attitudes if people recognize that they are the ultimate cause of what is good and what is bad in society. If you want a fellow citizen to have a quality job that provides quality products, you have to support that in some way. If you don't care, then buy cheap crap from China but don't complain about businesses that outsource. You get what you pay for.

The world is looking at how Americans deal with the future and I really hope that they start to get things going in the right direction. What ever it will be, it will be an American solution.

Back to the Lean topic. Lean principles will do nothing to improve the American manufacturing problem. Lean has not made any company grow and prosper. Manufacturers need to make products that people want. Lean just helps keep the cost of that down a bit. Product, process and service innovation and development is the key, not efficiency. Think deeper and prosper.

 

[Ritter]

Erik you nailed it. Individualism is both the blessing and the curse of America. I constantly find myself perplexed as I was raised to be fiercely independent yet constantly see the need of societal cohesion to surmount some of these issues we face. It seems unfortunate though that history shows Americans tend to unite on this level only during times of extreme hardship such as war. With a political class lacking the backbone to stand up to the populous and dare them to move forward and excel, a working class that only wants the status-quo with low taxes (albeit the American status quo is quite a massive and ridiculous slice of "apple pie" comparatively), and an educational system in shambles that only promotes the interests of individuals I am beginning to believe that the hard times must prevail again for my once great society to reawaken. There isn't any more land for Americans to focus manifest destiny upon and we have to look inwards now. In the 19th century we conquered and claimed from sea to sea, in the 20th we populated and exploited our resources, and in the 21st we must find a balance.

Anyone who has a vested interest in the US should sit down and watch Simon Schama's The American Future: A History.

 

[meddington]

And don't get me going about the fear of socialized medicine.

Erik, I would love to hear the Canadian perspective. Please continue your rant.

 

[Deleted member 16349]

Erik, I would love to hear the Canadian perspective. Please continue your rant.

It was not supposed to be a rant but was more of a heart breaking concern.

In Canada, medical services are under Provincial government control. The Federal government has general guidelines and if followed, then provides some funds to the provinces. At least this is how I understand it.

In the case of Ontario, if you are a resident, then you are covered. It is not related to any employer. It is paid from taxes from industry and some taxes from individuals.

Not everything is covered, such as drugs, dental or some other items but you do not pay for doctor's appointments and emergency visits. You do not pay for operations. My friend had a heart bypass operation and basically paid virtually nothing. If you want a semi private room or a private room, there are extra insurance policies to cover these but it does not change the basic care one gets.

No one in Ontario worries about losing their home due to medical problems except some rare conditions that require very expensive drugs that are not covered. There is no reason not to seek medical help and one of the efforts is to ensure prenatal and early childhood medical attention is made in order that children grow up healthy.

There is no mass of paperwork to process by the patients. There is no stigma in going for help since everyone is treated in the same way. You can't loose your coverage for any reason as long as you are a resident.

Of course, like all complicated systems not all things work smoothly but in general you can get the service that is needed. From what I understand, the total medical system cost in Canada is less than in the US. In Europe the cost is less than in Canada.

In Ontario, I believe the Health Care portion of the Provincial budget is about one third of the entire budget. Also in Canada, even though people don't like to pay taxes, people do want government provided services and also tend to want to pay the debt down. I might get into trouble here but most people in Ontario would rather not have taxes reduced if that meant that the debt would not be paid down.

I would add that any Canadian politician that strongly suggested that the Health Care system should move towards the American model of having private, "for profit" insurance companies managing things, those politicians and their party would be history. It is pretty much a major part of the Canadian Culture.

Canadians and Americans have a lot in common and on the surface seem very similar but deeper down there are significant differences. I doubt that the Canadian or European styled health care systems would work in the US, except for maybe in Minnesota. Practical Scandinavian background there. A uniquely American solution needs to be worked out.

 

[oxburger]

My biggest gripe is with the people who for example, work for an auto manufacturer such as Ford or GM. They say "buy american, buy american, do your duty to your country" and then turn around and do all their shopping at Wal-Mart who pays their workers crap, gives them crap benefits and imports most of their goods from foreign countries. Like it or not, the world is moving to a global economy and in the end, America may not be able to compete on a global scale.....

 

[Ritter]

...do all their shopping at Wal-Mart who pays their workers crap, gives them crap benefits and imports most of their goods from foreign countries. .

I feel the need to step on a soap box for a minute on this.

Wal-mart is an easy target that many seem to fall back on. Do you really think stocking retail shelves and/or running a cash register is a job that requires skills? Is a completely non-skilled job worthy of a wage beyond the minimum wage? If you only want to preform the minimum you will and should earn the minimum. Now, everyone who works at Wal-mart does not work within visible sight. I have a relative who works for a department within Wal-mart repairing the equipment that keeps the store climate controlled, the refrigeration equipment cooling and the lighting bright. This relative makes a wage and earns benefits that he could not working for a contractor or even one of the competitors. His job is skilled and he gets paid a skilled wage and has excellent insurance coverage. Further, not all of those who stock the shelves at Wal-mart and run the cash registers want to do this kind of job, they have the duty to pull themselves up by their bootstraps into a technical degree program or a community college (which they can almost certainly attend for free if they preform) and learn a skill. You might be surprised how many of those employees do not want to work hard or learn a skill and see welfare as a more viable alternative. This unskilled class has always existed and will always exist but they cannot expect to get a free or even a better ride based upon the labor and industriousness of others. To conclude, Wal-mart pushes down prices because the customer base demands so. Wal-mart has been unamerican but not unethical in directly promoting foreign manufacturing of goods rather than pushing suppliers to become more efficient where they are already based. Sam Walton is probably rolling over in his grave at the state of this nation and the state of his company. The man loved America and the opportunity it offered him but obviously did not instill this into his company's culture or his descendants (the most powerful shareholders). If you disagree, read his book. You may forget or not realize Wal-mart is now a multinational through and through and has many many stores in Asia, South America and Europe. It no longer has a home base but operates internationally to profit by lowering prices for all of its customers whoever they are, whatever language they speak, whatever products they want and wherever they may be. Conspicuous consumption is not an exclusive privilege for Americans and Western Europe any longer.

Those who hate on Wal-mart hate on the same capitalist economics that empowered the United States to the status it enjoyed for the majority of the 20th century. The Wal-mart problem is caused by inefficiencies in America, unfair trade practices proliferated by the United States government, short-term financial focus, and a lack of conscience that seems pervasive throughout our financial system and now our society. The argument that these retail workers deserve high wages and excellent benefits in order to proliferate mass consumption of foreign produced goods is a complete farce.

 

[BWaddell]

Thanks

Thanks

Thanks, David, for posting my article and for your supportive comments.

A couple of quick responses to some of the posts here:

Gordo - Yes Henry Woodward and Matthew Evans did invent an incandescent bulb and yes they sold the patent to Edison. However, a number of people pre-dated them (Jobard in 1838, de Changy in 1856, Starr in 1845 and Swan in 1860) in developing incandescent bulbs and the design they sold to Edison was not commercially viable. The filament was the key and the bulb that went into widespread production had a filament entirely of Edison's invention. That said, Woodward and Evans certainly advanced the state of the art and are rightfully among Canada's finest inventors.

Mr Nikkanen - While much of your comment is true, your statement "Lean has not made any company grow and prosper" is simply not true. Hundreds - perhaps thousands - of companies are growing and prospering as a result of lean. In fact I spent the last few years working as an executive at Wahl Clipper precisely because I was qualified to drive and strengthen their already very lean management and manufacturing processes. They have taken a lions share of both the professional and consumer markets for hair clippers in the United States, and dominate the professional market globally as a direct result of lean. They are growing and prospering quite nicely. And they are far from the only company to do so.

Oxburger - Continuing with my direct experince in a leadership role at Wahl Clipper, Walmart was very willing to give just about all of their shelf space for hair clippers to Wahl, despite generally higher price points than all other competitors. The Wahl products sold at Walmart are almost all manufactured entriely in the USA. 100% of the competition Wahl knocked off of the Walmart shelves manufacture in China and sell at lower prices. It is not a matter of price - it is a matter of value. The low price competitors' products were junk - Wahl's were very high value. Walmart is not about low prices - they are about superior value proposition. The problem is that most companies are run by accountants, rather than manufacturing and engineering people. They do not know how to enhance the value of their products - they only know cost versus price, so they run to China. That was their call - not Walmart's. Walmart will go to any price point the market will bear, provided there is product value to back up the price point. There are many such American manufactured products on the Walmart shelves. Unfortunately there are far too few similarly capable American manufacturers.

Thanks again all of you for taking the time to read the article.

 

[Deleted member 16349]

Mr Nikkanen - While much of your comment is true, your statement "Lean has not made any company grow and prosper" is simply not true. Hundreds - perhaps thousands - of companies are growing and prospering as a result of lean.

My point was that they are not succeeding because of Lean. A company must have some product or service that customers want. Lean just helps reduce their costs. No amount of Lean will help a company that does not supply a need.

Toyota did not become successful because of Lean. It became successful because of the reliable design of their cars which customers were willing to pay a premium for.

Now if you want to attribute all their successful efforts to Lean, then it becomes a circular argument.

Business success is determined by a lot of complicated variables. Less efficient companies can succeed because they come out with better products and the right time, which could be more by luck than by careful planning. Efficient companies can flounder because they did not develop products fast enough which the market wanted.

There is no recipe for running a successful business. Lean can be very helpful but if people are trying to tell people that Lean is the way to success, I think that is wrong on many levels.

Just because companies are doing well and they have been working on a Lean approach does not mean that they will be successful in the Future. Toyota lost money last year. Is that also because of Lean?

The book, "Good to Great" implied that there were a few companies, that showed above average results for a long time, had some kind of common characteristics that resulted in their Greatness. A few years after the book, most of those companies were out of business, disgraced or had severe problems.

Business is complicated and no simple plan will guarantee anything. If a company spends too much effort on Lean, they may be missing issues that are much more important to their businesses.

Sorry but I still think my statement is still valid.

 

[gordo]

A couple of quick responses to some of the posts here:
Gordo - Yes Henry Woodward and Matthew Evans did invent an incandescent bulb and yes they sold the patent to Edison. However, a number of people pre-dated them (Jobard in 1838, de Changy in 1856, Starr in 1845 and Swan in 1860) in developing incandescent bulbs and the design they sold to Edison was not commercially viable. The filament was the key and the bulb that went into widespread production had a filament entirely of Edison's invention. That said, Woodward and Evans certainly advanced the state of the art and are rightfully among Canada's finest inventors.

My correction was to your statement: "Thomas Edison came up with the idea of a light bulb..."

Which is incorrect as you've now further clarified. I only made the point because, from a Canadian perspective, IMHO, it reflected an all too common attitude expressed by our friends south of the border that often raises the hackles of your friends around the world.

best, gordo

 

[mattf]

Hi Bill!

Hi Bill!

Thanks, David, for posting my article and for your supportive comments.

Bill:

Thanks for coming over and supporting your article. I thought of it as a great read and an important insight into the manufacturing world today. The struggle for short term gains and longevity within the market is constant. Sadly, many companies out there do not have the capacity to understand anything other then the short term. Hopefully the uptick of the forum will pickup with more input from many lean leaders.