MUCH HAS BEEN MADE of the transition of the U.S. economy from manufacturing to services. But something is going on in the manufacturing sector itself that has gone largely unnoticed.
The century of Henry Ford may be nearing an end. Mr. Ford was the great apostle of vertical integration. He felt that if he could control everything,
from iron ore, cotton boll and rubber plant to finished automobile, he could hold down costs and pay above average wages - he was the first to pay production workers an astonishing $5 a day - creating a mass market for cars.One part of his equation was a lack of product differentiation: "You may have any color you want as long as it's black." That fell by the wayside early as Ford's archrival, Alfred P. Sloane of General Motors, offered the public a spectrum of colors and styles tuned to incomes, lifestyles and aspirations.
Today, the proliferation of models has become ridiculous. There are models not only for young, upwardly mobile adults, but for those living within wedlock and without, with children or without, and a dozen other permutations. There's even a car that's being sold as a throwaway for those who have everything.
The oligopoly Mr. Ford helped create in automobiles - mirrored in steel and a handful of other industries - spawned Big Labor and cost-plus pricing. To buy labor peace, industry after industry acceded to wage increases paid for simply by raising the price of the product.
This worked as long as the U.S. market remained insulated from the rest of the world. But sky-high wages and an overvalued dollar inevitably invited an invasion of the U.S. market by producers from the emerging countries abroad. The Japanese in particular staked off a major part of the U.S. market as their own. Now, they too are coming under some of the same pressures as Ford, GM and USX.
Interestingly, though, not all domestic producers are feeling the pinch in quite the same way. In steel, the mini-mills, thank you, are weathering the storm quite well. In chemicals, the specialty producers seem to be doing equally well. (Unlike steel, the big commodity chemical producers have been converting as rapidly as possible to specialties.)
Neither the mini-mills nor the specialty chemical producers follow the Henry Ford formula. They make no attempt at vertical integration. Cost control is not neglected, but the chief emphasis is on high value added products and hence on high unit profits. They are customer-driven, existing to solve specific customer problems. They are regionally oriented, tuned to local sources of materials and labor. They are often non-union, although they frequently use profit sharing and a high level of worker participation. Above all, they are intensely competitive.
Wall Street is reinforcing the notion that smaller is better. By fostering asset sales, often the byproducts of aggressive takeovers, and leveraged buy- outs, it is encouraging Big Business to pare down its size.
Washington is doing much the same thing. Through deregulation it is spurring a restructuring of industry in line with competitive reality. The breakup of AT&T is a prime example.
Ironically, the United States may emerge from the current industrial upheaval better poised for the years ahead than some of its newer competitors overseas. Already, their huge Henry Ford-style shipbuilding facilities have fallen on lean times. There no longer is a steadily expanding market for ever larger supertankers and round-the-world containerships.
Their vast integrated steel mills may be meeting a similar fate. The world is suffering from a mammoth overcapacity of mills able to turn out basic steel.
Much the same thing can be said about the Soviets. Their love affair with Henry Ford and his teachings - unofficial, of course - compares with that for Marx and Lenin. The Soviet political system is not only ill equipped to operate competitively but it is wholly alien to the idea of thinking small.
If a specialty revolution is indeed at hand, and the evidence suggests that it is, lawmakers and regulators would be well advised not to attempt to turn back the clock. The heyday of Henry Ford probably never could be brought back even if they determined to do so.