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Wage Cuts: Proof of Managerial Incompetence
Henry Ford would have probably fired for incompetence any manager
who moved manufacturing jobs offshore for cheap labor, and the fol-
lowing material reflects directly on companies that have moved their
operations to China. A business leader of Ford’s caliber would instead
look for ways to remove all forms of waste from his or her entire supply
chain: “To overcome by management what other people try to overcome
by wage reduction.”
Anybody off the street can hire five low-wage workers in a foreign coun-
try to replace one American who spends four-fifths of his or her time on
nonvalue-adding activities. Anybody who takes the time to learn Ford’s
common sense principles will remove the waste instead. Shigeo Shingo, for
example, was particularly fond of deriding managers who assumed they
120 • The Expanded and Annotated My Life and Work
needed twice as many workers to produce twice as many goods, which in
turn goes back to Ford’s own statement in the Introduction: “His whole
idea, when there is extra work to do, is to hire extra men.”
* * *
Cutting wages is the easiest and most slovenly way to handle the situation,
not to speak of its being an inhuman way. It is, in effect, throwing upon labour
the incompetency of the managers of the business. If we only knew it, every
depression is a challenge to every manufacturer to put more brains into his
business—to overcome by management what other people try to overcome by
wage reduction. To tamper with wages before all else is changed, is to evade
the real issue. And if the real issue is tackled first, no reduction of wages may
be necessary. That has been my experience. The immediate practical point is
that, in the process of adjustment, someone will have to take a loss. And who
can take a loss except those who have something which they can afford to
lose? But the expression, “take a loss,” is rather misleading. Really no loss is
taken at all. It is only a giving up of a certain part of the past profits in order
to gain more in the future. I was talking not long since with a hardware mer-
chant in a small town. He said: “I expect to take a loss of $10,000 on my stock.
But of course, you know, it isn’t really like losing that much. We hardware
men have had pretty good times. Most of my stock was bought at high prices,
but I have already sold several stocks and had the benefit of them. Besides,
the ten thousand dollars which I say I will lose are not the same kind of dol-
lars that I used to have. They are, in a way, speculative dollars. They are not
the good dollars that bought 100 cents’ worth. So, though my loss may sound
big, it is not big. And at the same time I am making it possible for the people
in my town to go on building their houses without being discouraged by the
size of the hardware item.”
He is a wise merchant. He would rather take less profit and keep business
moving than keep his stock at high prices and bar the progress of his com-
munity. A man like that is an asset to a town. He has a clear head. He is bet-
ter able to swing the adjustment through his inventory than through cutting
down the wages of his delivery men—through cutting down their ability to
buy.
He did not sit around holding on to his prices and waiting for something to
turn up. He realized what seems to have been quite generally forgotten—that
it is part of proprietorship every now and again to lose money. We had to
take our loss.
Our sales eventually fell off as all other sales fell off. We had a large inven-
tory and, taking the materials and parts in that inventory at their cost price,
we could not turn out a car at a price lower than we were asking, but that was
a price which on the turn of business was higher than people could or wanted
Why Not Always Have Good Business? • 121
to pay. We closed down to get our bearings. We were faced with making a cut
of $17,000,000 in the inventory or taking a much larger loss than that by not
doing business. So there was no choice at all.
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