The Henry Ford Paradigm

by Robert W. Patterson
His one-nation conservatism built the American middle class.

Meeting with his board of directors on January 1, 1914, Henry Ford didn’t just ring in the New Year: He laid the economic foundation of the American century. Daring to more than double his workers’ wages to the then-unheard-of rate of $5 per eight-hour day, the underestimated engineer freed a bullish America from the bearish Malthusian theory that low wages for the masses were the natural order.

No doubt, Ford valued the reciprocity of his “profit sharing and efficiency engineering” initiative; by improving the lot of his workers, he would reduce employee turnover. Yet the pace-setting pay hike, projected to cost the eleven-year-old Ford Motor Company $10 million that year (the equivalent of $230 million today), demonstrated that the interests of labor and capital could be harmoniously aligned, that living standards and working conditions for average workers could rise, and that high wages and low-cost goods were not mutually exclusive.

The creator of the Model T had his detractors, then and now. Even as profits soared, Horace and John Dodge — original Ford shareholders who had also started their own car company — sued their fellow automaker in 1919 for cutting dividends in order to build a bigger plant, expand production, increase wages further, and shorten the workweek from six to five days. They objected to Ford’s business raison d’être that transcended showering stockholders with dividends. Indeed, “Fordism” elevated American workers and consumers as at least equal stakeholders in his enterprise, deeming profits not the end but the means of business.

When the judge sided with the Dodge brothers and held that stockholders’ interests trump everything, Ford bought out his dissenting partners and won in the court of public opinion. Within a generation — in the wake of the Great Depression and World War II — government, corporate, and labor policies all reflected the Ford paradigm. The architects of New Deal reforms such as Social Security, for example, spoke of the “American Standard”: essentially Ford’s conviction that wages must be sufficient to empower the average worker to fully sustain a spouse and several children at home.

Fordism had become as American as baseball and ushered in an era of broadly shared prosperity, an unprecedented expansion of the middle class, and, yes, healthy corporate profits that lasted well into the Reagan presidency. But over the last 30 years, the old Dodge boys — with their Ebenezer Scrooge–like obsession with shareholder value and profits über alles — have returned seeking vengeance.

As documented by Ralph Gomory — the mathematician who turned IBM into a research institute responsible for grooming two Nobel Prize winners — executives have increasingly rejected the “stakeholder” view of corporate governance in favor of maximization of shareholder value. Meanwhile, management has come to regard average workers as commodities whose interests threaten sacred profits. Consequently, stock prices and executive compensation — gamed through increased use of stock options and a post-Reagan tax code that favors capital gains over wages — have skyrocketed while wages have stagnated.

As Gomory quantifies: “From 1947 to 1979, productivity rose 119 percent, average compensation of production and non-supervisory workers (which constitute more than four-fifths of the private-sector labor force) grew 100 percent, and the share of national income received by the top 1 percent (which would include most of top corporate management) ranged from 9 to 13 percent.”

But between 1979 and 2009, when productivity rose 80 percent and corporate profits nearly doubled in real terms, “Worker compensation rose 8 percent, and the top 1 percent of earners increased their share of national income to more than 23 percent.” In other words, productivity grew ten times faster than wages, profits almost twelve times.

Lamenting this reversal is not resorting to class warfare. Chronicling the waning of the once-flourishing American middle class in Coming Apart, Charles Murray calls the post-1990 skyrocketing of executive pay and perks “unseemly” and “obscene.” Citing CEO Henry McKinnell’s exiting Pfizer in 2006 with a $99-million golden parachute and an $82-million pension after a tenure in which the firm’s stock price plummeted, the conservative social scientist believes the “new upper class” has become “hollow at the core.” Murray finds this un-American code at work throughout the cozy, interlocking world of corporate, foundation, and nonprofit boardrooms.

Why more Republicans have not held corporate America accountable remains a puzzle. This doesn’t mean saddling corporations with heavy regulation and taxes. But it does involve expecting these cash-rich, privileged entities to think long-term and “man up” to their responsibility to build factories and call centers at home, create high-paying and secure jobs, and fund research and development.

The fact that Big Business has largely followed the likes of the Dodge brothers while turning its back on America, falling in love with China, and embracing the fashionable left-wing causes of the global plutocracy — from adversarial feminism and environmentalism to mass immigration and multiculturalism — is more reason for Republicans to rebrand themselves as champions of the heartland, flyover country, and Middle America.

In short, the GOP needs to wake up to an America that in 2014 looks more like America pre-1914 than like America in 1964. It needs to ring in the New Year by reviving the “one-nation conservatism” of the greatest American industrialist, Henry Ford.

— Robert W. Patterson is the founder and president of the Arsenal of Democracy Project in Washington, D.C. He and his wife are proud owners of a 2012 Ford Fusion and a 2011 Ford Explorer.