Economics: We'd Call It Socialist

TORONTO, ONTARIO - Imagine for a moment that a person has a novel device that they'd like to manufacture. It's not a trivial thing, so it will take some serious process engineering to figure out how to make it in any more than limited quantities. It will be expensive, so standardization and mass production will be needed to really bring down the price. Even then, there may not be enough people around that can really afford it. So, the entrepreneur decides that it makes sense to pay his own workers enough that they should be able to afford it, thus creating a sustainable economy.

What would we call such a person today? Probably, that entrepreneur would not be called by that name, but instead a socialist. Commentators in the Wall Street Journal would probably use the term "marxist." That person would not be able to get a loan from a bank to create such a business, at least if the business plan were presented as a detailed version of the above outline. Such a business plan would be flunked out of most business school classes.

Of course, the opening paragraph was a simplification of Henry Ford and the Ford Motor Company. I'm not sure if Ford could have gotten a bank loan even in that era, instead relying on a set of private investors to start what became today's Ford Motor Company (which was about his third attempt at creating an auto company, depending on what one counts). In the early 1900's, there was plenty of skepticism about Ford's ideas, much as there would be today.

Yet, clearly, the model worked. The company prospered, skilled workers preferred to work there because of the wages, and the United States became a country based on the automobile. Furthermore, the whole nation's economy worked, and the country helped to win two world wars. Ford's ideas about production in manufacturing and labor relations became known as "Fordism" and, indeed, were one of several inspirations for Karl Marx. The Fordism model didn't really decay until the 1960's and 1970's, when the service economy started its ascendancy and the manufacturing economy started its decline.

It drives me crazy when conservatives go off about how pure "capitalism" made the country great, and dismiss any aspect of "Fordism". Did not Fordism made a contribution to the very era that most of them seem to most idolize, the period immediately after World War II?

It is true that in a service-based, globalized economy, Fordism cannot be simply or effectively applied by a single company in most sectors. However, its dismissal as dangerous "socialism," as is commonly heard, makes little sense in most contexts--socialists wouldn't have run Ford anything close to the way it was run.

In any event, there seems a certain irony that the only North American car manufacturer not running to the government for financing has been the one founded on what we today would like to call socialism--the Ford Motor Company.