Ford had vision with cars and wages

Henry Ford had his flaws. While his place in history includes political alliances with anarchists, support for an antisemitic newspaper, and a tendency to micromanage his employees’ free time, he was also an astute capitalist with supreme respect for market forces.

Like today’s CEOs, Ford cultivated corporate profit. He tied that goal to the assumption that well-paid employees would be able to afford his product, making them an important market. Sales volume would also increase if automobile costs decreased – hence, the assembly line. Affordable cars plus high volume plus a solid market equals growing profit.

This philosophy fueled Ford’s decision to double his workers’ daily wage in 1914. But he had practical reasons as well, such as buying the goodwill of an increasingly unhappy national work force that was organizing and demonstrating, and at times even bombing, to establish reasonable conditions at American workplaces. The wage increase may have spared “Crazy Henry,” as his neighbors called the eccentric capitalist, some bombs, but it angered his business peers, who saw the increase as arbitrary, unearned, and even a misguided interpretation of Biblical principles.

Retrospect vindicates Ford’s employment and marketing decisions. With an eye toward his company’s long-term viability, he calculated greater profits from volume sales of cheap cars as opposed to slim sales of luxury cars. Between 1903 and 1913, the price of Ford automobiles dropped from the first Model A’s $850 price tag to the Model T’s $450-$500. Sure enough, by 1916, profits doubled, and five years later, Ford was selling to half the market.

The practice of companies selling in volume to generate wealth played out repeatedly during the last century. Nevertheless, affordability has been forsaken in favor of Model A pricing at gas pumps, banks, and stores of all kinds. There is no question that buying power, low wages, inflation, and an increasingly narrow concentration of wealth dictate today’s economy. In an era that wasn’t toxic with easy credit, Ford knew wages and savings were the only means for workers to buy cars. Today’s easy credit is a double-edged sword that promotes bank prosperity and erosion of consumers’ disposable income simultaneously; wages and savings are still the best ways to pay for goods. But with so many jobs paying an outdated federal minimum wage, few workers can afford the bread of life, let alone its simple pleasures, without incurring debt.

Today’s corporate landscape is populated by the likes of Henry Ford and his detractors. There are some like Brian Parker, whose Michigan restaurant Moo Cluck Moo pays employees $15 an hour. Like every business owner, Parker wants to see growth and profit. Like Ford, he sees past that goal to a long-term viability based on the productivity of satisfied workers, which translates to excellent customer service, increased business, and possibly a chain of stores beyond the second restaurant that is already in the works. Chain stores like Whole Foods and Costco see benefits in paying workers more than they are required to. Yes, Costco derives some revenue from membership fees, but so do its chain competitors, and they are not realizing the per employee volume Costco enjoys.

The federal government has been implementing minimum wage increases since 1938. Every time an increase is proposed, detractors predict the usual disasters: job losses, hardships for small businesses, increased costs passed on to consumers. Inquiring minds can get lost in the morass of arguments supporting and refuting these claims. It’s complicated.

The evidence, however, is simple. Since 1997, the federal minimum wage has increased only $2.10, with the last jump – an inconsequential 70 cents – occurring five years ago. In New York state, the wage is now $8 an hour.

If wage increases really were tied closely to prices, then costs of goods and services should have risen only as inconsequentially as wage increases. One need only look at grocery prices for a tangible example against that equation. In truth, many corporate decisions and market forces feed the cost curve; it really is complicated.

There is no doubt all the superstores inhabiting this area would fare as well as they do now if their teen and adult employees were paid $10.10 an hour; they can afford an increase. The local economy would benefit from the inevitable spending boom. Small businesses would feel pinched, but couldn’t our legislators work out a compromise, such as a tax break for businesses that employ fewer than fifty people? It’s time for House Republicans, who voted down the wage increase, to listen to their constituents, not to mention Republican spokesmen – Rick Santorum and Tim Pawlenty, to name two.

Henry Ford settled on a theory that simplified assumptions about who and what drives profitability: low prices to create volume, and well-paid workers forming a sizable market.

What if Occam’s Razor really does make sense, and the simplest theory with the fewest assumptions cluttering it is reliable?

In that case, Henry Ford was wise, and the long-overdue wage increase is as salutary an economic prescription as it was a century ago.

Renee Gravelle is a Dunkirk resident. Send comments to editorial@observertoday.com