4.2 What Guarantees the Ruin of Economy?
Ford and Stalin. How to Live in Humaneness · перевод (English) · раздел 9 из 42
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4.2 What Guarantees the Ruin of Economy?
Everyone knows that Ford manufactured cars. That is why one might get an impression that Ford managed to occupy a «microeconomic» niche and afterwards made profit from maintaining a virtual monopoly for decades, and that his principles and experience cannot be applied outside this «microeconomic» niche, therefore there is nothing to learn from him. Yet Ford achieved success not only as a manufacturer of cars but also as an owner of a railroad, though he did it not on his own accord but pressed by the circumstances. The fact is that the Detroit-Toledo-Ironton railroad formed a part of «Ford Motors» production cycle. It provided freight services necessary to connect remote trade shops into a single car-manufacturing procedure. Ford writes as follows about the quality of those services:
«For years past we had been trying to send freight over this road because it was conveniently located, but we had never been able to use it to any extent because of the delayed deliveries. We could not count on a shipment to within five or six weeks; that tied up too much money and also broke into our production schedule. There was no reason why the road should not have had a schedule; but it did not. The delays became legal matters «on damaged incurred by freight-owners due to delays in delivery» [17] to be taken up in due legal course; that is not the way of business. We think that a delay is a criticism of our work and is something at once to be investigated. That is business» (Ch. 16. “The Railroads”).
Having got tired of fighting the railroad’s management and of the uncertainty its bad performance introduced into «Ford Motors» business, Ford bought the railroad:
«We bought the railway because its right of way interfered with some of our improvements on the River Rouge. We did not buy it as an investment, or as an adjunct to our industries, or because of its strategic position. The extraordinarily good situation of the railway seems to have become universally apparent only since we bought it. That, however, is beside the point. We bought the railway because it interfered with our plans. Then we had to do something with it. The only thing to do was to run it as a productive enterprise, applying to it exactly the same principles as are applied in every department of our industries» (Ch. 16. “The Railroads”).
Ford says the following about the road’s life and the situation on it before and after its acquisition by «Ford Motors»:
«The Detroit-Toledo amp; Ironton Railway was organized some twenty-odd years ago [18] and has been reorganized every few years since then. The last reorganization was in 1914. The war and the federal control [19] of the railways interrupted the cycle of reorganization. The road owns 343 miles of track [20], has 52 miles of branches, and 45 miles of trackage rights over other roads. It goes from Detroit almost due south to Ironton on the Ohio River, thus tapping the West Virginia coal deposits. It crosses most of the large trunk lines and it is a road which, from a general business standpoint, ought to pay. It has paid. It seems to have paid the bankers. In 1913 the net capitalization per mile of road was $105,000. In the next receivership this was cut down to $47,000 per mile. I do not know how much money in all has been raised on the strength of the road. I do know that in the reorganization of 1914 the bondholders were assessed and forced to turn into the treasury nearly five million dollars - which is the amount that we paid for the entire road. We paid sixty cents on the dollar for the outstanding mortgage bonds, although the ruling price just before the time of purchase was between thirty and forty cents on the dollar. We paid a dollar a share for the common stock and five dollars a share for the preferred stock - which seemed to be a fair price considering that no interest had ever been paid upon the bonds and a dividend on the stock was a most remote possibility. The rolling stock of the road consisted of about seventy locomotives, twenty-seven passenger cars, and around twenty-eight hundred freight cars. All of the rolling stock was in extremely bad condition and a good part of it would not run at all. All of the buildings were dirty, unpainted, and generally run down. The roadbed was something more than a streak of rust and something less than a railway. The repair shops were over-manned and under-machined. Practically everything connected with operation was conducted with a maximum of waste. There was, however, an exceedingly ample executive and administration department, and of course a legal department. The legal department alone cost in one month nearly $18,000.
We took over the road in March, 1921. We began to apply industrial principles. There had been an executive office in Detroit. We closed that up and put the administration into the charge of one man and gave him half of the flat-topped desk out in the freight office. The legal department went with the executive offices. There is no reason for so much litigation in connection with railroading. Our people quickly settled all the mass of outstanding claims, some of which had been hanging on for years. As new claims arise, they are settled at once and on the facts, so that the legal expense seldom exceeds $200 a month. All of the unnecessary accounting and red tape were thrown out and the payroll of the road was reduced from 2,700 to 1,650 men.
Following our general policy, all titles and offices other than those required by law were abolished. The ordinary railway organization is rigid; a message has to go up through a certain line of authority and no man is expected to do anything without explicit orders from his superior. One morning I went out to the road very early and found a wrecking train with steam up, a crew aboard and all ready to start. It had been “awaiting orders” for half an hour. We went down and cleared the wreck before the orders came through; that was before the idea of personal responsibility had soaked in. It was a little hard to break the “orders” habit; the men at first were afraid to take responsibility. But as we went on, they seemed to like the plan more and more and now no man limits his duties. A man is paid for a day’s work of eight hours and he is expected to work during those eight hours. If he is an engineer and finishes a run in four hours then he works at whatever else may be in demand for the next four hours. If a man works more than eight hours he is not paid for overtime - he deducts his overtime from the next working day or saves it up and gets a whole day off with pay. Our eight-hour day is a day of eight hours and not a basis for computing pay.
The minimum wage is six dollars a day. There are no extra men. We have cut down in the offices, in the shops, and on the roads. In one shop 20 men are now doing more work than 59 did before. Not long ago one of our track gangs, consisting of a foreman and 15 men, was working beside a parallel road on which was a gang of 40 men doing exactly the same sort of track repairing and ballasting. In five days our gang did two telegraph poles more than the competing gang!
The road is being rehabilitated; nearly the whole track has been re-ballasted and many miles of new rails have been laid. The locomotives and rolling stock are being overhauled in our own shops and at a very slight expense. We found that the supplies bought previously were of poor quality or unfitted for the use; we are saving money on supplies by buying better qualities and seeing that nothing is wasted. The men seem entirely willing to cooperate in saving. They do not discard that which might be used. We ask a man, “What can you get out of an engine?” and he answers with an economy record. And we are not pouring in great amounts of money. Everything is being done out of earnings. That is our policy.
The trains must go through and on time. The time of freight movements has been cut down about two thirds. A car on a siding is not just a car on a siding. It is a great big question mark. Someone has to know why it is there. It used to take 8 or 9 days to get freight through to Philadelphia or New York; now it takes three and a half days. The organization is serving.
All sorts of explanations are put forward, of why a deficit was turned into a surplus» (Ch. 16. “The Railroads”).
If one looks at how quick freight is shipped from «A» to «B» in terms of the railroad’s performance then under Ford’s management it increased more than twofold, let alone the number of employees, which was reduced by more than one and a half. Though Ford does not quote any numbers concerning freight turnover we must assume that the demand for transportation in that area at the rates valid at that moment was fully met by the railroad.
It could seem to be a fine example to use in a campaign for free-market capitalism… if one forgets about the chaos that reigned at that same railway along with free-market capitalism before its acquisition by «Ford Motors».
In the last quarter of the 19th century - first quarter of the 20th century a net of railroads covered the USA. They were a country of an immaculately clear liberal market economy whereby state officials did not interfere with private businesses both on the level of states (region) and the state union (federal level). Such a state of affairs is one of the ideals modern Russian liberals seek to make a reality in Russia. They explain the fact that the average man does not sense a tangible result of the economic reforms, which they have been carrying out since 1991 by saying that this free-market system has not been introduced.
But it follows from what Ford says about business management on the Detroit-Toledo-Ironton railroad before it was acquired by «Ford Motors» that even in presumably ideal conditions the market mechanism does not guarantee the quality of services provided. It likely does not always encourage the owner to run a business on the self-repaying basis providing profits to shareholders who have invested into the business. This means that the issue of free purchase and sale does not determine the reasons of success or failure in business including their financial representation.
In this particular case explaining the railroad’s success under Ford’s management by saying that there was a change in market opportunities and «the deficit was replaced by profits» means naming the effect instead of the cause. Before the acquisition by «Ford Motors» the railroad was unprofitable not because there were no market opportunities. It became profitable after its acquisition not in the least because market conditions became favorable. Ford says the following about the abject state in which the Detroit-Toledo-Ironton railroad was before its acquisition by «Ford Motors»:
«Nothing in this country furnishes a better example of how a business may be turned from its function of service than do the railroads. We have a railroad problem, and much learned thought and discussion have been devoted to the solution of that problem. Everyone is dissatisfied with the railways. The public is dissatisfied because both the passenger and freight rates are too high. The railroad employees are dissatisfied because they say their wages are too low and their hours too long. The owners of the railways are dissatisfied because it is claimed that no adequate return is realized upon the money invested. All of the contacts of a properly managed undertaking ought to be satisfactory. If the public, the employees, and the owners do not find themselves better off because of the undertaking, then there must be something very wrong indeed with the manner in which the undertaking is carried through.
I am entirely without any disposition to pose as a railroad authority. There may be railroad authorities, but if the service «to people of society» as rendered by the American railroad to-day is the result of accumulated railway knowledge, then I cannot say that my respect for the usefulness of that knowledge is at all profound. I have not the slightest doubt in the world that the active managers of the railways, the men who really do the work, are entirely capable of conducting the railways of the country to the satisfaction of every one, and I have equally no doubt that these active managers have, by force of a chain of circumstances, all but ceased to manage. And right there is the source of most of the trouble. The men who know railroading have not been allowed «by the system which has formed» to manage railroads.
(…) The guiding hand of the railway has been, not the railroad man, but the banker [21]. When railroad credit was high, more money was to be made out of floating bond issues and speculating in the securities than out of service to the public. A very small fraction of the money earned by the railways has gone back into the rehabilitation of the properties. When by skilled management the net revenue became large enough to pay a considerable dividend upon the stock, then that dividend was used first by the speculators on the inside and controlling the railroad fiscal policy to boom the stock and unload their holdings, and then to float a bond issue on the strength of the credit gained through the earnings. When the earnings dropped or were artificially depressed, then the speculators bought back the stock and in the course of time staged another advance and unloading. There is scarcely a railroad in the United States that has not been through one or more receiverships, due to the fact that the financial interests piled on load after load of securities until the structures grew top-heavy and fell over. Then they got in on the receiverships, made money at the expense of gullible security holders, and started the same old pyramiding game all over again.
The natural ally of the usurer is the lawyer. Such games as have been played on the railroads have needed expert legal advice. Lawyers, like bankers [22], know absolutely nothing about business. They imagine that a business is properly conducted if it keeps within the law or if the law can be altered or interpreted to suit the purpose in hand. They live on rules. The bankers took finance out of the hands of the managers. They put in lawyers to see that the railroads violated the law only in legal fashion, and thus grew up immense legal departments. Instead of operating under the rules of common sense and according to circumstances, every railroad had to operate on the advice of counsel. Rules spread through every part of the organization. Then came the avalanche of state and federal regulations, until today we find the railways hog-tied in a mass of rules and regulations. With the lawyers and the financiers «i.e. usurious bankers and stock exchange speculators» on the inside and various state commissions on the outside, the railway manager has little chance. That is the trouble with the railways. Business cannot be conducted by law «as well as from the outside, i.e. without understanding their essence what is very typical of most state officials as well as of usurious bankers and stock exchange speculators» (The very beginning of Ch. 16. “The Railroads”).
«Too many railroads are run, not from the offices of practical men, but from banking offices «i.e. to usurious institutions and their lawyers», and the principles of procedure, the whole outlook, are financial - not transportation, but financial. There has been a breakdown «of the railroad industry» simply because more attention has been paid to railroads as factors in the stock market [23] than as servants of the people. Outworn ideas have been retained, development «technical and organizational» has been practically stopped, and railroad men with vision have not been set free to grow.
Will a billion dollars solve that sort of trouble? No, a billion dollars will only make the difficulty one billion dollars worse. The purpose of the billion is simply to continue the present methods of railroad management, and it is because of the present methods that we have any railroad difficulties at all (put in bold type by the authors).
The mistaken and foolish things we did years ago are just overtaking us. At the beginning of railway transportation in the United States, the people had to be taught its use, just as they had to be taught the use of the telephone. Also, the new railroads had to make business in order to keep themselves solvent «i.e. self-repaying». And because railway financing began in one of the rottenest periods of our business history, a number of practices were established as precedents which have influenced railway work ever since» (Ch. 16. “The Railroads”).
Having expressed his opinion on the cause of the mess in railroad business, having related how they got over it using common sense that is ALWAYS directed towards acting to the benefit of society, Ford summarizes his railroad experience:
«It is one of nature’s compensations to withdraw prosperity from the business which does not serve.
We have found that on the Detroit-Toledo amp; Ironton we could, following our universal policy, reduce our rates and get more business. We made some cuts, but the Interstate Commerce Commission «i.e. the American equivalent of the Soviet and Russian State committee on rates and prices» refused to allow them? Under such conditions why discuss the railroads as a business? Or as a service?» (Ch. 16. “The Railroads”, the very end).
Another quotation from Ford’s book describes in an uncompromising and blunt manner how usurious bank capital parasitically dominates in all Western economies and most of all in the USA:
«We are not against borrowing money and we are not against bankers. We are against trying to make borrowed money take the place of work [24]. We are against the kind of banker who regards a business as a melon to be cut «i.e. as on object a usurer can parasite on». The thing is to keep money and borrowing and finance generally in their proper place, and in order to do that one has to consider exactly for what the money is needed and how it is going to be paid off.
Money is only a tool in business. It is just a part of the machinery. You might as well borrow 100,000 lathes as $100,000 if the trouble is inside your business. More lathes will not cure it; neither will more money. Only heavier doses of brains and thought and wise courage can cure. A business that misuses what it has will continue to misuse what it can get. The point is - cure the misuse. When that is done, the business will begin to make its own, money, just as a repaired human body begins to make sufficient pure blood.
Borrowing may easily become an excuse for not boring into the trouble. Borrowing may easily become a sop for laziness and pride. Some business men are too lazy to get into overalls and go down to see what is the matter. Or they are too proud to permit the thought that anything they have originated could go wrong. But the laws of business are like the law of gravity, and the man who opposes them feels their power.
Borrowing for expansion is one thing; borrowing to make up for mismanagement and waste is quite another [25]. You do not want money for the latter - for the reason that money cannot do the job. Waste is corrected by economy; mismanagement is corrected by brains. Neither of these correctives has anything to do with money. Indeed, money under certain circumstances is their enemy. And many a business man thanks his stars for the pinch which showed him that his best capital was in his own brains and not in bank loans. Borrowing under certain circumstances is just like a drunkard taking another drink to cure the effect of the last one. It does not do what it is expected to do. It simply increases the difficulty. Tightening up the loose places in a business is much more profitable than any amount of new capital at 7 per cent.
The internal ailments of business are the ones that require most attention. “Business” in the sense of trading with the people is largely a matter of filling the wants of the people. If you make what they need, and sell it at a price which makes possession a help and not a hardship, then you will do business as long as there is business to do. People buy what helps them just as naturally as they drink water» (Ch. 11. “Money and Goods”).
«Had we been able to obtain the money at 6 per cent. flat - and we should in commissions and the like have had to pay more than that - the interest charge alone on a yearly production of 500,000 cars would have amounted to about four dollars a car. Therefore we should now be without the benefit of better production and loaded with a heavy debt. Our cars would probably cost about one hundred dollars more than they do [26]; hence we should have a smaller production, for we could not have so many buyers; we should employ fewer men, and in short, should not be able to serve to the utmost. You will note that the financiers proposed to cure by lending money and not by bettering methods. They did not suggest putting in an engineer; they wanted to put in a treasurer.
And that is the danger of having bankers [27] in business. They «usurers» think solely in terms of money. They think of a factory as making money, not goods. They want to watch the money, not the efficiency of production (put in bold type by the authors). They cannot comprehend that a business never stands still, it must go forward or go back. They regard a reduction in prices as a throwing away of profit instead of as a building of business.
Bankers play far too great a part in the conduct of industry. Most businessmen will privately admit that fact. They will seldom publicly admit it because they are afraid of their bankers «organized on mafia-like principles». It required less skill to make a fortune dealing in money than dealing in production (put in bold type by the authors: the same conditions were created by the rascal-reformers [28] in Russia). The average successful banker is by no means so intelligent and resourceful a man as is the average successful businessman. Yet the banker through his control of credit [29] practically controls the average businessman.
There has been a great reaching out by bankers «usurious institutions» in the last fifteen or twenty years - and especially since the war - and the Federal Reserve System for a time put into their hands an almost limitless supply of credit. The banker is, as I have noted, by training [30] and because of his position, totally unsuited to the conduct of industry. If, therefore, the controllers of credit have lately acquired this very large power, is it not to be taken as a sign that there is something wrong with the financial system that gives to finance instead of to service the predominant power in industry? It was not the industrial acumen of the bankers that brought them into the management of industry. Everyone will admit that. They were pushed there, willy-nilly, by the system itself [31]. Therefore, I personally want to discover whether we are operating under the best financial system.
Now, let me say at once that my objection to bankers has nothing to do with personalities. I am not against bankers as such. We stand very much in need of thoughtful men, skilled in finance [32]. The world cannot go on without banking facilities. We have to have money. We have to have credit. Otherwise the fruits of production could not be exchanged. We have to have capital. Without it there could be no production. But whether we have based our banking and our credit on the right foundation is quite another matter.
It is no part of my thought to attack our financial system. I am not in the position of one who has been beaten by the system and wants revenge. It does not make the least difference to me personally what bankers do because we have been able to manage our affairs without outside financial aid. My inquiry is prompted by no personal motive whatsoever. I only want to know whether the greatest good is being rendered to the greatest number» (Ch. 12. “Money - Master or Servant”).
In his book Ford tells about the abject state of the Detroit-Toledo-Ironton railroad before it was acquired by «Ford Motors» and about his own relations with the usurious and stock exchange speculations sector of economy. And it is easy to see that these examples completely explain why all the post-1991 reforms bring no tangible result to the «average man». The point is that the «financiers» and lawyers in their majority (with minor exceptions), i.e. as professional corporations which took the cause of introducing reforms into their hands are capable of establishing neither an ethic nor a technical progress simply because those «financiers» and lawyers have knowledge neither of sciences and applied technologies nor of how enterprises are organized internally and communicate with their environments in every branch of industry. They are unfamiliar with the employee’s psychology and with the psychology of society on the whole. And they presumptuously turn a deaf ear on the words of true experts in those fields [33].
But by having said all of this Ford has in fact stood up against the very basis of the US financial system and consequently against capitalism of the Western type. His words about that «it was no part of his thought to attack» their financial system are no more than sheer politeness and a provision for some of his readers’ folly made after he has already disclosed every flaw belonging to the credit and financing system of the biblical type that is mollified or meticulously concealed by the dominating trend of economic science.
Those few quotations from Ford name the essential thing about Western capitalism that remained undisclosed by Marx in the implications and idle talk of his “Capital”. This essential is to this day being concealed under the cover of implications, idle talk and ignorance by Marxists who pretend to oppose capitalism which is a system of minority being parasitic on the majority yet by their ignorance and twaddle they back up this systemic parasitism.
These revelation-like statements Ford makes regarding the system-forming role that usury and stock exchange speculations play in the economy of Western capitalism are also one of the reasons why true «esoteric» Marxists and their masters have had to put it mildly a grudge against Ford while he was alive and continue having a grudge against him half a century after his death. That is why Marxists keep establishing an image of Ford being a fierce exploiter of the working class. [34]
On the other hand the liberal bourgeois «democrats» who support market economy are also in a predicament. Ford’s writings indicate that it is hardly possible to turn him into a propagandist image of a capitalist entrepreneur, a «self-made man» who personifies the fact that it is possible to make the «American dream» come true when following the «American way of life». In fact one can turn Ford into such an image only by slandering him and creating false notions of his personality, his approach to business and people, his very work in the society. But it is too tempting to get an ally of such a formidable authority: Ford is truly an outstanding personality. And so the liberal supporters of the market make every effort to do it. Let us give as an example the article headed “Henry Ford in Russia ” by Alexander Livshits [35] printed in the “Izvestia” newspaper of January 11, 2002 (p. 2, «Observer’s column»).
«The American Henry Ford made a car-factory out of a bicycle-shop. He invented the assembly line [36]. Set up production of cheap cars. People started driving. So one had to build roads. And the whole economy followed. Henry himself became a rich man. Had Ford been born in the USSR, he would most probably end up at a defense factory. What’s the limit? World’s best armoured troop-carrier. An order conferred. A quarterly bonus payment. His business talent would have to be stifled. Or he would have been sent to chop trees in Siberia. [37]
Ford would also have a difficult time in modern Russia. How can one manufacture cars when banks refuse to give long-term loans? But this is not the main point. Russian bureaucracy would knock Henry down. Not only is it a fierce one. It requires lots of money to spend. And what the businessman spends on bribing officials he makes up in the price of his product. [38] (…)
Civilized businessmen think bribes unacceptable. That is why they pass Russia by. And investments are desperately needed. The government, so to say, has grasped the problem. It has passed three anti-bureaucratic laws. It has made registering and getting a license way easier for juridical persons. (…)
What did we get from the government’s innovations? Up to now only one thing is clear: that the government has made a move in the right direction. It is hard to say more. It all depends on how new legislation will be followed. What is even more important is whether regional authorities will start re-defining bureaucratic rules or not. Following the principle: «federal law prohibits giving orders and our local law allows it» [39]. Of course the local law is termed differently and uses different means to do it. (…)
Believe me, I am no reactionary. And I am not an enemy of the reforms. It is simply that I am sure that the average man is always right. [40] If he gains from reforms, everything has been done the right way [41]. If he loses, it’s the other way round.
We’ll see what we’ll see. It is still possible that in future both registration and licensing procedures will have to be made stricter. There is nothing here to be afraid of. It takes years to build a system of state control. It was so in America. And when the government finally set the firm rules there came Henry Ford. And things got on».
One may ask: has Alexander Livshits read books by Ford proper and lies intentionally? Or he has not read those books and writes nonsense about how «Ford Motors» got started and was running business regardless of what Ford himself wrote about it, telling lies in an impudent manner due to his ignorance and weak mind because he is prejudiced against Ford by gossip and myths? [42]
And this man holds a doctor’s degree, he is a professor… There are many doctors and professors of his like in Russia, they are the “elite”. It might well be time to disband the Supreme certification board and the whole hierarchy of academic degrees. So that scholars have no titles of honor but their own good name.
Actually Ford made the career of the industry’s founder and «Ford Motors» became a flourishing PRODUCTION and finance corporation (not a FINANCE and «industrial» group) without any help of long-term bank loans. The business returned the money because it was beneficial to the entire society. In that historic period loan interests were moderate in the US and the population’s solvent demand allowed for expanding business both in the qualitative and quantitative way because management efficiency ensured self-repayment.
Ford discovered how production and consumption development are paralyzed by the parasitic finance system based on mafia-like unhindered bank usury and stock exchange speculations. And he came to this conclusion even in a situation relatively favorable for renovating and expanding production.
Yet neither Alexander Livshits (former advisor on economic issues to the President of Russia, later supernumerary advisor to the government of the Russian Federation), nor the many chairmen of the RF Central Bank dismissed after a short time of holding the post, nor Russia’s economic science and conventional sociology do not see [43] the paralyzing effect usury and stock exchange speculations have on micro economy as well as macroeconomy. Over all the years of the reforms loan interest rates have by several times exceeded the probable production growth rate calculated in constant prices. Therefore no management no matter how efficient is capable of turning a furniture workshop into a high-tech enterprise of a national, let alone global scale. And if such loan interest rates remain valid and the outburst of «stock» transactions continues any enterprise that has advanced technology and organizational structure is bound to degrade to a most primitive rule-of-thumb production.