Publications / Article

Henry Ford on Decentralization in Business

By Henry Ford

DECENTRALISM FILE

Henry Ford

Henry Ford (1863 –1947) was a Michigan born American engineer, industrialist, business magnate, and philanthropist.

At first a farmer, an occupation that he detested, the mechanically talented Ford found a job as an engineer with the Edison Illuminating Company of Detroit. His subsequent friendship with Thomas Edison and other Michigan investors led to creation of the Ford Motor Company in 1903, and production of the pathbreaking Model T Ford in 1908. From that beginning Ford became one of the great manufacturing companies of American history.

His introduction of the Model T revolutionized transportation and American industry. As the Ford Motor Company owner, he became one of the richest and best-known people in the world. He is credited with “Fordism”: mass production of inexpensive goods coupled with high wages for workers. Ford had a global vision, with consumerism as the key to peace. His intense commitment to systematically lowering costs resulted in many technical and business innovations, including a franchise system that put dealerships throughout North America and major cities on six continents. Ford left most of his vast wealth to the Ford Foundation and arranged for his family to permanently control it.

Henry Ford believed that centralized industrial development contributed to the creation of increasingly expensive, normless, and unlivable cities where the virtues of nineteenth-century life he had known (that mix of farming, residential, and commercial influences in small-town America) were threatened with extinction. Simultaneously, rural America’s need for farm workers decreased, and some of those remaining on the land became underemployed due to rising mechanical efficiencies in agriculture. In Ford’s mind, the problem was how to get people the money to buy some of the new necessities of life small-scale farming could not provide, without forcing them off the land and into unhealthy cities. His solution involved taking the factory to the country and allowing rural people to continue part-time farming, while earning decent wages in Ford’s 52 decentralized plants.

In his doctoral dissertation (An Elusive Balance: The Small Community in Mass Society 1940-1960, Iowa State U. 1996) Philip Jeffrey Nelson wrote “Ford’s diagnosis of American society bore striking similarities to the perceptions of government reformers like M. L. Wilson and Rexford Tugwell. But Ford’s prescription for its ills diverged from their plans, the main difference involving Ford’s placement of the decentralized factory at the center of his reform scheme. This was the only ‘planning’ necessary, as the community would naturally take its strength from the synthesis of agriculture and industry. Ford proclaimed that ‘With one foot on the land and one foot in industry, America is safe.’ As Ford referred to them, the actual plan of ‘village industries’ began to take shape in 1916 around dispersed, small-scale factories set in small towns and hamlets in the southeastern Michigan countryside. Ford believed that his interest and efforts in decentralization were part of a growing national movement toward the establishment of increasing numbers of small cities, towns, and villages. While not rejecting completely large cities and large factory complexes (his River Rouge plant in Detroit was the largest factory in the world at the time) he reasoned that there need not be two distinct types of life in America, rural and urban-industrial, both of which suffered from a lack of what the other had. Rural areas were still the repositories of America’s virtues and builders of character, while wanting for economic stability and adequate cash incomes. Urban areas seemed to provide the opportunities for abundant jobs and economic growth, but were the scene of social disorder, anomie, and dissolution. His revitalization program spoke to rural areas where he observed that the greatest strides toward modernism could be most easily accomplished. Rural dwellers could have access to the modem conveniences of urban life and leave behind much of the drudgery, cultural isolation, and poverty of farm life.”

Ford was no theorist or scholar of decentralism (or anything else), but came to embrace decentralization as a significant technique in manufacturing. Nelson reports that “the Ford Motor Company even used the slogan “1st to Demonstrate True Decentralization” in their ad copies in large circulation weeklies during the mid-1940. Ford explained his thinking in his book, with Samuel Crowther, Today and Tomorrow (Garden City NY: Doubleday, 1926), from which the following excerpts are taken.

One’s own employees ought to be one’s own best customers.

The real progress of our company dates from 1914, when we raised the minimum wage from somewhat more than two dollars to a flat five dollars a day, for then we increased the buying power of our own people, and they increased the buying power of other people, and so on and on. It is this thought of enlarging buying power by paying high wages and selling at low prices which is behind the prosperity of this country. It is the fundamental motive of our company. We call it the “wage motive” (Pg. 9).

*

The business of making parts to be assembled into an automobile brought up the question of whether these parts had all to be made under one roof. There seemed to be no escape from the big factory, and there could have been no escape if our main factory had to turn out a completely assembled product. But, having found that it was wasteful completely to assemble at the factory, the reason for complete construction in a single great factory or group of factories vanished.

It has been more or less taken for granted that a factory ought to be near what is called the labour market, because it has also been taken for granted that industry had to be intermittent. If a plant is continually shutting down and opening up again, it saves money to have at hand a fund of unemployed, skilled workers who can be put into operation without the delay and expense of training. A labour market means at the least a small city or some densely populated district. A district of this character, where a majority of people take unemployment as a natural condition, certainly cannot be prosperous, and the living conditions cannot approach those necessary for a decent standard of health. The workman receiving wages this month and none next month will be most of the time in debt to his grocer, butcher, and landlord-which means that his living costs him more than it should. A man who has to buy on credit because he is unable to pay cash is not in a position to question prices. The upkeep of a city is expensive and, therefore, taxes are high and land values are high.

Therefore, to get rid of the overhead of the big city, to try to find the balance between industry and agriculture, and more widely to distribute the purchasing power of the wages we pay among the people who buy our products, we began to decentralize.

We began our experiments in village industries seven years ago by taking over an old mill at Northville, about a dozen miles up the River Rouge, and turning it into a valve shop. The Rouge is only a little stream at Northville – scarcely more than a small creek – and, though we planned to use water power at the beginning, we are only now getting around to installing a turbine which will furnish a part of the power. We took the mill as it stood and sent thirty-five production men and the necessary machinery from Highland Park.  Our idea was to draw the men from the surrounding country, but we had to make a start with more experienced workers, especially to set up the machinery.

The making of a valve is divided by us into 21 operations, and 306 men are now employed. Those valves cost us 8 cents each to make at Highland Park, and that was thought to be a low cost. Northville is turning out 150,000 a day at a cost of 3½ cents a valve.

That is one part of the story. Here is a more important part. All the men live within a few miles of the plant and come to work by automobile. Many of them own farms or homes. We have not drawn men from the farms—we have added industry to farming. One worker operates a farm which requires him to have two trucks, a tractor, and a small closed car. Another man, with the aid of his wife, clears more than five hundred dollars a season on flowers. We give any man a leave of absence to work on his farm, but with the aid of machinery these farmers are out of the shops a surprisingly short while—they spend no time at all sorting around waiting for the crops to come up. They have the industrial idea and are not content to be setting hens.

Now that the plant is well in operation we take employees from the district and none at all from Detroit. The change on the country has been remarkable. With the added purchasing power of our wages, the stores have been made larger and better, the streets have been improved, and the whole town taken on a new life.  That is one of the ways in which the wage motive inevitably works out (140-142).

*

It is this wage motive that has been behind all of our domestic and foreign extensions. As a matter of course, it results in lower costs. But it all goes to prove that big business, keeping service to the public always in mind, must scatter through the country not only to obtain the lowest costs but also to spend the money of production among the people who purchase the product.

We have never put in a plant anywhere without raising the purchasing power and standard of living of the community, nor without increasing our own sales in that community.

One cannot hope to live on a community – one must live in a community. And the results abroad in low wage countries have been even more noteworthy than at home (148-149).

 

Share:

Publication By