On New Year's Day of 1910, Henry Ford started producing Model T's at what was then the world's largest auto factory - the Highland Park Ford Plant. It was an airy complex that would change the world with his new ideas - the moving assembly line, and more than doubling his workers' pay to the unheard of sum of $5.00 a day.
The assembly line made mass production possible and the unexpected result of boosting his workers' paychecks meant they could buy his cars and everything else under the sun. Other company's had to compete for the same workers and his employee's twofold pay increase drove wages up around the country which stimulated demand.
This true "trickle down" phenomenon gave birth to the modern American Dream of home ownership, plentiful high paying jobs, decent schools and a pathway to citizenship for those willing to do a hard day's work. There are still lessons to be learned.
"Mass production and the $5.00 day gave the country an enormous boost; it simply made consumers out of almost everyone, in terms of automobiles. The automobile industry was so important to the economy that as it went, the economy seemed to go," said David Lewis, professor of Business History at the University of Michigan.
Today, the fabled factory is hidden behind a strip mall and like much of the city that surrounds it, it's a mostly abandoned hulk that occasionally attracts tourists and historians from around the world who come to pay homage to the site that gave birth to modern manufacturing and the rise of the American middle class.
If you didn't know what you were looking for you'd probably drive by the Model-T Plaza that abuts the crumbling, former administration building with broken windows on Woodward Avenue and not be able to imagine this forlorn site teeming with over 25,000 employees.
People dubbed the factory "The Crystal Palace" because of its vast amount of glass and bright interiors. The factory's enormous size made people think that Ford had gone mad.
"Frankly, this happened in Henry Ford's life again and again; he did things that people thought were harebrained, were stupid, were simply flat-out wrong, and most of the time Henry Ford proved to be right. It gave him reason to begin to doubt any of his critics and to believe in his own infallibility," said Charles Hyde, professor of History at Wayne State University.
To prove his critics wrong, he had to produce and sell an unthinkable number of cars. Within a few years he was turning out so many Model T's at the Highland Park Plant that it seemed like everyone was driving a Model T.
This was at a time when there was far more competition than there is today. There were over 290 different makes of cars being made in over 145 cities, in 45 states. Michigan had 45 different car companies -- 25 in Detroit alone.
But most American and European manufacturers were still targeting the rich. The average price of a car was between $1,500 and $3,000. That would be about $65,000 or $70,000 today. This was beyond the means of ordinary people.
"Henry Ford wanted to build a car that everyone could own. He made a famous statement early on. 'I will build a car for the great multitude of the finest materials available by the best workmen that can be hired of the simplest design that can be made so that every man with a decent income can take a ride in the countryside and enjoy God's great pleasures,' as he put it," said Lewis.
He redesigned the complete manufacturing process and made it as efficient as possible. No wasted motion. He installed thousands of single purpose machines, many he devised himself, to speed up assembly.
In essence, the factory became one giant machine. The machines and workers were arranged sequentially. The tools and parts were within easy reach. 
Everything was synchronized. As one part was put on, another was ready. The line kept moving.
It was a relentless pace, but Ford's costs began to drop substantially. In some cases, the moving assembly line reduced by 80 to 90 percent the amount of labor it took to perform a task. Passing those savings on throughout the manufacturing process began to make believers out of Ford's critics.
"Mass production drove down the cost of producing an automobile dramatically. You can think of all of the developments that have come since -- automation, robotics, and what is now called lean production -- and none of them had nearly as much influence on cost-cutting," said Lewis.
As his costs plunged, he lowered his price from $850 to $490 a car. By 1914, he was selling almost 250,000 Model T's a year.
But his system, reverse engineered from the mechanized cattle disassembly lines that he saw meatpackers use in Chicago, was taking its toll on the employees.
The Highland Park plant had an annual quit rate of over 370 percent. He had to hire 40,000 people a year to be sure he had 10,000 working at all times.
Absenteeism was over 10 percent. More than 1,000 people failed to show up every day, even more on Mondays and Fridays.
This significantly reduced the efficiency of the factory. Once again Ford devised a solution. He created an incentive.
He decided to raise wages to an unprecedented level. In January, 1914, he announced that he was going to pay his workers $5.00 a day. Typical industrial workers were earning about $2.00 a day. This represented an enormous increase.
He also reduced the workday from nine hours to eight hours, allowing employees to earn much more money and work a shorter day.
He imposed some restrictions on his largely immigrant workforce. In order to qualify for the $5.00 a day, the employees had to learn to speak English. He set up schools and made sure they attended. He insisted that they all become citizens and disavow their cultural origins.
At the graduation ceremonies from the Ford English School, there was a gigantic melting pot up on the stage, and the workers who were about to graduate would walk down into this melting pot on a ladder dressed in their native, ethnic costumes -- whether it was from Italy or Poland or Greece or wherever -- and they would do some kind of quick change and then come out the other end dressed in business suits or plain American dresses, with each worker waving a flag to show their new loyalties.
"Henry Ford was not just building Model T's; he was also building men, and he was really creating men that were in his own image. In that sense, he really was trying to be a god," said Hyde.
His god-like industrial wizardry transformed the auto industry and sent ripples through the whole economy.
"How wonderful! A device by which the cost of production could be dramatically reduced, and the customers could get price cuts and the employees could have their wages doubled. We have nothing on the economic scene like that today. Don't we wish we had," said Lewis.
Some may decry the unintended consequences of the consumer society but one thing has changed since Henry Ford's day. The formula Ford stumbled on had been strengthened through hard fought collective bargaining and, as productivity steadily increased, wages grew. But this grand bargain has been tossed aside. Starting in the 1970s workers' income started to lose their connection to increases in productivity. Even though productivity has risen dramatically since 1973 wages have been stagnant or falling. At the same time the wealthiest one-tenth of one percent (0.1%) have seen their earnings rise 181%, according to the Economic Policy Institute (EPI). This works out to approximately, $1.7-million a year per person in this bracket. But it's a paltry pay boost compared to the top one-hundredth of one percent (0.01%) who've seen their income rise 497% to $6-million during the same period. These incomes collected by the few have come at the expense of everyone else.
Instead of the American Dream we've created a nightmare of stagnant wages, weakened unions, closed factories, jobs shipped overseas, home foreclosures and hateful immigration policies.
"Over the last several years we've had an economic policy of making people better consumers instead of helping them earn a better wage," said Lawrence Mishel, president of EPI. "This fed the credit bubble as it fueled consumption."
The Economic Policy Institute is spearheading an ongoing program designed to put to rest the notion that Americans are helpless and incapable of doing anything about economic inequality.
"We have to reestablish the connection between wages and productivity growth," said Mishel. "People get this."
"There has never been a single reason for Americans to despair of our capacity to improve our condition," EPI announced when launching its initiative. They're calling it the "Agenda for Shared Prosperity," in contrast to the last 30 years of greed.
Anticipating upcoming calls for more tax cuts for the corporations and the rich, increased privatization, unfettered pay raises for CEO's and an industrial policy that puts millions out of work, EPI has assembled a team to make the case that, "the success or failure of the economy is measured not by the value of the stock market or the size of the gross domestic product, but rather by the extent to which the living standards of the vast majority of Americans are rising."
As we celebrate the centennial of the factory that created the American Dream, it's time to dedicate ourselves to renewing this dream. They said Henry Ford was crazy to believe in the impossible. He proved his critics wrong and I believe we can do what some consider impossible today. Let's get busy. Happy New Year.
Follow Michael Rose on Twitter: www.twitter.com/MichaellRose
Wage gains far outpaced productivity gains for much of the 70s and early 80s, which helped to fuel the massive inflation of that era. Second, much of the productivity gains in the 1990s and 2000s were pure fiction. This is because the US productivity numbers don't count the foreign workers used for the value add of the production made abroad and sold in the US. For example, US firms cut US workers and import cheaper units from abroad instead, then mark up the imported units by not decreasing the price of the component the imported units are used in. This makes firms more profitable and shows that there is much more revenue and profits per American worker. Much of that is fiction, however, as only the cost of imports are not included in the revenue or profits, while the mark up of those units are considered gains in "productivity".
Last, note that the author is taking into account only wages and not benefits, which have increased exponentially since the 1970s. Benefits make up about 35% of total compensation in the auto sector. However, that fact is the reason that GM and Chrysler have failed.
Ford's turnover problem, as the article above indicates had you actually read it, went away virtually overnight. Ford also reduced the work hours from9 to 8 hrs giving the world the 8 hr work day
Ford on many occasions was quaoted as saying that in order to create markets for goods and services employees had to be paid welll enough to afford them, as well as have the free time to enjoy them
Yes Ford was anti union - he felt betrayed by the movement because he already paid his workers more than his competitors and already had social programs in place. for example he had santi smoking programs long before it was well known that cigarettes were bad for health
And yes Ford sourced production eslewhere, this has been around since the beginnings of the industry. Automakers routinely get products from other suppliers on the basis of production capacity, intellectual property, products outside of core competencies etc. Even so, Ford had one of the most vertically integrated operations the world had ever seen
And again as it has also been aexplained to you many times by me and others - the inflation of the 70s had three primary causes - the vietnam war debt, the increase in money supply from Nixon removing the gold std, and the rapid rise in energy costs from the oil embargo - which was the primary problem for the Auto industry as well
Fords outsourcing of yesteryear created the whole automotive supply base of service and component suppliers - excpet for materials not available domestically such as rubber, were done in the US - the whole suburban growth of detroit and indurtry in the midwest is the direct result of this
whereas outsourcing today is all about profit maximisation thru labor arbitrage and regulation avoidence
Far too little is also said about the railroads. Often neglected is the success of Conrail, where several struggling NE railraods were taken over by congress. they hired experienced railroaders from all over to get it right. Conrail became profitable and was able to be sold back to the private sector at a profit to the taxpayer
The key to creating a healthy economy are good wages for everyone, factories that make something new and improving productivity. Forget the government spending on maintenance. Those jobs do not create a viable economy. Why are our leaders wasting stimulus money on these maintenance projects? They aren't smart enough to recognize their folly.
Much more of our industry's problems can be ascribed to Japanese (later Korean) industrial targeting, support of industry, and protectionism while the U.S. market was open. Add to that failure of the U.S. to establish standards for environmental concerns and mileage. Our states, mainly Southern, even subsidized foreign firms to set up assembly plants here to compete with the Big Three. Nothing like that in Asia. Quite the opposite.
And then there is access to distributor networks. Not available to foreign auto firms in Japan, for instance, but Japanese makers were able to piggyback on the Big Three networks. That was a big part of their success.
The Taurus was as revolutionary a car as the T was in its day. You are right - the japanese did everything they could to copy it - can anyone say Camry? The Taurus was the number one selling car for most of the 90's - I am pretty sure they ended up selling more of those than the model T.
As far as barriers to entry in the Japanese market. Ford rescued Mazda from bankrupcy to gain access to the japanese market.
Ford did rescue Mazda, which had good engineering (liked the Wankel engine) but wasn't so good at marketing. But in the late 80s, Ford still did not have decent control and Mazda was not helping sell Fords. It was still Japanese. I talked to Mazda executives and then chewed out the Ford management on that one. Now, you do have to blame Ford but they were up against Japan, Inc. The USG was useless and still is on trade.
Note that the firms that foreigners were allowed to buy were only those that were in trouble and were relatively small. That was not by mistake. Japan, Inc. controlled FDI by various means over the years. Result was and still is that a foreign firm in not able to pursue a strategy of choice if that means really buying and controlling a significant Japanese firm.
The basis is very simple.
Trade deficits are bad.
We have to eliminate the trade deficit and rejuvenate U.S. manufacturing and tech.
Tell your representatives. Start making noise. Buy American.
It won't happen without policy on the national level. Unless we become so poor we can't buy anything anymore, that is. Don't like that idea.
Ford lived modestly for a man of his wealth and power.
Ford donated at times over 50% of his income to charitable causes - at a time when there were no tax breaks for doing so. In inflation adjusted dollars he dwarfs what Gates did
Despite a mistrust of the medical profession, he founded Detroits hospital system - at the time one of the most adavanced and modern systems of the world
Ford's Foundation supports arts, humanities, educational and historical preservation causes
we sure cold use more folks like Ford, Sloan, Kettering and Mott
and a lot less Kozloskis, Blankfeins, Fulds, Lays, Skillings and so forth
A better car than the Yugo ever was, for about half the price ... 20 years later. It took ten years of iterative value engineering. Oh, I forgot to mention Renault had done almost the same thing with the 2CV.
Innovation is an American virtue, but not a peculiarly American one. We've been buying a ton of it from India's American Institute of Technology (one spot for every 80,000 applicants) by giving them H1-B visas to go work in Silicon Valley. We could keep more of it home by cleaning the Chinese out of our patent office.
the founder of Toyota credits the mfg philosophies and methodologies of Henry Ford as the basis for the TPS
As for wrecking the planet, I'm not in the global warming camp.
We'll make out just fine without having to ban backyard barbecues or micromanage industries or individuals' lives.
I believe that a consumer driven economy will always lead to unreasonable disparity unless it's placed in a more reasonable balance with the interest of the society as a whole.
an article with photo, http://www.autolife.umd.umich.edu/Labor/L_Overview/FordEnglishSchool.htm
and here, more about that photo, http://books.google.com/books?id=U6wgt0Beb-AC&pg=PA65&lpg=PA65&dq=ford+english+school&source=bl&ots=NKHSNghSQc&sig=e9NQ78XXZOJKTlpStTr23dIAPlE&hl=en&ei=Y3w-S8qdK8TBnge67o3zCA&sa=X&oi=book_result&ct=result&resnum=6&ved=0CCQQ6AEwBTgK#v=onepage&q=ford%20english%20school&f=false
another photo, on page 7, http://books.google.com/books?id=YlmtnbRVz6oC&pg=PA7&lpg=PA7&dq=ford+english+school&source=bl&ots=6Fuiq5Vyi0&sig=TLVQUWi5xZaLtRgSEs1tncS9wiA&hl=en&ei=Gno-S7nPApDinAeevIz8CA&sa=X&oi=book_result&ct=result&resnum=10&ved=0CCYQ6AEwCQ#v=onepage&q=ford%20english%20school&f=false
and here, on page 89, a fantastic description of the graduation ceremony with a photo, http://books.google.com/books?id=4Xa9oM2CBAQC&pg=PA89&lpg=PA89&dq=ford+english+school&source=bl&ots=h3waZCrRim&sig=B7yxXZXFDd9_lyEUWMtIIl_uCks&hl=en&ei=Y3w-S8qdK8TBnge67o3zCA&sa=X&oi=book_result&ct=result&resnum=9&ved=0CC0Q6AEwCDgK#v=onepage&q=ford%20english%20school&f=false
http://rdwolff.com/content/capitalism-hits-fan-movie