Creative Class » Toyota

Does Corporate Nationality Matter?

Richard Florida — Fri, 01 May 2009 14:32:13 +0000

Matt Yglesias, responding to the automotive bailout debate, argues that it does:

What I find interesting, however, is not so much how irrational it is to attribute nationality to a business enterprise but how much nationality really does seem to matter. For example, the oil business is an global business. And the six “supermajor” firms are all global firms. But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way. And beyond CEO nationality, local norms seem to make a big difference. The CEO of Total earns way less money than the CEOs of the other supermajors and to a first approximation the reason is that he’s French, and French CEOs just don’t get paid very well. More broadly, European and Japanese executives earn less money than American executives, with British executives in the middle. I recall that one of the issues with the DaimlerChrysler merger was that the executive pay scales were totally out of whack.

Beyond CEOs, Nestle has 15 directors. Of them one is Indian, one is Swiss/American, seven are Swiss, and the rest are from other European countries. But there’s nothing especially “European”—and certainly nothing Swiss—about the company’s actual operations. They earn a lot of money in Europe, but the majority of their revenue is from outside of Europe, and there’s production all over the world. It’s also totally normal for large multinational firms to be disproportionately owned by shareholders located in their “home country” and home continent.

Corporate nationality, in other words, doesn’t matter. But it seems as if it actually does. And for somewhat mysterious reasons.

Reasonable points all. (BTW, this is a huge deal in Canada, maybe even more so than in the U.S.).

But GM and Chrysler had U.S. management and ran their companies into the ground. Toyota, Honda, and the transplants have created jobs in America. Nationality cuts several ways.

Some time ago, when I was studying the globalization of the automotive industry and the rise of off-shore transplants, I discovered something interesting. U.S. and European companies all said it was much easier to set up cutting-edge plants outside their home company. New greenfield plants could be built from scratch, filled with new equipment, laid out flexibly, and staffed with “fresh” managers and workers. Older plants back home suffered less from being in old buildings but from built-up and near-impossible-to-change organizational structures and relationships.

Seems to me the real issue isn’t nationality of ownership or management but its quality. From an economic development perspective, I’d much rather encourage companies and plants with great management to invest and develop in my country or location than to protect and shield ones owned by my far less capable compatriots.

UPDATE: The governments of Canada and Ontario apparently now own a two percent equity stake in Chrysler, according the Conor Clarke of The Atlantic who notes: ”Chrysler is going to become part of an Italian car company. And it’s doing so with Canadian dollars”

Bailout Schmailout

Richard Florida — Fri, 01 May 2009 14:20:48 +0000

The New York Times asks leading experts whether America “needs an auto industry.” Robert Lawrence and Tyler Cowen both point out that Japanese companies like Toyota make cars very effectively in the U.S. with American workers. As Lawrence writes, the problem is continuously “framed” in terms of costs and competitiveness, but that’s not really what’s the matter. The real problem is about out-of-touch, outmoded, ineffective Big Three management.

We’re told Chrysler needs a massive injection of “cutting-edge Fiat technology” to survive. Huh, why? What were these guys doing? Did they just forget that… er… new technology might be important to their long-run future?

Robert Reich lays down the gauntlet on jobs:

What? Having General Motors or Chrysler cut tens of thousands of jobs in order to be eligible for a government bailout reminds me of “saving” Vietnam by bombing it to smithereens. Aren’t we giving these companies billions of taxpayer dollars to save jobs? If not, we’re just transferring money from taxpayers to GM and Chrysler bondholders and shareholders …

[T]he “American auto industry” shouldn’t be defined as auto companies whose headquarters are in the United States. The true “American auto industry” is Americans who make automobiles. At the rate the Big Three are shrinking even as they’re bailed out, foreign automakers with American plants may soon employ more Americans than the Big Three do.”

Your thoughts?

“Companies That Treat Humans as Machines Are Doomed…”

Richard Florida — Mon, 23 Mar 2009 22:24:20 +0000

Greg Hart of Calgary responds to Saturday’s Globe and Mail piece on Ontario’s economic future:

CAW economist Jim Stanford disputes Richard Florida’s assertion that creativity by front-line workers is at least partly responsible for Toyota’s success (Ontariowe – Focus, March 21). He says that Mr. Florida’s line of thinking “reveals a complete ignorance of how the auto industry actually works.” Perhaps Mr. Stanford, in his humans-as-robots description of how things “actually” work on the shop floor, has unwittingly revealed a key reason for the decline of his industry while giving little hope for a turnaround. Companies that treat humans as machines are doomed, and it’s not so much fun for the humans who work there either.

The Creative Economy, Bailouts, and Good Jobs

Richard Florida — Wed, 18 Mar 2009 20:46:03 +0000

Matt Yglesias has a nuanced and reasoned response to my earlier post.

I think we need to distinguish between the bailouts and the stimulus here. And then within bailouts, we need to distinguish between the auto bailout and the financial sector bailouts. So, starting with bailouts. The problem comparing the two bailouts is that social justice considerations and economic considerations point in different directions here …

On stimulus, I think that how well this turns out will ultimately hinge to some extent on the success of the programs. In principle, the stimulus spending—which largely goes to infrastructure, to education, and to health care—ought to greatly facilitate economic transition to the kind of “creative” economy Florida’s envisioning. To the extent that that money winds up wasted on programs that are ineffective we will have bought short-term demand at the price of stalling on long-term adjustments. I’d still say that’s a price worth paying, all things considered, but obviously it’s a good deal worse than a scenario in which these investments turn out to pay off in the long-run in the form of a healthier, better educated population able to move on better transportation and take advantage of faster broadband.

Little to take issue with here. His commenters raise the larger and critically important question of how to fill the gap in high-paying, stable, high-quality jobs for folks without, say, college degrees or who are not members of the creative class.

Max writes:

People like Florida have been arguing for trashing the industrial base so long, they don’t seem to notice that, absent finance, we got nothin’… and certainly no employment for the Richard Florida’s of the world.

First things first: I’m not now nor have I ever been anti-manufacturing, anti-industrial base, or anti-working class. My first book with Martin Kenney was entitled The Breakthrough Illusion: Corporate America’s Failure to Move from Innovation to Mass Production (Basic Books, 1990); my second also with Kenney, Beyond Mass Production (Oxford, 1993) summarized the findings from our large-scale study of leading-edge Japanese manufacturing techniques and how Japanese transplants factories like those of Toyota, Honda, and their suppliers were able to successfully build cars in America with American workers. John Krafcik’s study of the GM-Toyota joint venture, NUMMI, showed how GM’s hubris prevented it from learning much about Toyota’s revolutionary production system. Toyota took great advantage – NUMMI became a “laboratory” for how it could produce cars in the States using unionized UAW workers. Then there’s the story of the fit Lee Iacocca threw after recieving a commissoned study of the Japanese transplants – flinging the document against the wall, stomping his feet, and screaming more or less: “They want us to give up our private lunch room and eat with the workers and our own parking spots, the hell with that.” Nuff said.

I have long said that the inspiration for my theory of the creative economy isn’t hip cities, or gay neighborhoods, or even Apple or Google. It comes from my early, ground-level studies of Toyota where top management essentially told me more than 25 years ago: “We will win and the Big Three will lose. The problem is in your heads and the way you manage. You think the key to success is having a big-shot CEO, lots of engineers, and scads of high-priced MBAs. We know better. The key to our success lies in mobilizing the collective knowledge, intelligence, and creativity of our factory workers.” Time sure seems to have proved them out. And as I have recounted many times, these are more or less the same words my own father – a factory worker of more than 50 years - told me about the plant he worked in.

Josh G. gets to the nub of the matter:

The problem with a “creative economy” is that it doesn’t have any answer about what to do with the large segment of the population that are non-college graduates. Only about 25% of the adult working population has a Bachelor’s degree or higher. Let’s say that we could double that without watering down standards if we put a lot more money and effort into elementary education, reducing child poverty, cheaper college, removing all the lead paint from the slums, and so forth. Great. That still leaves half the population without a degree. What do they do in the “knowledge economy”? The unspoken answer is that they become low-paid servants. In the long run, I don’t see this as being sustainable.

Some people, for various reasons, are simply not intellectually and/or temperamentally suited to a college education. We as a society need to provide these individuals with employment opportunities that allow them to live in dignity and raise families. The old manufacturing economy did this very well. The new “knowledge economy” – not so much.

Two things here. First, the creative class is a broader category than college-educated people. The creative class accounts for 40 million jobs, roughly a third of our workforce – that’s in-and-of-itself bigger than the share of college-educated people in the adult population. And, as my colleague Charlotta Mellander has found (albeit for Sweden), while nine in 10 people with college degrees work in creative class jobs, half the jobs in the creative class are done by workers without such degrees. In fact, it’s why I came up with the concept of creative class in the first place – I wanted to examine economic growth not just by looking at education level or “what people learn,” but by zeroing in on the actual jobs they do.

Second, the creative economy is made up of three great classes – not two. In addition to the creative class (roughly a third of the workforce and half of all earnings) and the working class (between a fifth and a quarter of the workforce) is the biggest class of all – the service class, with more than 40 percent of all jobs. These are jobs in food prep, retail trade, and the like. They are mainly low-skill and low paying – the lowest paying of all. Creative class workers make twice what working class people make, but three times what members of the service class make. While working class work is relatively stable, and is made up of a lot of family-supporting “men’s work,” much of the service class work is unstable and concentrated among less-advantaged groups, women, and single-headed households.

So, we can keep wishing and hoping for manufacturing and working class jobs to come back – and trying to breathe life back into them or protect them. Or we can try another route.

We can work to make service jobs better, more stable, more innovative, and higher-paying jobs. Roger Martin and I outline such a strategy in our recent report to the McGuinty government, Ontario in the Creative Age.

It’s doable, actually. We did it once before – by turning a huge number of manufacturing jobs from ”bad” jobs (the kind Marx liked to impugn capitalism for, or what William Blake dubbed “satanic mills”) into the “good jobs” we bemoan losing. This was a big part of the New Deal – the Wagner Act specifically - which made it easier for workers to form and join unions and to bargain collectively. This ultimately helped to accelerate the transformation of factory jobs from low-paying, unstable, subsistence-level work into much higher-paying, stable, family-supporting work. As scholars of post-war “fordism” have shown, it was this mass increase in working class wages which was a key structural force behind mass prosperity.

My factory-worker father told me as much as a young boy: When he started working in the factory at 13 years of age, it took all nine members of his immediate family - my grandfather, my grandmother who worked in a Newark bakery, my dad, and his six brothers and sisters to make a single living wage. But upon returning from infantry service in World War II, all that had changed. Somehow, as if by magic, his bad job had turned into a good one – complete with high wages, good benefits, and stability. It paid enough so my mother could quit her job, they could buy a house, put us through Catholic school, and ultimately through college.

Manufacturing jobs are not pre-ordained as good jobs. We made them good jobs – through worker struggle, public policy change, and massive institutional innovation.

The same kind of thing can – and must – be done with today’s largest class of service jobs. These are the low-skill, port-of-entry analog to the factory jobs of the past. Service jobs come with an added bonus. Many of them are strongly rooted in place and virtually impervious to off-shoring. Whether it’s preparing food, waitering, or cutting hair a huge number of service jobs must be done in-person. That’s why they call them “personal services.”

We can use the same basic principles of the best manufacturing work distilled from quality manufacturing and the Toyota Production system - work teams, worker engagement and involvement, and continuous improvement - to upgrade service work, make it more innovative and productive, and ultimately higher-paying, more stable, and better. Heck, given the massive and geographically uneven hit to manufacturing employment, men are losing their jobs at a much faster pace than women, and many women in service and care-giving occupations have become their family’s main bread-winners.

So Josh G. is right to a point: Left to its own devices without policy change and institutional innovation, our economy will become more and more divided between a creative class elite and “low-paid servants.” But that’s not our only choice. We have a huge opportunity to transform the growing mass of service jobs into better, more innnovative, more engaged, more dignified, and higher paying forms of work. We did it 70 years ago for manufacturing work. We can surely do it again.

For the life of me, I cannot understand how and why, across the entire the entire United States, there is near-complete silence on the need to upgrade service work. Tomorrow, President Obama should call for a national summit on improving service work bringing together leading companies in the U.S. and across the world from Whole Foods to Starbucks and Ikea who are already doing this. The opportunity, as my mother was wont to say, is “as clear as the nose on your face.”

I’ll have much more to say on how in the future, but for now I’d love to hear what you think.

Lame Excuses

Richard Florida — Sat, 15 Nov 2008 22:28:03 +0000

This one takes the cake:

Even as Detroit’s Big Three teeter on collapse, United Auto Workers President Ron Gettelfinger said Saturday that the problem is not the union’s contract with the automakers and that getting the automakers back on their feet means figuring out a way to turn around the slumping economy. “The focus has to be on the economy as a whole as opposed to a UAW contract,” Gettelfinger [the UAW President] told reporters on a conference call … Gettelfinger blamed the problems the auto industry is suffering from on things beyond its control — the housing slump, the credit crunch that has made financing a vehicle tough and the 1.2 million jobs that have been lost in the past year. “We’re here not because of what the auto industry has done,” he said. “We’re here because of what has happened to the economy.”

Er… really. So why aren’t VW, BMW, Damlier-Benz, Toyota, or Honda in this kind of mess?

The Creative Assembly Line

Richard Florida — Wed, 03 Sep 2008 14:15:54 +0000

BusinessWeek writer Stephen Baker has an intriguing new book out, Numerati. First there was Taylorism – scientific management, then the Fordist assembly line, Deming and quality management, the Toyota Production system, now IBM is working on statistical tools that essentially match people to tasks. I was astounded by how far this has progressed. Click here for the excerpt.

Do you think these tools will actually work to increase productivity and performance in the creative economy? And even if they do, what is their impact on creative workers and on work-life?

The Entrepreneurial Society

Richard Florida — Mon, 19 May 2008 20:07:35 +0000

Writing in the Wall Street Journal, Michael Malone argues that we are rapidly becoming one:

The most compelling statistic of all? Half of all new
college graduates now believe that self-employment is more secure than
a full-time job. Today, 80% of the colleges and universities in the
U.S. now offer courses on entrepreneurship; 60% of Gen Y business
owners consider themselves to be serial entrepreneurs, according to
Inc. magazine. Tellingly, 18 to 24-year-olds are starting companies at
a faster rate than 35 to 44-year-olds. And 70% of today’s high
schoolers intend to start their own companies, according to a Gallup
poll.

An upcoming wave of new workers in our society will
never work for an established company if they can help it. To them,
having a traditional job is one of the biggest career failures they can
imagine.

Hmmmm… to a certain extent or for a certain segment of society. However, Google, Microsoft, Starbucks, Toyota, Wal-mart, the health sector, the defense-industrial complex, the public school system and the government still really do exist. In fact, education and health are the largest single employers in many large cities. Honestly, while people change jobs frequently, I wonder to what degree the profile of the entrepreneurial and self-employed has changed over the past 2 or 3 decades. There are many people who prefer the security of a “job” to the risk of an entrepreneurial venture. Our own personality studies, as well as those of others, substantiate that. I could go on, but what do you think?

The Creative Corporation

Richard Florida — Mon, 05 May 2008 19:20:32 +0000

In every single speech I make, I say Toyota, not Google or Apple, is the single best example of the creative company. Nearly 15 years ago, I wrote a book on this with Martin Kenney. James Surowiecki makes the case ever more succinctly in his latest New Yorker column:

But if Toyota doesn’t look like an innovative
company it’s only because our definition of innovation—cool new
products and technological breakthroughs, by Steve Jobs-like
visionaries—is far too narrow. Toyota’s innovations, by contrast, have
focussed on process rather than on product, on the factory floor rather
than on the showroom. That has made those innovations hard to see. But
it hasn’t made them any less powerful.

At the core of the company’s success is the Toyota Production
System, which took shape in the years after the Second World War, when
Japan was literally rebuilding itself, and capital and equipment were
hard to come by. A Toyota engineer named Taiichi Ohno turned necessity
into virtue, coming up with a system to get as much as possible out of
every part, every machine, and every worker. The principles were
simple, even obvious—do away with waste, have parts arrive precisely
when workers need them, fix problems as soon as they arise. And they
weren’t even entirely new—Ohno himself cited Henry Ford and American
supermarkets as inspirations. But what Toyota has done, better than any
other manufacturing company, is turn principle into practice. In some
cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban,
a card system that allows workers to signal when new parts are needed.
In other cases, it has done so by reorganizing factory floors and
workspaces in order to allow for a freer and easier flow of parts and
products. Most innovation focusses on what gets made. Toyota reinvented
how things got made, which enabled it to build cars faster and with
less labor than American companies.

But there’s an enigma to the Toyota Production System: although the
system has been widely copied, Toyota has kept its edge over its
competitors. Toyota opens its facilities to tours, and even embarked on
a joint venture with G.M. designed, in part, to help G.M. improve its
own production system. Over the years, more than three thousand books
and articles have analyzed how the company works, and things like andon
systems are now common sights on factory floors. The diffusion of
Toyota’s concepts has had a real effect; the auto industry as a whole
is far more productive than it used to be. So how has Toyota stayed
ahead of the pack?

The answer has a lot to do with another distinctive element of
Toyota’s approach: defining innovation as an incremental process, in
which the goal is not to make huge, sudden leaps but, rather, to make
things better on a daily basis. (The principle is often known by its
Japanese name, kaizen—continuous improvement.) Instead of
trying to throw long touchdown passes, as it were, Toyota moves down
the field by means of short and steady gains. And so it rejects the
idea that innovation is the province of an elect few; instead, it’s
taken to be an everyday task for which everyone is responsible.
According to Matthew E. May, the author of a book about the company
called “The Elegant Solution,” Toyota implements a million new ideas a
year, and most of them come from ordinary workers. (Japanese companies
get a hundred times as many suggestions from their workers as U.S.
companies do.) Most of these ideas are small—making parts on a shelf
easier to reach, say—and not all of them work. But cumulatively, every
day, Toyota knows a little more, and does things a little

They’re also phenomenally difficult to duplicate. In
part, this is because most companies are still organized in a very
top-down manner, and have a hard time handing responsibility to
front-line workers. But it’s also because the fundamental ethos of kaizen—slow
and steady improvement—runs counter to the way that most companies
think about change. Corporations hope that the right concept will turn
things around overnight. This is what you might call the crash-diet
approach: starve yourself for a few days and you’ll be thin for life.
The Toyota approach is more like a regular, sustained diet—less
immediately dramatic but, as everyone knows, much harder to sustain. In
the nineteen-nineties, a McKinsey study of companies that had put
quality-improvement programs in place found that two-thirds abandoned
them as failures. Toyota’s innovative methods may seem mundane, but
their sheer relentlessness defeats many companies. That’s why Toyota
can afford to hide in plain sight: it knows the system is easy to
understand but hard to follow.