Wednesday, May 09, 2007

McNamara, Unions, and Labor Costs

Paul Graham recently posted An Alternative Theory of Unions that compares union workers with servers--in particular with the notion that Internt Bubble companies overpaid for servers the way manufacturing companies overpaid works in the 1950s. He picks car manufacturers as a specific example:
If you looked in the head of a 1950s auto executive, the attitude must have been: sure, give 'em whatever they ask for, so long as the new model isn't delayed.
I don't agree with the argument in general, and I think this particular suggestion is just plain wrong. Robert McNamara who was responsible for financial controls and planning for the Ford Motor Company in the 1950s, ultimately becoming president in 1960. McNamara was well aware of the cost of every part of producing a car and worked hard to keep costs down at Ford.

I've been reading David Halberstam's brilliant book on Vietnam, The Best and the Brightest. He has an interesting discussion of McNamara's relationship with labor unions at Ford. He suggests that McNamara, a liberal former Harvard professor, was sympathetic to union concerns but more concerned about cutting costs.

McNamara was one of the people behind the Ford Falcon, a smaller, cheaper Ford car that was a big success. The Wikipedia article on the Ford Falcon observes that towards the end of the 1950s American cars were becoming increasingly expensive because of wage inflation.

I don't know much about manufacturing in general, but the analogy does not seem to apply in cars. Labor was expensive for carmakers in the 1950s. They seemed to be aware of the costs and tried to control them.

If anything, the earlier generation of Ford leadership liked unions even less. Halberstam writes,
Under Henry [Ford] senior and Harry Bennett the policies of the company were singularly primitive. The public was a problem, the unions were a problem, the bankers were a problem.
Update: Some of the comments on Paul's article at Marginal Revolution make similar points.