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Affluent Investor | April 30, 2017

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Marx vs. Markets: Which Destruction is Most Creative?

Karl Marx (Photo by Imagno/Getty Images)

Karl Marx
(Photo by Imagno/Getty Images)

A gross misunderstanding exists of the condition of manufacturing in the United States.  Many believe that production is moving offshore in a wave that is destroying our manufacturing base.  While there has been manufacturing that has moved out of the United States, and most often as an unwise business decision, it is not as dire as most believe.  And, unfortunately this perception is not based on the facts.  The larger, and more important, factor for the decrease of manufacturing jobs as a percent of population is creative destruction, which, of course, is analogous to the lean business model.

The term “creative destruction”[1] is credited to Joseph Schumpeter, an Austrian-American economist who used the term in his 1942 book, Capitalism, Socialism and Democracy, as a description of innovation sub-planting previous ideas which transforms and moves economic activities forward in an improved manner.  While it may bring some level of economic distress; for example, people may be laid-off in a specific industry, the overall economy is improved because others are hired for the growth in the new innovative and more efficient sector – for example, digital cameras sub-planting film cameras.

Karl Marx is also given credit for creative destruction; although, he did not use the term “creative destruction” directly.  In his works; The Communist Manifesto (with Friedrich Engels, 1848), Outlines of the Critique of Political Economy (1858), and The Capital (1867), he critiques capitalism by discussing that capitalism will reach crisis points where the system destroys capital in a caustic manner which is used by the Bourgeois to further oppress the Proletarians.  In Marx’s discussion he retains his despise of a capitalistic system and delusion of its inability to increase the prosperity of the Proletarians – without some form of a violent revolution.  Marx and Engels never ultimately grasp growth and prosperity of free-market capitalism so their argument falls well short of any productive discussion or usefulness.

Creative destruction is a learning process which leads to innovation.  This innovation can be either on a large scale – as in a new product, for example, the digital camera replacing the film camera – or on a small scale, for example, the continuous improvement process of kaizen – making many small incremental changes for the better.  An example of the small scale version, which had a large scale impact, is Training Within Industry, TWI.  TWI was a training-skills program launched in 1940 in the United States during World War II to increase production output to support the Allied Forces’ war effort.  It was a massive success and was later deployed in Japan during the Occupation to help rebuild the decimated Japanese industry.  TWI is a micro version of creative-destruction.

Learning is about suffering nearly as much as it is about enlightenment.  And the deepest learning comes from suffering; i.e., failure.  That is the philosophy behind PDCA (Plan, Do, Check, Act).[2]

By its nature PDCA is an acknowledgment of failure, but a victory in learning.  If PDCA itself was a victory, you would never have to go back through the cycle again.  But that is exactly what PDCA intends for you to do.  It is the process of learning; fail, learn, fail, learn, and so on.  This will equate to a victory.  The failure I am referencing does not mean that things necessarily go wrong; it means that a solution or a perfect solution is not reached.  This is why lean organizations frequently refer to these “trys” as countermeasures.  Counter the problem and measure the results, then try again and again.  PDCA.  This is creative-destruction at a micro level.  This is exactly what TWI manifests both mechanically and philosophically.

TWI is a mechanical means to achieve creative-destruction – a skill to teach a pattern for a behavior.  Once this behavior is learned and made into a habit, deep learning takes place and the learning cycle can become addictive; this is a habit.  How does TWI achieve this?  It goes back to the old analogy frequently used by Toyota folks using stair steps.  Job Methods, which is the improvement process of TWI, is the vertical part of the step – the change, the improvement, the experiment, the “try”.  Job Instruction, which is the teaching process of TWI, is the horizontal part of the step or the stabilization of the experiment upon some level of success (or learning).  Job Relations, which is a leadership process, gives an environment where both the leader and the subordinate feel comfort and confident to work together through this change-stabilization process, which is a learning process running in parallel with the mechanical PDCA process of the stair steps.

In this manner there is a symbiotic relationship between the organization and its people.  The company gets an improvement – better performance.  People get to contribute in a meaningful way and grow in knowledge and experience.  Then each gets to further leverage the mutual benefit over and over again.  Thus making both better through many tiny creative-destruction cycles.[3]  Why is this important?  Because:

The buyers do not pay for the toil and trouble the worker took nor for the length of time he spent in working.  They pay for products.  The better the tools are which the worker uses in his job, the more he can perform in an hour, the higher, consequently, is his remuneration.  What makes wages rise and renders the material conditions of the wage earners more satisfactory is improvement…[4]

The essence of productivity improvement is a human behavioral endeavor.  Productivity improvement is the keystone to a price-deflationary economy which releases capital for further improvement and growth; which, in turn, drives more employment at higher wages, delivers more and better products at less cost, and raises margins to a higher level.  This is wealth creation.

 

[1] Creative-destruction means that new businesses, services, or products enter and create the new markets, while destroying existing ones – with overall result being beneficial.

[2] Plan, Do, Check, Act (PDCA) is a problem solving and idea development cycle originally developed by Walter Shewhart, an American physicist and statistician.  But the PDCA cycle was made famous by physicist Dr. W. Edwards Deming

[3] For further discussion and case studies on this process, reference Steve Spear’s book, Chasing the Rabbit.  He gives excellent examples and descriptions of how and why this process works.

[4] Ludwig von Mises, March 4, 1958, Wages, Unemployment, and Inflation,” Christian Economics, Vol. 10, No. 5, [http://mises.org/daily/2989].

Jim Huntzinger began his career as a manufacturing engineer with Aisin Seiki (a Toyota Group company and manufacturer of automotive components) when they transplanted to North America to support Toyota. Over his career he has also researched at length the evolution of manufacturing in the United States with an emphasis on lean’s influence and development. In addition to his research on TWI, he has extensively researched the history of Ford’s Highland Park plant and its direct tie to Toyota’s business model and methods of operation.

Huntzinger is the President and Founder of Lean Frontiers and a graduate from Purdue University with a B.S. in Mechanical Engineering Technology and received a M.S. in Engineering Management from the Milwaukee School of Engineering. He authored the book, Lean Cost Management: Accounting for Lean by Establishing Flow, was a contributing author to Lean Accounting: Best Practices for Sustainable Integration.

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  • Are you suggesting we actually have functional free markets ? Or did you not here about stimulus, which is of course taxpayer largess and debt used to create illusions ?

  • WorkZen

    Wages are not rising, workers are increasingly not made to feel they are contributing. Deming never walked the face of the Earth. Capitalism makes pigs of us all, that’s what you discover when you stop and take the time to PDCA, you find upper management would rather steal trained workers than incorporate a learning organization structure into their operations. That’s why idiot Reagan worshipers say “there are plenty of jobs out there”, like the schools and your competitors should train your workforce for you, and you should feel free to cast them aside when your methods move on, that’s capitalism, rat’s racing and dogs eating dogs. Don’t worry Affluent Investor, the public buys it, and lottery tickets. Fabulous wealth, not quality of life, is the American Dream.

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