The Reckoning, written by David Halberstam, published in 1986, is about the sacking of Detroit, aka the US automobile industry, by the Japanese. It is a classic underdog tale, and Halberstam tells it in a manner that is practically defunct in journalism today — scrupulously even-handed, knitting together multiple perspectives with an understanding for how reasonable people can see the same events completely differently. (As for unreasonable people, don’t worry, there are a lot of them in the book, too).
When Halberstam reported and wrote The Reckoning, Japan and its killer exports were a major phobia of the American establishment. If Detroit, once the most dominant and prosperous industry of the world’s most dominant and prosperous nation, could be overtaken by a country that had, within living memory, been a smoldering heap of rubble and ash, what did that say about the future? How long could it be before the Japanese took over everything?
The fears of that era turned out to be overblown, as such fears often are. But The Reckoning sheds ample light on another dynamic that is very much alive and pertinent today. At its peak in the 1950s and 1960s, the American automobile industry did something unprecedented — it aligned the interests of the managerial elite and the working class. Managers, supervising these increasingly complex systems of production, understood that a key aspect of their jobs was to make workers more efficient and therefore more valuable. The combination of steady growth, innovation, tenacious unions and lack of foreign competition enabled blue-collar workers to maintain stable, decent-paying careers and enjoy comfortable retirements.
Though this state of affairs was fully duplicated in only one other industry — steel — it set a model for the economy that hangs over the present like Charles Dickens’ Ghost of Christmas Past. Looking back on the heyday of Detroit, you can’t help asking, Was it inevitable that this manager-worker alignment would be thrown out of whack? Wouldn’t the United States be better off if blue-collar jobs still came with that level of status and security?
These days, the country’s managerial elite and working class are not only not in alignment, they hardly have anything to do with one another at all. In high-value growth industries — tech and finance — the managerial elite no longer spend any time thinking about how to increase the productivity of their blue-collar workforce because they don’t have a blue-collar workforce to speak of. Increasingly, elites work with and for each other, making goods and services largely for other elites. As white and blue collar worlds pull further and further apart, wealth inequality and political discord become unavoidable. The Reckoning does an excellent job of explaining how we started down this path.
Halberstam, who was killed in a car crash in 2007 at the age of 73, was a titanic figure in American journalism, a man with a legendary work ethic. He could drill down deep into characters and engage perceptively in sweeping historical themes. As a young reporter, he covered the Vietnam War for the New York Times and played a critical role in exposing the magnitude of the U.S. failure there. He then wrote a massive tome called The Best and the Brightest, about the youthful, highly motivated intelligentsia that inhabited the Kennedy and Johnson administrations and gambled millions of innocent lives on their conviction that the line against Communism had to be held in southeast Asia.
Halberstam went on to write more than a dozen other books, but if you are going to read a single volume of his, it’s supposed to be The Best and the Brightest, the enduring classic. By contrast, The Reckoning, though it was a bestseller and received strong reviews upon publication, is considered a secondary work, to the extent it’s considered at all anymore. Which is actually why I picked it up. I believe in the deep cut, the promise that the less scrutinized work of a great artist or writer is the one to seek out.
The Reckoning has a quirky premise, surprisingly, since Halberstam is anything but a quirky writer. To dramatize the clash between American and Japanese automakers, he focuses not on General Motors and Toyota, the dominant players, but Ford and Nissan, the runners-up. You could almost call this book The Next Best and Not Quite as Bright. But the strategy pays off because the stories of Ford and Nissan cut closer to the bone than I suspect those of General Motors and Toyota ever could. For significant portions of their histories, Ford and Nissan weren’t just fighting for market share. They were fighting for survival.
In any case, you certainly wouldn’t want to leave the Fords out of any story. As far as twisted family sagas go, they’re world class. Henry, the founder, was a miracle worker as well as one supremely ornery bastard. Probably these two things are related, although it’s hard to say how or why. Like Elon Musk, Ford couldn’t help himself from saying crazy shit and winding people up. He thought reading books was like “a dope habit.” He worried that the Great Depression might not last enough to wring out all the excesses of American life. He hated anybody who tried to tell him what to do, especially lawyers, bankers and accountants. He also hated smokers, drinkers, labor unions, and Jews, not necessarily in that order. He spied on his workers at home. He styled his hair with unadulterated kerosene. The man was a dangerous crank.
Ford’s greatest innovation was not the car per se, but the machine he built for making cars, the assembly line. Before he installed conveyor belts and moved his nascent vehicles through 29 separate stages of production — a concept he adapted from slaughterhouses — building a car was a one-at-a-time industrial art project. It took 728 hours of a single man’s labor to complete one. He cut it to 93 minutes, putting the rest of the automobile industry at a deficit it took years for them to make up. In 1914, Ford had 13,000 workers and they produced 267,720 vehicles. The other 299 companies, employing 66,350 workers, combined to make 286,770 cars. Ford knew how to squeeze the most out of his workers, famously doubling their wages to $5 a day, which paid off handsomely in productivity, loyalty and public relations.
To Ford, all the value of a car was created on the factory floor. His masterpiece was the River Rouge plant which employed upwards of 75,000 souls and was kept so spotlessly clean they went through 5,000 mops a month. As a company, Ford produced its own steel, glass and rubber. Though its operations included thousands of officer workers, old Henry could never wrap his head around what most of them did and he had fits of rage when he wanted to fire them all.
After spending the prime years of his life building the greatest company the world had yet seen, Ford devoted his last two decades to destroying it. He fought all attempts to innovate, especially those orchestrated by his doomed son Edsel, and simply refused to give any credence whatsoever to consumer taste. What mattered wasn’t what customers wanted, it was what he deigned to give them.
By the onset of World War 2, the company was barely hanging on, saved from bankruptcy by war contracts. Finally, bitter and deranged, Henry and his inner circle of thugs were ousted by his wife and daughter in law in a plot worthy of a TV series. (It could be called … Succession?). He was replaced by his grandson Henry Ford II, who turned into a colossal asshole in his own right. By middle age, the Deuce, as he was known, became an embarrassing boor, double-crosser, drunk and womanizer. But he did manage to restore the company to health and preside over many fat years.
Ford was helped along in its recovery by the arrival of the Whiz Kids, a group of bright young men who had managed the logistics of the war. Their leader was Robert McNamara, future Secretary of Defense under Johnson, who said in the documentary ‘Fog of War’ that when he arrived at Ford, fewer than 10 of the company’s top 1,000 executives had gone to college. What would’ve been the point? They had learned the business by working their way up from the factory floor.
McNamara changed all that. On his watch, college boys took over the company. Their specialties were data, marketing and design. They were, wrote Halberstam, “the forerunners to the Yuppies … Their loyalties were not to cars but to careers … In order to succeed it was important to stay as far away as possible from the reality of the company.”
Reality being the factories and the lumpen who worked in them.
Ford’s post-war high point was the Ford Mustang, rolled out by the legendary executive Lee Iacocca, who was the epitome of the self-regarding Sixties car guys who refused to see the future until it smacked them in the face. Iacocca “was the new, confident, pugnacious figure of the auto industry,” wrote Halberstam. “Cars were big and going to get bigger. He pushed racing:’“Race ‘em on Sunday, sell ‘em on Monday.’ He was openly contemptuous of the earlier Ford efforts at safety. When the subject of clean air came up, he said, ‘We’ve got to pause and ask ourselves, How much clean air do we need?”
When the Arab oil embargo hit in the 1970s, gas prices spiked and Detroit suddenly couldn’t give away its big cars, Iacocca’s career hit the skids along with the entire industry. Massive pension obligations, blithely agreed to in flush times, became unsustainable, nearly wiping out Chrysler, the weak sibling of the Big Three. Iacocca got a chance to redeem himself as its savior CEO, bringing the company back from the brink with federal aid and a new category-busting model known as the Minivan. Detroit lived to fight another day, but barely.
While the post-war culture of plenty in America turned Detroit soft and slow, Japan had no choice but to go hard and fast. The country’s swift reemergence as an economic power makes it easy — for outsiders — to forget just how thoroughly destroyed it had been by Allied bombs in World War 2. Halberstam describes the experience of Katsuji Kawamata, the future chairman of Nissan, reporting for work after the war as a bank branch manager in Hiroshima.
“Years later, he could remember every detail of his arrival … It was at five o’clock in the morning. The only people there to greet him were the city’s numerous black marketers, gathered around little fires that they had lit to keep warm. Kawamata was wearing his army overcoat and long boots and carrying his army mess tin … He walked from the station along burned-out streets until he reached the street where the bank was. The gods had not been any gentler with the bank building than they had with anything else in the center of Hiroshima. It was a cavern of burned bricks; it looked as if it had been crushed by some enormous hand. He looked around and found a few sticks of wood and started a fire to cook his rice.”
Japan’s other major cities were not much better off. Half of Tokyo lay in ruins. But all across that devastated country, millions did the same as Kawamata — they got back to work. What else was there to do?
Aid from the United State was substantial (about $2.4 billion compared to the $13 billion that went to Europe via the Marshall Plan), but it came with many strings attached. The Americans wanted to ensure that Japan developed a conservative business culture and not succumb to communism. To this end, President Truman dispatched Joseph Dodge to Tokyo to press upon Japanese leaders the virtues of fiscal discipline and to get inflation under control. Dodge was an odd duck, a banker who hated lending money, a useful trait for surviving the Great Depression but a serious profesional handicap at most other times. His austerity plan was to cause acute short-term pain, forcing many indebted businesses to close, and he wasn’t sure how the idea would be received by General Douglas MacArthur, who, as head of the US occupation, wielded imperial powers with a dramatic flair. So Dodge presented his plan with a fair degree of trepidation.
“As Dodge spoke for the new, more stringent budget, he watched MacArthur’s face cloud up and become cold and angry. This is it, thought Dodge, he’s really going to come down on me. For what seemed like an uncommonly long time, the general said nothing. He simply stared out the window. Then he came over, pointed his finger into Dodge’s chest (‘so hard that I thought he had pierced me,’ he later recalled) and said, ‘You’re right — let’s get on with it.’”
Within a relatively short time, the government began running a surplus, and an official went to Dodge to inform him that the economic recovery was indeed underway. How do you know, inquired Dodge? “Tokyo thieves,” Dodge was told, “had started stealing money again.”
By 1957, Japan was the world’s top steel producer. Cars took longer, in part because developing insights into consumer behavior was hard in a country where nobody could afford to buy anything. That same year, Nissan dipped a toe in the export market, shipping two passenger cars and a pick-up truck to an auto show in Los Angeles. Japan’s local trade representative went to the port to greet the ship and was horrified by the vehicles that rolled out of the cargo hold. They were the ugliest cars he’d ever seen, hopelessly plain and practical, “built for short hauls on bad roads,” which is all Japan had. His friend, who’d accompanied him, told him not to worry. “One percent of all Americans are crazy. They like to do something crazy, and so perhaps a few of these will do something very crazy like buying a Japanese car.”
Four company engineers came with the cars, to test them on American roads. They had no idea what they were in for. They spoke little English and were shocked by what everything cost. Every meal at a restaurant was an adventure and the driving was worse. The cars were painfully ill-equipped for the speed and scale of America, shaking and rattling terribly at what for American-made cars was a comfortable cruising speed. Their trip concluded with one of the engineers crashing through a windshield and losing two teeth.
When the team returned to Japan, Nissan’s board of directors gave them a hero’s welcome at the airport, and the engineer tried to conceal his injury by reattaching his broken teeth with chewing gum. It failed to do the job, and the whole embarrassing mishap had to be explained. It was a humbling experience for the company but there was nothing to do except forge ahead. Nissan sent delegations to Detroit, where they were treated to extensive tours of the factories and shown how everything worked. Nobody considered them a threat.
Over the next decade, Nissan worked out the kinks in its little cars (which were first sold to Americans under the name Datsun), added a touch of style and panache and was perfectly positioned when the oil embargo struck and Americans were forced to think about gas mileage for the first time. Maybe these Japanese cars weren’t so crazy after all.
Detroit would never be the same again. But their problems were bigger than just the Japanese.
“The old American economy created jobs and wealth; the wealth was broadly based, shared among workers who were the best paid in the world and the owners,” wrote Halberstam. “The new economy was more brilliant, more stimulating for those who bet on themselves and won.”
When The Reckoning was published, the U.S. tech industry was a tiny glimmer of what it has become. But Halberstam sensed the transformation that was at hand. The American economy was moving away from Detroit. Productivity gains and automation cut into manufacturing employment while production headed south or overseas in search of lower wages and taxes. Smart kids coming out of school, meanwhile, went straight to Wall Street and Silicon Valley without so much as a glance at the Motor City.
If you asked Americans if they’d be willing to trade a duller Silicon Valley for a more robust industrial Midwest, a majority would probably agree. That’s the Trump margin of victory right there. But what would the price be? Germany runs a version of this economy, keeping many of its best and brightest employed in the industrial sector, and while there are benefits to this approach (income inequality is lower, and BMW, Mercedes and Porsche are pretty nice car companies!), these efforts to hold back the future make Germany poorer overall. Though it is the 4th largest economy in the world, a single American company — Apple — is worth more than Germany’s 30 most valuable publicly traded companies. And of the world’s 100 most valuable software companies, the United States has 76, Germany has 2.
Japan, for what it’s worth, also has 2.
Do we still want to make that trade?