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Competitive Advantage on the Shop Floor.

By William Lazonick. Cambridge, Mass. and London: Harvard University Press, 1990. Pp. vi, 419.

In this book William Lazonick has put together some old articles with some new work he has done to show that an understanding of the dynamics of management-labor relations on the shopfloor can explain how many manufacturing industries can follow different paths of development. His focus is on the interaction between industrial relations and changes in technology, and on the evolution of the arrangements made by employers and workers that determined wage rates and the level of effort put in. He argues that the types of arrangements made for a particular country's firms, concerning the incentive and management structures used, the expectations of workers and management, and the effort elicited from shopfloor workers to efficiently utilize more advanced machinery, were critically important in determining that nation's competitive advantage and long-term growth. This book is an important contribution to our understanding of how competitive advantages can be gained and lost by a nation's industries. In particular Lazonick's work has changed the way many economic historians view the causes of Britain's economic decline.

His work fits into that of the new institutional economics, though on a more applied level. Attention is paid to the institutional structures developed in the marketplace and within the firm, as well as to market forces. Following the path broken by Alfred Chandler, Jr., Lazonick emphasizes the rise of managerial capitalism and the large, high fixed cost, high-throughput firms associated with it, because of the crucial role they played in raising productivity and lowering costs in the development of the British, American and Japanese economies in the late nineteenth and early twentieth centuries. His analysis is thus restricted to those mass-producing manufacturing industries in which large firms developed, especially the textile and automobile industries.

Lazonick begins by analyzing Marx's framework for analyzing the dynamics of management-labor relations. He shows how Marx's predictions were wrong that wages would fall and effort would be kept at a physical maximum. Craft workers in the British industry were able to organize themselves and achieve higher wages and control of the shopfloor. Marx did not understand that firms found it useful to accommodate workers by giving them higher wages and better working conditions in order to reduce turnover and induce sustained effort from the workers, to ensure that equipment was utilized efficiently, which would keep unit costs at a minimum. Thus raising wages could actually costs, for firms with high fixed costs and mechanized production lines.

The book then goes into a lengthy analysis of the development of industrial relations in the British textile industry. Here he shows that even though British firms fought their craft unions over wages and the right to manage the shopfloor, even when it won British management found it most convenient to allow shopfloor workers to manage production. British businessmen failed to invest in the management structures needed to properly manage their firms, relying on their skilled workers to both manage production and train their subordinates and replacements through the apprenticeship system. Consequently Britain gained only a temporary competitive advantage through its highly developed market structures and skilled labor force.

The second part of the book moves on to industrial relations in the United States and Japan. Unlike British firms, American firms developed the managerial hierarchies to take control of the shopfloor and reduce the skills needed by the labor force. American industry attained a dominant role in the world economy in the early twentieth century by investing in mass assembly production lines such as Henry Ford adopted. Despite the high fixed costs of these processes, the economies of speed gained allowed unit costs to be minimized and gave U.S. industry a competitive advantage. Yet to maintain the flow of production and keep costs minimized Lazonick argues that firms had to adopt progressive employment policies to lower turnover rates and elicit a high consistency of effort, such as Ford's innovative $5 a day wage plan.

The downfall for American industry came when increased unionization in the 1940s and 1950s put into place rigid work rules and job classification that caused American management to lose control of the shopfloor, which hindered its ability to adopt new innovative techniques being introduced in Japan. Meanwhile the Japanese had developed a system where even the shopfloor workers were expected to take initiative, allowing quality control and flexible production methods to be achieved at the production level. Thus the further extension of the management function all the way down to the shopfloor has given the Japanese an advantage over the Americans, just as the widened scope of management to the middle management and supervisory level had earlier given American firms an advantage over British industry.

Lazonick concludes that for American and British industry to catch up to the Japanese in manufacturing firms must invest in greater "organizational commitment" to their workers, and develop cooperative shopfloor relations. This means making long-term commitments to workers which will induce workers to raise their level of effort and increase productivity i the long-run.

The book has a few shortcomings. More evidence is needed in Chapter 8 to

support Lazonick's assertion that the reason turnover was low in U.S. firms in the 1920s was the progressive policies of firms in paying higher wages and providing more secure employment, rather than the surplus of labor available on the labor market. Lazonick also restricts his analysis of the cause of differing growth of economics to differences in shopfloor relations. Other institutional sources of competitive advantages have been identified, such as differing levels of investment in research and development, which he does not address.

More fundamentally, the root causes of the differences in management methods observed needs to be further explored. Lazonick frequent utilizes a path dependent argument to explain how management and labor's attitudes and the institutions created evolved over time to lock in particular institutional structure. Was it path dependency, as Lazonick sometimes suggests and then backs off from, or was it some outside force like business culture that caused management to respond differently to similar situations in the three countries analyzed?
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Author:Shiman, Daniel R.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Apr 1, 1992
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