The downfall of Fordism

The OPEC crises in 1973 e 1979 and the high in oil prices had a strong impact on the central economies that were highly dependant from it. However, it was not the gravest aspect of the world economy recession. In fact, global consciousness that fossil fuel are finite and non-renewable was the biggest impact.

The MIT models on Limits to Growth (Forrester 1971; Meadows et al., 1972) had already presented a more general argument that growth must slow down, and this had impressed a very large audience world wide. The pollution effects of and industrial structure based on burning fossil fuels and on non-renewable resources began to figure prominently in the political debate on environmental issues. The mass production paradigm began to appear somewhat tattered and was increasingly questioned. It was also challenged by a new strike wave and rebellious student demonstrations in the late 60´s.

Dissatisfaction with the working conditions and management style in the automobile industry was particularly clear in the strike wave of the late 1960s. The uneasy peace purchased by Ford in 1914 with his ‘5-Dollar-day’ was always somewhat fragile, and in Europe it was often only immigrant workers who could be persuaded to accept the mass production work regime (Freeman and Louçã, 2001, p.298).

In this context, unemployment and economic growth were slowing down in developed countries. The authors affirm that the expression “crisis of structural adjustment” became frequent in governmental and intergovernmental reports. It was clear that OPEC could not be the only one to blame for the crisis:

The phenomena of ‘mass unemployment’ and ‘structural unemployment’ re-emerged after a long period when it was commonly assumed that they had been laid to rest by the Keinesian revolution. Levels of unemployment in several countries were higher than in the ‘Great Depression’ of 1933 (…)”.(Freeman and Louçã, 2001, p. 299).

Table 1: Unemployment in various countries, 1933-1993 (% of labor force)

Country 1933 1959-67 (average) 1982-92 (average) 1993
Belgium 10,6 2,4 11,3 12,1
Denmark 14,5 1,4 9,1 12,1
France 4,5a 0,7 9,5 11,7
Germany 14,8 1,2b 7,4 8,9
Ireland NA 4,6 15,5 17,6
Italy 5,9 6,2 10,9 10,2
Netherlands 9,7 0,9 9,8 8,3
Spain NA 2,3 19,0 22,7
United Kingdom 13,9 1,8 9,7 10,3
Austria 16,3 1,7 3,5 4,2
Finland 6,2 1,7 4,8 18,2
Norway 9,7 2,1 3,2 6,0
Sweden 7,3 1,3 2,3 8,2
Switzerland 3,5 0,2 0,7 4,5
USA 24,7 5,3 7,1 6,9
Canada 19,3 4,9 9,6 11,2
Japan NA 1,5 2,5 2,5
Australia 17,4 2,2 7,8 10,9

a 1936.

b The Federal Republic for the period 1959-81.

NA Not available.

Source: Maddison (1991); OECD, Employment Outlook (1993) apud Freeman e Louçã, 2001.

Table 2: Average annual growth rates of gross domestic product, 1870-1980 (%)

1870-1913 1913-50 1950-60 1960-70 1970-80 1973-80
France 1,7 1,0 4,7 5,6 3,5 2,8
Germanya 2,8 1,3 8,1 4,8 2,8 2,4
Italy 1,5 1,4 5,1 5,3 3,1 2,8
Japan 2,5 1,8 8,6 10,3 4,7 3,2
United Kingdom 1,9 1,3 2,7 2,7 1,8 1,0
USA 4,1 2,8 3,2 3,2 2,9 2,1

a Federal Republic 1950-80.

Source: Maddison (1980); OECD (1981) apud Freeman e Louçã, 2001

Some of the explanations that emerged during that period considered that science and technology had reached their limits. This temporarily found some fervor at the time because of data pointing at diminishing investments on Research and Development (R&D). Researches looking for deeper explanations resulted in identifying deeper problems. One of them, made with a group of 100 R&D company directors, pointed that R&D was not reaching its limits. On the contrary, it concluded that science and technology had never presented so many promising results in sectors like biotechnology, information technology, materials technology, and others. Limits were reached, but only for a particular group of technologies and management systems (Freeman and Louçã, 2001).

In parallel to the understanding that the current growth models were limited and needed to change, the world was becoming increasingly globalized. Many authors have argued the controversial, often shallow and inaccurate use of the term ‘globalization’ (Lastres et. al., 1998; Dicken, 2007). However, it is certain that the new technologies – particularly container shipping for goods, and the ICT for information – allowed a deeper interconnection world wide (Dicken, 2007).

Not only new technologies increased these international connections but also the fact that many nations answered to the uncertainties and turbulence of the on going crisis by adopting the liberal policies led by developed countries. These policies resulted in lowering national and regional barriers that, when coupled with the possibilities that the new technologies brought, led to opening, deregulation, and privatization of many markets around the globe (Lastres et. al., 1998).

The new developments brought great changes into firms and organizations. The introduction of computers in the workplace in the 1950’s followed the centralized management models, their hierarchical structures and did not bring any revolution. Yet, when personal computers (PCs) became available universally on the 1980-1990’s, and networks (Local Area Network, or LANs) were introduced, information became easily accessible to all within the organization. The rate of changes accelerated, especially in products and processes (Freeman and Louçã, 2001).

This context allowed the emergence of a new management model that contrasted with the Fordism. With information reaching all levels, some of them became unnecessary, leading organizational structures to flatten (Freeman and Louçã, 2001).

Table 3: Changes in the paradigm

Fordism (old) ICT (New)

Energy-intensive

Information-intensive

Design and engineering in ‘drawing’ offices

Computer-aided designs

Sequential design and production

Concurrent engineering

Standardized

Customized

Rather stable product mix

Rapid changes in product mix

Dedicated plant and equipment

Flexible production systems

Automation

Systemation

Single firm

Networks

Hierarchical structures

Flat horizontal structures

Product with service

Service with products

Centralization

Distributed intelligence

Specialized skills

Multi-skilling

Government control and sometimes ownership

Government information, coordination and regulation

‘Planning’

‘Vision’

Source: adapted from Perez (1989) apud Freeman and Louçã (2001)

This growing interconnectivity affected not only economies, companies and their structures but also the demand side. The new communications technology allowed the companies to advertise their products and stimulate demand as well as transportation technologies allowed firms to ship their production to virtually anywhere in the globe without affecting prices to the point where it would affect sales. But it also changed qualitatively the demand, which was the ultimate strike against the Fordism paradigm (Freemand and Louçã, 2001).

Television, movies and later on the internet, allowed people to easily identify products and trends they wanted beyond the offers of the neighborhood shop. This shift towards customized products, rather than simply the product itself, led to the ruin of the mass-production model, with its hierarchical and highly vertical structures. The adoption of new technologies mentioned before (PCs connected through LANs and horizontal organizational structures) were needed because the previous paradigm was unable to cope with the fast changes in consumers’ demand.

REFERENCES:

DICKEN, Peter (2007): Global Shift: Mapping the changing contours of the world economy. 5th edition, Sage Publications, London-UK.

FREEMAN, Chris; Louçã, Francisco (2001): As Time Goes By: From the industrial revolutions to the information revolution. Oxford University Press. Oxford, New York – US.

LASTRES, Helena; Cassiolato, José; Lemos, Cristina; Maldonado, José; Vargas, Marco (1998): Globalização e Inovação Localizada. Nota Técnica 01/98 para o projeto Globalização e Inovação Localizada: Experiências de Sistemas Locais no Âmbito do Mercosul e Proposições de Políticas de C&T do Instituto de Economia da Universidade Federal do Rio de Janeiro – IE/UFRJ. Rio de Janeiro, Rio de Janeiro – Brazil.

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6 Respostas to “The downfall of Fordism”

  1. riclage Says:

    I think computers started to be introduced in the workplace only in the 1970s. They were invented in the 1950s. Also, you need to contextualize that adoption because during that time they were mainly mainframes used for very specific calculations and operations in punch cards and mostly used in the US. Even other developed countries didn’t have that many computers.

    But more important, it is not clear in your text why they started to use computers in the first place. Why were they invented?

    A few more comments:
    1) I recommend you read about the productivity paradox of the 1980s and early 1990s, discussing why productivity apparently slowed down in that period. It didn’t. See for example Brynjolfsson 1993 The productivity paradox of information technology.

    2) I think the presented view of paradigm shift is misplaced. Several of the contrasts you pointed, to me, overlap. For instance, there hasn’t been a shift from “Energy-intensive” to “Information-intensive”. In fact, production is even more “Energy-intensive” than before. In another example, the shift from “Single firm” to “Networks” is not a contrast but an evolution. Not to mention that many firms were networked a 100 years ago. Think of the gains from the telegraph and how it allowed for communication between firms. One example of this is the meat-packing company Swift which was interconnected to different distributors and producers across the US in the late 19th century.

    Take a look at Castells 2000 and how he approaches this issue tackling a paradigm change from industrialism to information industrialism or informationalism.

    3) “led to the ruin of the mass-production model”? We are still mass producing most of the products we consume. Some call the current mode customized mass production as it allows for more diversification but products are still built in assembly lines and in series and in quantity. So what exactly changed?

    • marcelolage Says:

      Answering Riclage:

      >I think computers started to be introduced in the workplace only in the 1970s. They were invented in the 1950s. Also, you need to contextualize that adoption because during that time they were mainly mainframes used for very specific calculations and operations in punch cards and mostly used in the US. Even other developed countries didn’t have that many computers.

      >But more important, it is not clear in your text why they started to use computers in the first place. Why were they invented?

      Have I said anything different? Why this detaliling this much would be so relevant?

      >A few more comments:
      >1) I recommend you read about the productivity paradox of the 1980s and early 1990s, discussing why productivity apparently slowed down in that period. It didn’t. See for example Brynjolfsson 1993 The productivity paradox of information technology.

      I haven’t got into productivity issues and the changes in the paradigm were not affected by it. I know it happened but it had no relevance on the process of change, it was simply part of it. The changed happened anyway.

      >2) I think the presented view of paradigm shift is misplaced. Several of the contrasts you pointed, to me, overlap. For instance, there hasn’t been a shift from “Energy-intensive” to “Information-intensive”. In fact, production is even more “Energy-intensive” than before. In another example, the shift from “Single firm” to “Networks” is not a contrast but an evolution. Not to mention that many firms were networked a 100 years ago. Think of the gains from the telegraph and how it allowed for communication between firms. One example of this is the meat-packing company Swift which was interconnected to different distributors and producers across the US in the late 19th century.

      Where have I said that “paradigm” shifts need to contrast the previous one? Institutional Economics for instance draw from Darwinism to investigate institutional evolutional change, for instance (see Hodgson 1998). And in Fordism, firms were mainly vertically integrated, different from the current companies that have many layers of suppliers working in collaboration to develop innovations, what didn’t happened before. I’m not explaining the new paradigm here, only the downfall of the old one. And if you think information is less important than energy today, than I won’t argue with you. But think of what drives competitiveness…

      >Take a look at Castells 2000 and how he approaches this issue tackling a paradigm change from industrialism to information industrialism or informationalism.

      3) “led to the ruin of the mass-production model”? We are still mass producing most of the products we consume. Some call the current mode customized mass production as it allows for more diversification but products are still built in assembly lines and in series and in quantity. So what exactly changed?

      “Some call the current mode customized mass production as it allows for more diversification”. Do you want me to say it again for you?

  2. riclage Says:

    You said: “this context allowed the emergence of a new management model that contrasted with the Fordism.” and then presented a table with the contrasts. I gave two examples on why I think these are not contrasts but complements. The introduction of computers in the workplace in the 1970s (not 1950s) follows a drive to obtain benefits from faster and better operations.

    If you want to think of what drivers competitiveness then it is neither energy nor information. Both are almost freely available to developed nations and high profile firms. If you say that they “did not bring any revolution.” why would firms adopt it? What is the concept of revolution anyway? It’s because of the increasing importance of ICTs (that started in the 1960s) that we see the current paradigm today. Therefore, it is important to explain the reasons that motivated such adoption because they lie at the heart of the changes. To me, anyway. 😉

    • marcelolage Says:

      > “The introduction of computers in the workplace in the 1970s (not 1950s) follows a drive to obtain benefits from faster and better operations.”

      Actually, I said in the post that in 1950’s the computer were introduced to the workplace reproducing the hierarchical model of the Fordism. That means that it was one big central computer (a mainframe) tha handled all operations. That was the “bringing of no revoltuoin”. From the 1970’s the PCs and LANs were introduced as interactive workstations for everyone, and then the information revolution could start, since it was not confined to mainframes anymore.

      Regarding the reasons to adopt the new technologies, I quote the post: “The adoption of new technologies mentioned before (PCs connected through LANs and horizontal organizational structures) were needed because the previous paradigm was unable to cope with the fast changes in consumers’ demand.” In other words: the change in demand and the consequential need for flexibility could be achieved through networks and the ICT.

  3. riclage Says:

    I forgot to say: I brought the topic productivity because it is one measure of growth, right? So, update your statistics from here: http://dx.doi.org/10.1787/540755823556 and you will see that the growth numbers weren’t that low in the 1980s – in some cases, they were higher than in the 1960s and 70s.

    However, they remained decreasing or stable at around 1-3% in the 1990s and early 2000s in developed countries. Is it still because this old paradigm you are trying to conceptualize is present and declining?

    • marcelolage Says:

      The productivity decline at the beginning of the ICT revolution is explained by Lundvall (in one of my lectures with him, I don’t remember if he wrote that somewhere) as costs of learning. New technologies and organizational formats were being tested and introduced constantly which required from workers to learn their way around these novelties. And I guess you are familiar with the learning and productivity curve (I can’t remember the author, but its quite common on Learning-by-doing studies), which states that at the beginning of the learning process productivity will be lower.


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