The relentless revolution: a history of capitalism (54 page)

Outsiders after the war analyzed just-in-time processes and declared them superior. They dubbed it lean production to contrast it with America’s mass production. More than merely reduce the inventories for parts, lean production emphasizes precision assemblage with defect-free components put together by skilled teams of workers who show little tolerance for any imperfections along the line. An echo of “small is beautiful,” lean production uses less space, fewer backups, and an appreciation of the importance of each move, each piece of material going into the vehicle. Parts are ready just in time.
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General Motors, Ford, and Chrysler have seen their market shares melt like a piece of ice at a July picnic, but they’ve resisted copying some successful Japanese techniques. Here is another reminder that innovation keeps capitalism moving forward, but entrenched managerial elites can avoid responding to its promise.

Japan secured a very important quid pro quo from the United States. In return for basing troops and aircraft in Japan after the Korean War, the U.S. government promised the Japanese access to the American market. Detroit probably didn’t pay much attention to the United States-Japan Mutual Security Treaty signed in 1960, though it would soon enough feel the competition from Japanese automobile exports.
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During the ratcheting up of oil prices in the 1970s, Japanese automakers moved into the huge American market with their small, snappy fuel-efficient models. Rather than buy into foreign companies to get a share of their markets, both Toyota and Nissan set up their own dealerships and put a lot of money at risk by doing so. Soon they were building their own manufacturing sites in the United States. Almost fifty million new vehicles roll out of auto plants worldwide every year, making it the number one industry.
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The Japanese were astute marketers of their cars, which helps explain how Toyota was able in 2008 to pass up General Motors after its seventy-seven-year run as the world’s largest automaker.

The structure of European economies is corporate with the interests of labor and management worked on together through public and private organizations. That of the United States is more competitive than corporate, and we can characterize the Japanese economy as paternalistic. Its most prominent firms appear like an extended family with joint-stock companies running specific enterprises under the benevolent guidance of its holding company. This arrangement offered protection from hostile takeovers. Paternalism shouldn’t be confused with patriarchal, for unlike America’s hierarchical decision making, in Japanese companies, ideas percolate up from the bottom. Middle and local managers make many of the operational moves; all focus on cultivating skills and talent from within with eyes on long-term growth.
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Rather than members of a cartel for a single industry, Japanese firms belong to holding companies, but the competition among the parts of such a company can be fierce. While in recent years, family ties—both real and metaphorical—have loosened, loyalty to one’s own group has retained an importance not found in the West. And like stable families and their friends, Japanese firms develop and keep long-term relationships. Even relations with labor have been marked by mutual trust after some long, bitter strikes. In exchange for firing 25 percent of its work force during a slump in the late 1940s, Toyota worked out a bargain with its unions promising lifetime employment, pay increases for seniority, and bonuses tied to profits.
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Lifetime employment policies for firms with more than one hundred workers served to stabilize Japanese labor relations, even as it put in place a rigidity that was to hurt farther down the road.

Japan benefited from another event in the United States. The 1958 Supreme Court consent decree in the antitrust case against RCA, IBM, and AT&T forced these companies to give patent licenses to domestic applicants for free and to sell them to foreign firms. This lucrative possibility entranced RCA, which moved quickly to maximize short-term profits from its patent licenses while ignoring the research and design that had made it a leader in television and radio equipment.
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The race for color TV resembled a NASCAR event. The lead car was RCA flying the colors of its founders, General Electric, Westinghouse, and Telefunken. Way out in the lead for many rounds, it made a fatal mistake. Sony, the hungry upstart in the field, saw its advantage and rushed to the lead. Having invested heavily in design and maintenance, the Sony entrant maintained its lead. RCA’s policy of selling its patents sped up the transfer of color TV technology to Japan’s leading consumer electronics firms.

RCA finally dropped out of the race altogether, pulling with it every other consumer electronics company in the United States. The race went to the Japanese firms of Sony, Sanyo, and Matsushita, which began buying up failing American companies. Then Sony, just twenty-six years old in 1972, moved to construct its own color TV plant in California, producing 450,000 sets a year. Toshiba, Mitsubishi, and Hitachi followed suit during the rest of the decade. So grateful were the Japanese that when RCA’s CEO David Sarnoff visited Tokyo in 1960, the emperor awarded him the Order of the Rising Sun! (Sarnoff, as a young telegraph operator, had had the distinction of receiving the distress message from the sinking
Titanic.
) The size and scope of the Japanese corporate giants made possible these aggressive moves.
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The transistor stirred more military than commercial interest in the United States when it made its appearance in 1947, but physicists and engineers working for Sony quickly turned out a very popular commercial product, the transistor radio. Sony specialized in miniaturization. Having very deep pockets, it invested in the research that yielded audiotape recorders, stereo equipment, videocassette recorders, digital videodiscs, video games, and camcorders. In 1996 the Korean firm LG bought the major share of stock in Zenith, the last American firm to make TV sets. It looked like a fitting epitaph to the America’s consumer electronics until Apple took away Sony’s lead in digital music a decade later with its iPod.

Arrival of the Personal Computer

America maintained the lead with one of the market stars of the 1980s, the personal computer. Before PCs appeared on the scene and stole the show, data processing with computers had spread through manufacturing, retailing, and financial firms. This created a market for peripherals, software, and something called a chip, which is a small crystal of a silicon semiconductor that when put on an integrated circuit can do a lot of electronic tricks. A semiconductor, by the way, is not a part-time railroad employee, but an element like silicon that is halfway between a conductor and an insulator.

As the price of computer components came down, hobbyists around the country began putting together their own small computers. The cover of
Popular Mechanics
of January 1975, featuring one of these amateur efforts, caught the attention of Paul Allen and Bill Gates, ages twenty-two and twenty respectively. They joined the lists of computer tyros. Around the same time, Steven Wozniac and Steven Jobs started their Apple company in a garage when they too were in their twenties. Michael Dell went one better, assembling custom-built IBM compatible computers in his University of Texas dorm room! From these early efforts emerged three commercial PCs, those of Apple, Commodore, and Atari.

Observing these start-up companies, IBM set up a task force to consider the future of minicomputers. PCs were possible because of the great advances with silicon chips. The size of a postage stamp, they could hold millions of transistors. IBM’s task force reported back in 1980 that IBM could enter this field quickly if it set up an autonomous unit within the company and designed an open machine that operated more like a system than an appliance. More crucially, it recommended that IBM buy the component parts for its microcomputers from those available on the market rather than create and patent its own.
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Management gave the green light to the project. IBM chose Intel’s micro chips. From Microsoft it ordered a language for its PCs and then an operating system.

These decisions assured the fame and fortune of Intel’s Robert Noyce and Gordon Moore and Microsoft’s Gates and Allen. Noyce, who came into computers by way of transistor inventor William Shockley, had put together an integrated circuit that could be combined with transistors on a single silicon wafer. Gates and Allen finally settled down near Seattle, where they produced an array of computer languages along with a disk operating system, MS-DOS. IBM’s powerful marketing system redounded to the benefit of these two principal suppliers. When IBM further agreed to let Microsoft license its system to others, Intel and Microsoft gained the most lucrative franchises in industrial history. Bill Gates was on his way to becoming the wealthiest man on the planet, for unlike Intel, which counted on venture capital, he and Allen had borrowed for their start-up and plowed earnings back into it.
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The early competition among PCs had produced a variety of incompatible systems. People wanted compatibility so that they could share files. Gates exploited this potential market with his IBM-compatible MS-DOS system that worked with the same generic hardware components that IBM used. With its closed system, Apple made itself a marginal player.

IBM executed its plan with dispatch. Within two years it was producing a PC every forty-five seconds and still couldn’t keep up with demand. PCs flew into people’s homes. Writers and teachers moved their sleek IBM Selectric typewriters to the garage or gave them to a charity as they began a journey of amazement and frustration with their new desktop computers. Like television sales in the 1950s, the popularity of PCs astounded everyone. Why would thousands of people, with no real need for a computer and far from conversant with its peculiar ways, plunk down upwards of thirty-five hundred dollars for a crude version of today’s personal computers? Businesses soon discovered that they could use PCs at every workstation and construct a network among them. By the mid-1990s PCs accounted for 80 percent of every dollar spent on information technology.
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“Interfacing” went from a term in dressmaking to one for attaching an electronic device like a memory chip on a computer or a peripheral like a printer. A
Time
magazine cover named the personal computer “Machine of the Year, “and typists became word processors.

IBM’s success put an end to the British, French, Italian, and German computer companies that had sprung up to contest the American near monopoly in the field. In 1997, more than a third of American homes had at least one PC, with sales mounting each year.
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That same year IBM was shipping more than three million microcomputers to businesses. The opportunity to build PC clones spawned dozens of start-up companies that took advantage of the absence of patents for PCs. The popularity of desktop computers created a market as well for software designed for specific applications. The computer industry continued to be ferociously competitive, more Darwinian than anything IBM had faced before. By the end of the 1980s there was a tight race among Apple, IBM, Dell, and Compaq for PC customers. IBM’s market share had slid from 50 to 22.3 percent by 1999.
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Automobile making was not the only major industry the Japanse took on. They moved into computers and consumer electronics like television, VCRs, and DVDs with alarming speed. They made a critical move in the 1970s, when British, French, Italian, and German companies failed to keep up with IBM’s mainframes and plug-in compatibles, an ugly term for those items like printers or modems that can be connected to a computer. Japanese companies decided to continue making mainframe computers for its domestic market. Two unpredictable developments rewarded this decision: IBM moved into PCs, and the Internet created a new demand for large systems. In addition, large corporations began creating their own private networking systems, which produced a new demand for the mainframe computers that had been abandoned in the rage of PCs during the 1990s. Japan regained its European market for big systems and stayed current with electronic advances while the Europeans fell back on their excellent software.
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Another Technological Advance for PC
S

Soon PC users got to connect with one another and then to a cornucopia of knowledge, information, data, and a personal message system. Networks joining people using the same mainframe computer within a company or organization gave several researchers the idea to create the technology for similarly joining individual PCs through telephone or cable lines. The actual origins of the Internet lay with the U.S. Department of Defense, which in 1969 linked together minicomputers in government and university laboratories. From this network, called ARPANET, came other networks, initially involving universities. Slowly ARPANET lost its military starch and became more like the wrinkled academic. What started out under government sponsorship became the twenty-first century’s biggest, commercial success story.

The telecommunications network Telnet went into operation in 1969 with a commercial component in 1975. The desire to connect with other computers grew exponentially as people acquired PCs. A little more technological tweaking perfected the Internet.
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Meanwhile in the late 1980s, Tim Berners-Lee and Robert Cailliau at the European Organization for Nuclear Research in Geneva came up with a system to go beyond connecting computers and arrange for transferring information over the Internet by using hypertext. Their World Wide Web did indeed go worldwide as computer users discovered the wonders of the Web. Commercial possibilities emerged immediately. Soon hundreds of newspapers from many countries were available on the Web. Banks and airlines encouraged their customers to do business through their Web sites. Then actually locating this plethora of informative stuff became a problem. The University of Illinois developed the first graphical Web browser in 1993. Mosaic became more familiar to the public as Netscape. Next, Microsoft’s Internet Explorer began eating away at Netscape’s market share, followed by Mozilla Firefox, in a seemingly endless race among improving services.