What America forgets: Competition drives innovation

TheGlobeandMail.com – Opinion
June 8, 2018.   JOE ATIKIAN

Joe Atikian is the author of Industrial Shift: The Structure of the New World Economy.

The United States is poised to strangle Canada’s auto exports, and it’s making a big mistake.

Raising import tariffs would obviously cost U.S consumers more for everyday products ranging from frying pans to cars. Bizarre commercial effects would also be seen in cases in which American companies such as Ford and General Motors build vehicles in Canada for export to the United States, and so incur the cost of import tariffs. Most importantly, though, the beneficial pressures of foreign competition would fade, and foremost among these benefits are quality and productivity. In that sense, imports are the best thing that ever happened to the U.S. auto industry.

Competition in an advanced economy leads to more science, more advanced engineering and better products. That lesson should have been fully ingrained in the 1950s, when Russia beat the United States into space and permanently retained the lead in long-duration orbital flight. It should have been reinforced when Japanese automotive technology led the world in the 1980s on quality and customer loyalty – a lead that persists to this day. Instead, the United States is now leaning on trade measures in an attempt to regain an imagined industrial supremacy.

In the triumphant postwar era of the 1950s and ‘60s, the Detroit-based auto industry felt no pressure to improve quality. Instead of gunning for unbeatable improvements in durability or reliability, the Big Three habitually focused on faux-aerospace styling and horsepower wars. It’s not that American industry didn’t have the know-how: The total-quality system was already proven and embodied in the country’s own wartime quality guru, W. Edwards Deming, who revolutionized military production.

Ignoring Mr. Deming was the United States’ first and biggest mistake in the past half-century. It was easy to ignore him at a time when the world needed U.S. products to rebuild, and imports to the United States were largely blocked. Mr. Deming was roundly rejected at home, based on the myth that pursuing a total-quality agenda would needlessly cost the car makers money, so car bodies kept rusting, tires kept exploding and crashes kept killing consumers. More ominously, fuel economy remained stagnant with little learning about how to rein it in. Without foreign competition, complacency flourished. No one had any idea of the coming cost.

In 1950, Japan was a new military and industrial ally that desperately needed to catch up. Mr. Deming unfortunately became the United States’ most important export, personally teaching and instilling the quality culture in Japanese industry. The United States received no payment. Instead, this singular brain drain nearly wrecked Detroit as its auto industry fell behind Japan in both production efficiency and product quality.

By 1980, two oil crises ensured that small Japanese cars would earn a large share of the U.S. market. Less well known than the vaunted reliability of Japanese cars, the focus on quality also resulted in great financial success. Waste was eliminated along with repairs in the factory and, as a result, productivity at Toyota factories outpaced GM by three times or more. Profits were stable, and even though Detroit belatedly adopted Japan’s methods, the financial cost to the U.S. economy dwarfed the supposed expense of Mr. Deming’s methods. Foreign competition in the 1950s might have forestalled the pain and the cost.

Now that Canada has grown into a major supplier of U.S. industrial metals and consumer goods such as cars, the country has also become a conduit for technological influence. In addition to factories owned by Japanese and South Korean auto makers, Canada has a significant domestic parts manufacturing sector. Combined, these continuously feed new ideas into U.S. industries through exports. Raising tariffs simply encourages a more insular United States and reduces access to these improvements. Less competition in the technology realm means that it becomes easier to emphasize cheaper instead of better. Tariffs hold everyone back from advancements in technology.

Recalling the space race should remind us that competition spurs advancement. Focusing on trade balances and tariffs hearkens back to an oblivious era of cost avoidance in business, exactly what Mr. Deming warned against. In a scientific and industrial economy, the best way to succeed is to improve everything we do by applying science. Looking back to an era when industry was protected by import quotas and high tariffs can only lead us down a destructive path.

Late in his life, Mr. Deming was quoted as saying, “I probably won’t even be remembered. Well, maybe … as someone who spent his life trying to keep America from committing suicide.”

https://www.theglobeandmail.com/opinion/article-what-america-forgets-trade-drives-innovation/

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