4.2 What Guarantees the Ruin of Economy?

Everyone knows that Ford manufactured cars. That is why one might get an impression that Ford managed to occupy a «microeconomic» niche and afterwards made profit from maintaining a virtual monopoly for decades, and that his principles and experience cannot be applied outside this «microeconomic» niche, therefore there is nothing to learn from him. Yet Ford achieved success not only as a manufacturer of cars but also as an owner of a railroad, though he did it not on his own accord but pressed by the circumstances. The fact is that the Detroit-Toledo-Ironton railroad formed a part of «Ford Motors» production cycle. It provided freight services necessary to connect remote trade shops into a single car-manufacturing procedure. Ford writes as follows about the quality of those services:

«For years past we had been trying to send freight over this road because it was conveniently located, but we had never been able to use it to any extent because of the delayed deliveries. We could not count on a shipment to within five or six weeks; that tied up too much money and also broke into our production schedule. There was no reason why the road should not have had a schedule; but it did not. The delays became legal matters <on damaged incurred by freight-owners due to delays in delivery>[17] to be taken up in due legal course; that is not the way of business. We think that a delay is a criticism of our work and is something at once to be investigated. That is business» (Ch. 16. “The Railroads”).

Having got tired of fighting the railroad’s management and of the uncertainty its bad performance introduced into «Ford Motors» business, Ford bought the railroad:

«We bought the railway because its right of way interfered with some of our improvements on the River Rouge. We did not buy it as an investment, or as an adjunct to our industries, or because of its strategic position. The extraordinarily good situation of the railway seems to have become universally apparent only since we bought it. That, however, is beside the point. We bought the railway because it interfered with our plans. Then we had to do something with it. The only thing to do was to run it as a productive enterprise, applying to it exactly the same principles as are applied in every department of our industries» (Ch. 16. “The Railroads”).

Ford says the following about the road’s life and the situation on it before and after its acquisition by «Ford Motors»:

«The Detroit-Toledo & Ironton Railway was organized some twenty-odd years ago[18] and has been reorganized every few years since then. The last reorganization was in 1914. The war and the federal control[19] of the railways interrupted the cycle of reorganization. The road owns 343 miles of track[20], has 52 miles of branches, and 45 miles of trackage rights over other roads. It goes from Detroit almost due south to Ironton on the Ohio River, thus tapping the West Virginia coal deposits. It crosses most of the large trunk lines and it is a road which, from a general business standpoint, ought to pay. It has paid. It seems to have paid the bankers. In 1913 the net capitalization per mile of road was $105,000. In the next receivership this was cut down to $47,000 per mile. I do not know how much money in all has been raised on the strength of the road. I do know that in the reorganization of 1914 the bondholders were assessed and forced to turn into the treasury nearly five million dollars — which is the amount that we paid for the entire road. We paid sixty cents on the dollar for the outstanding mortgage bonds, although the ruling price just before the time of purchase was between thirty and forty cents on the dollar. We paid a dollar a share for the common stock and five dollars a share for the preferred stock — which seemed to be a fair price considering that no interest had ever been paid upon the bonds and a dividend on the stock was a most remote possibility. The rolling stock of the road consisted of about seventy locomotives, twenty-seven passenger cars, and around twenty-eight hundred freight cars. All of the rolling stock was in extremely bad condition and a good part of it would not run at all. All of the buildings were dirty, unpainted, and generally run down. The roadbed was something more than a streak of rust and something less than a railway. The repair shops were over-manned and under-machined. Practically everything connected with operation was conducted with a maximum of waste. There was, however, an exceedingly ample executive and administration department, and of course a legal department. The legal department alone cost in one month nearly $18,000.

We took over the road in March, 1921. We began to apply industrial principles. There had been an executive office in Detroit. We closed that up and put the administration into the charge of one man and gave him half of the flat-topped desk out in the freight office. The legal department went with the executive offices. There is no reason for so much litigation in connection with railroading. Our people quickly settled all the mass of outstanding claims, some of which had been hanging on for years. As new claims arise, they are settled at once and on the facts, so that the legal expense seldom exceeds $200 a month. All of the unnecessary accounting and red tape were thrown out and the payroll of the road was reduced from 2,700 to 1,650 men.

Following our general policy, all titles and offices other than those required by law were abolished. The ordinary railway organization is rigid; a message has to go up through a certain line of authority and no man is expected to do anything without explicit orders from his superior. One morning I went out to the road very early and found a wrecking train with steam up, a crew aboard and all ready to start. It had been “awaiting orders” for half an hour. We went down and cleared the wreck before the orders came through; that was before the idea of personal responsibility had soaked in. It was a little hard to break the “orders” habit; the men at first were afraid to take responsibility. But as we went on, they seemed to like the plan more and more and now no man limits his duties. A man is paid for a day’s work of eight hours and he is expected to work during those eight hours. If he is an engineer and finishes a run in four hours then he works at whatever else may be in demand for the next four hours. If a man works more than eight hours he is not paid for overtime — he deducts his overtime from the next working day or saves it up and gets a whole day off with pay. Our eight-hour day is a day of eight hours and not a basis for computing pay.

The minimum wage is six dollars a day. There are no extra men. We have cut down in the offices, in the shops, and on the roads. In one shop 20 men are now doing more work than 59 did before. Not long ago one of our track gangs, consisting of a foreman and 15 men, was working beside a parallel road on which was a gang of 40 men doing exactly the same sort of track repairing and ballasting. In five days our gang did two telegraph poles more than the competing gang!

The road is being rehabilitated; nearly the whole track has been re-ballasted and many miles of new rails have been laid. The locomotives and rolling stock are being overhauled in our own shops and at a very slight expense. We found that the supplies bought previously were of poor quality or unfitted for the use; we are saving money on supplies by buying better qualities and seeing that nothing is wasted. The men seem entirely willing to cooperate in saving. They do not discard that which might be used. We ask a man, “What can you get out of an engine?” and he answers with an economy record. And we are not pouring in great amounts of money. Everything is being done out of earnings. That is our policy.