By Kathy G.
It’s ironic that this James Surowiecki piece about Toyota’s success came out this week, given the fact that the the latest financial report from Toyota (via Megan McArdle) shows a substantial decline in profits. The decline is being blamed on “a stronger yen and soaring raw-materials costs.” Truck sales in the U.S. have also been down.
Whatever problems Toyota is currently having, Surowiecki points out that Toyota has “long been the auto industry’s most profitable and innovative firm” and that this year it may become the sales leader, as well. What have been the secrets to Toyota’s success? Surowiecki points to innovation, and in particular, Toyota’s vision of “innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis.”
Crucial this philosophy is
the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers.
Though other companies have tried to duplicate Toyota’s techniques, they have had limited success, due in large part to the fact that “most companies are still organized in a very top-down manner.”
Though none of Toyota’s North American plants are unionized, their factories in Japan are, as are many of their factories elsewhere in the world. And Japan is where Toyota developed its innovative managerial techniques. The right-wing argument about unions is that “work rules” and lack of flexibility will inevitably stifle innovation and lower productivity. In fact, Ann Coulter’s arm candy loves to make this point, over and over. But Toyota’s success would appear to contradict this theory. And in fact, there is much evidence that contradicts the old conservative myths about the subject.
The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts. There are a number of reasons for this. Partly it’s because union wages are higher, so managers work harder to improve efficiency. But it also has to do with what’s called the exit/voice tradeoff: a worker in a nonunion job is more likely to quit if she’s dissatisfied, but if she’s in a union, she has a voice—via arbitration and grievance procedures, for example—that she can use to try to improve working conditions.
Because unions give workers a voice, unionized workers have lower quit rates than their nonunion counterparts. This reduces turnover costs, which is one reason why union firms enjoy higher productivity. Union workers also have longer job tenures, which means they’re more skilled and experienced, on average, than their nonunion counterparts.
Unions also often lead to better labor/management relations. There’s evidence that unions improve morale, for one thing. Forming a union can giver the employer the impetus to weed out authoritarian and paternalistic managers; in addition, it can facilitate worker/management cooperative ventures. Unions create improved communications between workers and management, which can lead to better work policies and an improved production process. All these effects tend to result in improved productivity.
One especially interesting finding in the literature is that unionized workplaces have fewer managers. The intuitive assumption may be that more managers leads to more close supervision of workers, which leads to more productivity, but the literature on unions sheds doubt on that thesis.
Getting back to Toyota—it is interesting that so much of their success is due to their having implemented suggestions from ordinary workers. A union setting would tend to provide a far more hospitable environment for soliciting such ideas, since union workers have mechanisms for voicing complaints and suggestions and don’t have to fear for their job security. American workplaces, which tend to be nonunion and overmanaged (the U.S. has one of the highest ratios of managers to workers in the world), would present structural obstacles to adapting Toyota’s decidely non-top-down system.
More workplace democracy, in the form of more unions, fewer managers, and fewer firms organized on top-down principles, is highly desirable from an equity standpoint. But Toyota and the literature on unions provide compelling evidence it would be better for efficiency, as well.