If they gave awards for the most comprehensive business books of the last ten years Factory Man by Beth Macy would be an unlikely–but worthy contender. It isn’t a TED ready think piece about the flattening of the world. Nor is it a feel good call to revitalize American industry through disruptive innovation. Instead it is a deeply reported narrative on the rise and fall of the American furniture industry. Told through the viewpoint of the Bassett Furniture Company, Macy explains how a manufacturing empire was created and systematically eroded. At first glance the culprits of the decline are predictable: globalization and technology. Globalization because cheap Asian imports flooded the market at a fraction of the cost. Technology because advances in communications allowed businesses to build a supply chain that exported lumber from North Carolina, to China, and the finished product back to American store shelves.
A lesser author would have ended the analysis there, but Macy continues to add background and context to the equation the real culprits emerge: systematically narrow management driven by orthodoxy and bad economic policy. The decline didn’t have to happen.
In the WSJ, Marc Levinson frames the furniture industry’s decline to bad management, not globalization. “The implosion,” he writes, “that Ms. Macy chronicles owes less to import competition than to executives in a sheltered industry who failed to keep up with a changing world.” On the surface, this is correct, and a worse book would have focused solely on it. The bedroom furniture industry had all the makings of an industry ripe for disruption. It was a insular; controlled by a small number of families uninterested in change. They invested only 2.6% of their revenue to capital improvements (new milling machines)—killing any real chance for productivity gains. Even the rare transformative idea was shot down. An employee pitched an IKEA like production system to combat cheap Chinese imports. The executives ignored it.
The reason this book is one of the most comprehensive business book in recent memory is the context Macy provides. Although these mistakes were obvious in hindsight, most were a result of poor conditions created by the day’s business orthodoxy.
- The IKEA idea was rejected because management decided to target the upscale market. They would zig while the Chinese zagged.
- The lack of capital investment was a byproduct of the leveraged buy-out craze driven. In the 1980s many of the family owned furniture companies were bought by private equity firms on credit, and any profits they had went to pay off the interest.
The decline of the industry wasn’t just because they companies didn’t compete. Their decline was the inevitable outcome of thousands of “rational” business decisions compounded over time.
Bad Economic Policy
NAFTA was signed in 1993. It takes about ten years for a large company to strategically align itself to a new reality. Investments need to be made. Marketing and supply chain plans developed. If we begin measuring in 2001 and end it when this book was written (2013), 63,300 American factories and five million factory jobs disappeared. “During that same time,” Macy writes, “China’s manufacturing base ballooned to the tune of 14.1 million new jobs.”
This isn’t going to turn into a full on critique of free trade. My own personal thoughts are as complicated as a Rube Goldberg machine. However, there’s no denying that five million solid paying jobs with benefits are gone. They weren’t replaced and they probably aren’t coming back. For those 5 million workers, the gains of free trade were zero-sum.
The general theme running through the bulk of the book is that all of these management decisions were taking place in a time where the overall economic consensus was morally bankrupt. Ideas that worked in five variables spreadsheets fell apart in the real world. In the furniture industry, there was essentially one man, John Bassett III who looked at the prevailing logic and said, “This is bullshit.” While his competitors were dismantling their manufacturing arms are transitioning to become retailers of cheaper Chinese made merchandise—Bassett fought back. He couldn’t sell out his country. The John Bassett III Macy describes is a throwback. He reminds me of a character that Rolling Stone’s Matt Taibbi describes in his latest piece:
There was a time in this country – and many voters in places like Indiana and Michigan and Pennsylvania are old enough to remember it – when business leaders felt a patriotic responsibility to protect American jobs and communities. Mitt Romney’s father, George, was such a leader, deeply concerned about the city of Detroit, where he built AMC cars.
But his son Mitt wasn’t. That sense of noblesse oblige disappeared somewhere during the past generation, when the newly global employer class cut regular working stiffs loose, forcing them to compete with billions of foreigners without rights or political power who would eat toxic waste for five cents a day.
Then they hired politicians and intellectuals to sell the peasants in places like America on why this was the natural order of things. Unfortunately, the only people fit for this kind of work were mean, traitorous scum, the kind of people who in the military are always eventually bayoneted by their own troops. This is what happened to the Republicans, and even though the cost was a potential Trump presidency, man, was it something to watch.
Beth Macy’s Factory Man is a breath of fresh air in world where quick asides and talking points dominate the business landscape. It’s comprehensive and is overfilled with insight. If you are looking for a similar read I’d recommend the fantastic Losing Sparta, my choice for the best article of 2014.