Henry Ford (July 30, 1863 – April 7, 1947) was an American industrialist and business magnate. He was the founder of Ford Motor Company, and chief developer of the assembly line technique of mass production. Ford created the first automobile that middle-class Americans could afford, and his conversion of the automobile from an expensive luxury into an accessible conveyance profoundly impacted the landscape of the 20th century.
“My young friends, hitherto, you have been following the rut. You get your degrees and when you are thrown out of this University in thousands, all that you think and hanker for is government service. As your Vice-Chancellor has rightly stated the main object of the old system of education and the system of government existing, hitherto, was really to have well-equipped clerks. Of course, some of them went higher and found their level, but the whole idea was to get well-qualified clerks. Civil Service was mainly staffed by the Britons and the Indian element was introduced later on and it went up progressively. Well, the whole principle was to create a mentality, a psychology, a state of mind, that an average man, when he passed his BA or MA was to look for some job in government. If he had it he thought he had reached his height. I know and you all know what has been really the result of this. Our experience has shown that an MA earns less than a taxi driver and most of the so-called government servants are living in a more miserable manner than many menial servants who are employed by well-to-do people. Now I want you to get out of that rut and that mentality and especially now that we are in free Pakistan. The government can not absorb thousands. Impossible. But in the competition to get government service most of you get demoralized. Government can take only a certain number and the rest cannot settle down to anything else and being disgruntled are always ready to be exploited by persons who have their own axes to grind. Now I want that you must divert your mind, your attention, your aims and ambition to other channels and other avenues and fields that are open to you and will increasingly become so. There is no shame in doing manual work and labor.”
- Mr. Jinnah / Quaid-e-Azam
- Speech: The Role of Students in Nation Building
- Context: Speaking at the Dacca University Convocation
We must diminish the trend of focusing on government jobs, an unreasonably large volume of students apply for CSS exams and while it may create some false sense of prestige, it will not result in personal or collective economic prosperity. It truly is the time to ditch CSS exams and focus on real progress and prosperity.
The people of Pakistan can transcend the existing conditions and create a society they dream of, by investing in market-creating innovation. But not just any new markets, new markets that serve people for whom either no products existed or existing products were neither affordable nor accessible for a variety of reasons. These innovations transform complicated and expensive products into ones that are so much more affordable and accessible that many more people are able to buy and use them. In a sense, market-creating innovations democratize previously exclusive products and services. This type of innovation not only creates markets, but jobs, too. This is because as new markets with new consumers are born, companies must hire more people to make, market, distribute, sell, and service the product. Market-creating innovations create local jobs, decrease unemployment, reduce crime, contribute to income tax and consumer spending.
Markets have the ability to pull into societies many of the components that make societies safer, more secure, and more prosperous. Once these new markets are created, the economy becomes more resilient as it generates more income to fund schools, roads, hospitals and even better governance. Even small innovations can begin to transform countries economically and culturally.
When Henry Ford first boldly decided to build a car for the average American, he was met with intense skepticism. Critics predicted he would be out of business in six months. But Ford was not deterred. "I will build a car for the great multitude. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest design that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God's great open spaces," he declared.
For transformative development to happen, innovators must first imagine a different world, one that is filled with possibilities that many others can't begin to imagine. It's not hard to understand why critics thought Ford's prediction was crazy. Think of the America into which Ford introduced his cars. By the early 1900s, GDP per capita had reached about ~$7,800 in today's dollars, almost the level of the United Kingdom's $8,800, but life was still difficult for the average American. Most people still had no access to electricity; relatively few children made it to secondary schools; life expectancy was around fort-seven years; and America's road infrastructure was not developed, at least not for the automobile. At the time, the average American did not even see the need for cars or the way they could impact America. Most people lived close to where they worked and played. Much like many emerging markets today, only wealthy Americans could afford cars. But Henry Ford was about to change that.
Born in 1863, Henry Ford had a penchant for innovation. His father owned a farm in Dearborn, Michigan, where Ford made little contraptions that would ease some of the more laborious farming tasks. Like other innovators, Ford was not formally educated. After he became a mechanic's apprentice, Ford became increasingly fascinated with building a horseless carriage. He worked on it in his spare time for more than twelve years, until he quit his full-time job at the Edison Illuminating Company to join a fledgling start-up, the Detroit Automobile Company. The Detroit Automobile Company did not succeed, and Ford was ousted from the company, but his determination to build a successful automobile company remained strong.
In 1903, after winning a race against prominent Ohioan automaker, Alexander Winton, with a car Ford had designed himself, he and a small group of investors formed the Ford Motor Company. It was there that the seeds of the "democratization of the automobile" in America were planted.
In order to build a successful business model that targeted non-consumption, Ford did many things that may seem not "core" to building a car today. In other words, his company had to pull in many resources and components that, today, would seem an unreasonable expenditure. But in particular circumstances, especially those in which a new market is being created, pulling in what may seem to be "non-core resource" to successfully accomplish Job to Be Done is necessary. Today, we call this vertical integration, but back then innovators simply understood doing what was necessary to succeed in creating a new market. That's effectively what Ford did. Because of a majority of car manufacturers at the time focused on the consumption economy and targeted only wealthy individuals, they remained small and didn't have to pull in extensive resources to produce their custom-crafted vehicles.
By constrast, Ford had to figure out how to make a lot of things work. By the 1920s, the auto assembly plant was just one in a long line of significant investments Ford made to get his car to American non-consumers. Ford's company also ran blast furnaces for steel, timberlands, coal mines, rubber plantations, a railroad, freighters, gas stations, sawmills and glassworks. This was a first in the auto-industry. No one had ever quite seen anything like this. These investments were not just Ford's infrastructure, they became American's infrastructure, too.
Ford Model T changed the landscape of America, quite literally. In 1900, the number of registered cars in the United states totaled 8,000; by 1910, just ten years later, it reached 458,000; in 1920, it was 8 million; and by 1929, there were more than 23 million registered motor vehicles in the country. The Model T was a significant reason for the adoption of automobiles in the United States and other parts of the world. In 1922, for instance, of the approximately 2.5 million new cars registered, roughly 2 million were Ford Model T automobiles.
As cars were made more affordable, fewer horses were needed both for city travel and for work on farms. Many farmers also retrofitted the Ford Model T for their farming needs, further reducing the need for horses and mules. By the early twentieth century, it was costing America more than $2 billion to maintain horses annually, about the same as it cost to maintain the railroads. In New York City, for example, city officials had to deal with more than forty-five thousand tons of those horse manure monthly. The problem was so pervasive, and vile, that one motoring advocate claimed "all wars together have not caused half the deaths that may be traced to the horse." That may be bit of an exaggeration, but it certainly captures the fears at the time. Once critic went so far as to suggest that by 1930, horse manure would reach "the level of Manhattan's third-story windows." Luckily, Henry Ford's automobile took off before that could happen.
Ford's decision to target non-consumption and create a new market for automobile in America and the market's need to develop and pull in many new resources were critical to the development and prosperity of America, including roads. In his book The Big Roads: The Untold Story of of the Engineers, Visionaries, and Trailblazers Who Created the American Superhighways, Earl Swift explains that by 1909, only 8 percent of America's 2.2 million miles of roads were "improved in any way." And half of the 8 percent of "improved roads" were gravel. At the time, America had just nine miles of concrete roads. But as the car became ubiquitous, improved roads followed, and Americans benefited immensely.
The economic and social impact of road building in America was enormous. "Each billion dollars spent on construction provided the equivalent of 48,000 fulltime jobs for a year and consumed an almost inconceivable vast pile of resources; 16 million barrels of cement, more than half a million tons of steel, 18 million pounds of explosives, 123 million gallons of petroleum products, and enough earth to bury New Jersey knee-deep. It also devoured 76 million tons of aggregate," notes Swift.
But as important as roads were, what's even more important is what they enabled. Rural school attendance in the US stood at around 57 percent before the emergence of good roads. Once good roads were built, daily attendance spiked to 77 percent. The cost of moving a ton of freignt was round 22 cents a mile on an unimproved road, but dropped drastically to 12 cents on better roads. The reduction in transport expenses enabled further travel and trade to thrive within and between cities.
Roads and their attendant benefits, however, were not the only things Ford's innovation pulled into America. Consider how the company impacted wages and incomes, one of the most important determinants of development, prosperity, and the efficacy of a democracy. When Ford instituted the assembly line in his factories, work became monotonous. Unskilled men did the same thing over and over again for nine hours a day, six days a week, and for approximately $2.34 a day ($60 in today's dollars). As a result of the work's monotony, turnover at Ford's manufacturing plant skyrocketed to a whopping 370 percent annually. This meant that for every one job, Ford had to hire four people keep his factory running smoothly. It was unsustainable. In order to combat this problem, in 1914, Ford instituted a $5 per day minimum wage, essentially doubling the pay for his factory workers. Critics and other automobile manufacturers thought Ford crazy for increasing wages. The Wall Street Journal editorial page at the time implied that in doing so, Ford was not only betraying his fellow business owners, he was jeopardizing the whole of American enterprise. "To double the minimum wage, without regard to length of service, is to apply Biblical or spiritual principles where they do not belong," the Journal wrote, adding that Ford had "in his social endeavor committed blunders, if not crimes. They may return to plague him and the industry he represents, as well as organized society."
Luckily, Ford did not agree with many of the prevailing sentiments at the time. His decision is frequently discussed as part of his efforts to turn his own workers into customers, with higher wages, they could afford his cars, the thinking goes. But in reality, Ford was focused on keeping his factory open. Ford later remarked that the wage increase was the "smartest cost-cutting move the company ever made." Other manufacturers, too, saw the payoff in the move and followed suit, opting for higher wages in their operations.
Ford was also largely responsible for changing what had been a six-day workweek into a five-day one, a move his critics also feared would undermine the entire economy. Somehow, Ford saw things differently: he saw a reduced workweek as essential for keeping and improving his workers' productivity and understood the potential ripple effects on the economy as a whole. "It is high time to rid ourselves of the notion that leisure for workmen is either 'lost time' or a class privilege ... The people who work only five days a week will consume more goods than the people who work six days a week," he said at the time. "People who have more leisure must have more clothes. They eat a greater variety of food. They require more transportation facilities. This increased consumption will require greater production than how we now have... This will lead to more work. And this to more wages."
With such moves helping improve his plant's efficiency, the Ford Motor Company was able to reduce the price of Model T from $950 in 1909 (approximately $25,000 in today's dollars) to $260 in 1927 (~$3,700 in today's dollars), making it even more affordable for the average American, including Ford factory employees. Sales of the Model T boomed as a result. By 1923, there were just over 15 million cars registered in the country, approximately 135 cars per 1,000 people. Economists predicted that the industry's growth just couldn't continue. They could not see how Americans would keep buying cars. Most people who could afford cars, they thought, had already bought at least one. Some households even had two. But their projections grossly missed the mark. In 2014, there were 816 vehicles per 1,000 Americans. More than 260 millions cars roamed US streets, roadways, and highways.
When we think about Ford, or the Model T, we think about how this one innovation changed so many American lives. We think about the culture of innovation Ford fostered, and the possibilities he created for many to lead better lives.
There are various innovations that can create new markets in Pakistan. Please review just a few examples of market-creating innovation:
Portable washing machines: The global washing machine industry is about $25 to $30 billion market, with Pakistan responsible for less than 5 percent of that market, even though the country is home 220 million people. Only ~7% of households in Pakistan have a washing machine. Compare that with the United Kingdom, where 97 percent of households have the product. Existing washing machines are complicated, power hungry, and too expensive for most of the world's population, and they are mostly available for homes with piped water supply. In addition, purchasing a washing machine and attaching it to one's home almost always requires a plumber, a cost that many households in Pakistan cannot bear. Existing machines also require electricity and millions of households in Pakistan, don't have access to electricity. So by design, most washing machines on the market exclude a majority of Pakistan's and the world's population. But what if an innovator designed, manufactured, and sold a portable low-cost washing machine targeted specifically at the non-consumption market in Pakistan and many countries like it?
Affordable drugs: The pharmacies per capita in Pakistan is extremely low, which means there are only about ~8,000 pharmacies for 220 million people. A low-cost pharmacy business model is what is needed to pull in the necessary infrastructure that will also serve as Pakistan's infrastructure. Imagine what would happen if a local pharmacy develops into the Walgreen's of Pakistan.
Sanitation and Energy: Sanitation is a huge problem in many poor countries and for many poor-country governments. When most governments can't find the financial resources to pay teachers, doctors, and other public servants, how are they supposed to fund sanitation? As such waste management is often a significant problem in poor countries, and, with recent urbanization trends, it doesn't look like it'll get better. Not only is it a deadly health hazard for the local population, but it is also very costly to the economy. What if an innovator builds a waste-to-energy factory that collects fecal and organic waste from toilets and food markets in urban slums, and then converts it to organic fertilizer, irrigation water, and biogas? The biogas can then be used to produce electricity, while organic fertilizer and water can be used to grow seedlings. Such an operation could provide jobs and training to thousands of Pakistanis who otherwise have limited economic prospects.
We believe market-creating innovation is the path towards Pakistan's enduring economic progress.
source: The Prosperity Paradox, by Clayton M. Christensen, Efosa Ojomo, Karen Dillon
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