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Jobs – A Consequence of Being Competitive

The above proverb is something I frequently use to open presentations to manufacturers. When asked if the sentiment of the proverb is true, almost everyone will agree. Occasionally, there will be someone who suggests that it’s not true – “If I’m a gazelle, I don’t have to outrun the lion, only the slowest gazelle.” My reply is always, “Yes, of course, but what will you do next week, when the lion is hungry again?” Longer term thinking is important.

Most people believe that Charles Darwin created the concept of “survival of the fittest.” Actually, he did not. Herbert Spencer, a noted British polymath philosopher of Darwin’s day, observed on reading Darwin’s work, On the Origin of Species, that it was about the survival of the fittest, or more accurately, “survival of the fitting,” the difference being that it’s not the biggest, strongest species that survive, but rather those that adapt and “fit” into changes in their environment. Without this adaptability, they perish.

Jobs – A Consequence of Being Competitive

With this in mind, let’s return to the title of this article: “Jobs – A Consequence of Being Competitive.” There is no doubt in my mind that this is the case and there’s a very simple explanation for it.

Let’s pretend you’re going to buy something, anything really. You have certain requirements for this purchase. These requirements can include any number of parameters, depending on what you’re buying, e.g., color, size, quality, endurance, reliability, convenience, and even brand (you may pay more for a particular logo because of status or perceived quality). Let’s further pretend that you’ve narrowed it down to two or three vendors, but you’re having difficulty deciding from which one to buy. As far as you can tell, all three vendors meet your requirements. From which one do you buy? The vast majority would reply, “The cheapest.” During one workshop, a union president in the group said, “I wouldn’t.” I said, “You wouldn’t what.” He said, “Buy the cheapest.” Surprised, I responded, “What would you do?” Proudly, he said, “I’d buy the one made in America!” I observed, “Well, your wife wouldn’t.” He admitted, “Yep, we’ve had that talk.” Everyone had a good laugh.

Most of us will, in fact, buy what we perceive to be the cheapest item that meets our requirements. Yes, we can be fooled from time to time, but this will change our perception of the cheapest, since it didn’t meet our requirements. In any event, we tend to buy the cheapest item that meets our requirements. It’s only natural to try to maximize the benefit we receive from the income we have.

What happens in the marketplace when we buy the cheapest goods that meet our requirements? What’s the natural consequence of our behavior? It puts pressure on prices, downward pressure. Manufacturers know this, so they work really hard to put the cheapest one in front of us and still make a profit. So over time, our costs must come down as well. Granted, manufacturers will come up with new ideas and better products, and in the short term charge a little more for this new feature. Over time though, their competition will develop a comparable feature, renewing the pressure on price. Of course, price is also subject to supply and demand, and can vary greatly depending on any number of issues. Over the long term however, price, adjusted for inflation, generally trends downward for most goods. Oil and land are two notable exceptions, since the supply is relatively fixed and the demand is increasing with a growing population and economy.

Given this, in business we must constantly work to put the cheapest product (for a given set of requirements) in front of people and still make a profit. Walmart recognized this phenomenon long ago and has been really good at capitalizing on it. Of course, this means that our costs must continuously trend downward. However, we have a dilemma here. In most organizations, people, justifiably so, expect an annual increase in pay, particularly at the CEO level (a topic for another day) and routinely ask for more benefits, all of which induce additional costs. These are natural and proper tendencies. However, a critical question must be: How do we allow for that and still make a profit in a marketplace where there is continuing pressure on price and costs because most people buy the cheapest item that meets their requirements? The answer is fairly simple: Our productivity must improve, year after year, after year. For example, we must engage our workforce in improving reliability so we can be as productive with our people and equipment as possible.

Unfortunately, this simple phenomenon is not well understood. Jobs are a consequence of being competitive in this Darwinian world of capitalism. We, myself included, buy the cheapest item that meets our requirements, but also lament that jobs are going overseas. We do this all the while expecting, or at least hoping for, increases in pay and benefits, at times without consideration as to the commensurate improvements in productivity that are needed to support the pay and benefits, and still remain competitive. If you aren’t competitive, there are no jobs. GM and Chrysler learned this the hard way. Expecting higher pay and benefits without commensurate increases in productivity will only diminish the potential for future jobs. Again, when we buy the cheapest, it puts pressure on prices, and therefore, on costs, wages and benefits. A proper and effective balance must be struck and productivity must improve, year on year. One question I always ask, particularly among unions, is: “If your work rules make you less competitive, whose jobs are you putting at risk?” Yours and everyone else’s.

In closing, I want to affirm that there is no doubt in my mind that Americans can compete in this Darwinian world of capitalism. But they have to step up to the challenge and improve productivity. A high-level analysis indicates that even though the typical Chinese manufacturer has a 10:1 labor cost advantage, when you add in the various other supply chain costs and risks, Americans only need to be about 20 percent more productive. That is well within our grasp. But, the environment in which we compete must be inculcated in the view that productivity improvement is essential, year on year, for the simple reason that when we buy things, we buy the cheapest one that meets our requirements. Jobs are a consequence of being competitive.

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