In looking over the landscape for blog fodder I came across an article written by a guy named Paul Krugman in the New York Times that had nothing to do with lean manufacturing, but it piqued my curiosity and led me to something that has everything to do with lean. Krugman is an economist – a Nobel Prize winning one, in fact. Now I know that the Nobel Prize is next to meaningless. Just the like the Baldrige Award was something to shoot for – until they gave one to GM's Cadillac Division and the manufacturing world knew that any quality award given to any part of GM was not worth having; and the Shingo Prize was meaningful – until they handed out 20 or so of them to Delphi right before they went bankrupt; and so it is with the Nobel prize. Giving a Nobel Peace Prize to Obama who had done nothing, but because he is foursquare in favor of peace took just about all the glitter off the award – made it clear that the bar for winning one isn't particularly high. Nonetheless, it is about as good as it gets for an economist, and they gave one to Krugman.
The article that caught my eye was one in which he trashes the world's leaders for not spending money they don't have to keep stimulating global economies. He accuses them of pandering to the common people with "a stunning resurgence of hard-money and balanced-budget orthodoxy". Only the Obama administration, it seems, understands the true relationship between spending money it doesn't have and creating jobs (never mind that it spent better than a trillion bucks it didn't have last year with virtually no effect on job creation).
This guy sounds like someone who goes into the bank and asks for a loan – even though he is already in debt up to his ears and has no job and no realistic plan to pay it back. The security he offers is that "something will turn up – it always has in the past", and when he is flatly turned down, he proceeds to lecture the banker on the arcane details of lending theory and its history and berates him for being ignorant of just how lending works. In short, he sounds like an idiot.
I used to think my lack of formal education in economics was a hindrance, but when you read guys like Krugman you realize that it is actually a great benefit to not be burdened with having to unlearn so much nonsense. Borrowing money with no realistic idea of how it will be repaid, and spending it so you can enjoy life in the short term is stupid. It is stupid whether it is an individual, a company or a country. That basic premise is quite obvious to just about everyone – except to guys like Paul Krugman who has his head so far buried in pointless economic theory and the arcane details of Keynsian monetary policies versus the Chicago school and how it all relates to Adam Smith and what Milton Friedman wrote … that he is completely out of touch with the obvious. And he looks like a colossal jackass when he reacts to anyone pointing out the obvious gaping holes in his logic with a stream of insults and rants – the hallmark of his writing.
So what does this have to do with lean? It seems he won the Nobel Prize for figuring out that factories produce best when they achieve economies of scale, but consumers like variety; therefore you can't have a factory in every country to make what people want because the factory needs to make far more of everything than the local market can absorb; therefore factories will be centralized in places that are good for factories; and only the niche producers will be located in other places. This brilliant insight won him the big prize and is what he calls the 'love of his life in academic work'.
In reading this it becomes clear that economists are racing down the road with their eyes riveted to the rear view mirror, not only missing what lies ahead but unable to even see what is around them. The worst of them, guys like Krugman, compound their wretched driving by shouting insults out the window at everyone they run over.
Several years ago Norman Bodek, one of the truly great lean pioneers, took a run at trying to nominate Shigeo Shingo for a Nobel Prize but was roundly rebuffed because the Prize is not for people like Shingo who make trivial improvements to factory floors. It would no doubt shock the Nobel committee and deflate Mr Krugman's substantial ego to learn that Shingo, in fact, recognized that factories work best with economies of scale, but consumers want variety, and unlike Krugman he did not stare at his navel for eleven years – then write a paper about it. He and others at Toyota cooked up SMED. It is the heart of the Toyota Production System precisely because it resolves the issue that Krugman and the Nobel folks see as so monumental.
Henry Ford took economy of scale to an art form with the assembly line, but could not figure out the solution to customer's desire for variety – the Model T was an extraordinarily economical, high quality product, but 'any color you want so long as it is black' ultimately did him in. Sloan went after a 'car for every purse and purpose' - that customer need for variation – but undermined Ford's economy of scale by institutionalizing batch manufacturing. Economies of scale are only realized when the output across a fixed base is optimized – and batch manufacturing slowed down output, and piled up inventory and it's resulting costs to a far greater extent than anyone knew (and they didn't know it because Sloan and his minions created a new accounting scheme to make those costs look like they didn't exist).
What Shingo and Toyota did through SMED was to achieve the economies resulting from scale – producing a high volume across a fixed cost base - but to do so with great variety. Heijunka – one piece flow – mixed model production – are the solution to Krugman's Prize winning dilemma. As manufacturing becomes more flexible – able to produce a great deal of volume without having to make everything the same - the grand conflict between economies of scale and customer desires melts away. It is how factories like Wahl crank out millions of products every year from its fixed cost base – viewing even labor as a fixed cost – but doing so in the form of hundreds of different SKUs to satisfy a very wide range of customer needs.
Economists like Krugman are not only out of touch with the obvious, but they tend to be a pretty disingenuous lot, as well. They seize the data that supports their theories, and ignore the data that refutes it. Had the Nobel Prize folks been knowledgeable and ethical they would have demanded that Krugman reconcile Toyota's long track record of success with a regional manufacturing strategy with his 'New Economic Geography'. Such a reconciliation would not have been possible, because Toyota – and lean principles – stand those theories on their ears. The entire theory, in fact, is based on an understanding of manufacturing that is at least fifty years old. It applies to the Chinese factory that cranks out those irritating vuvuzela horns by the hundreds of thousands to make soccer games even more painful to listen to than to watch, but it less and less applies to serious manufacturing.
Similarly, Krugman and his brethren ignore the proven error in productivity statistics – or trivialize it – because it undermines their erroneous and outdated thinking. Or they simply flat out lie - that Comparative Advantage is "a tried and true idea that has lifted millions out of poverty", for instance. It is a typical Krugman article – start out with a lie then insult the intelligence of anyone who disagrees. Who are those millions, Mr Krugman? The Mexicans who were on the receiving end of globalized manufacturing with the Maquila craze of the 1990's? The one million jobs that cropped up are long gone when the cheap labor gang dumped them and moved on to China with no lasting benefit to Mexican wages. The Chinese? Apparently not since they are starting to riot in the streets to get the better-than-poverty-wages they deserve but have not received. The Vietnamese? Malaysians? Hondurans? Where can we find these millions who have been lifted from poverty? It is only because they are in poverty that they have jobs. When they want to be "lifted out of poverty" your theory of Comparative Advantage dictates that factories move to another country where the folks have no such lofty aspirations.
With their backs to the future and their eyes closed to the present, economists are proving themselves to be increasingly unworthy of respect. More and more what the economists have to offer the world is absolutely nothing.
Within ten years regional manufacturing based on lean principles will be the norm, and the days of mass production without variation will be largely over. What will actually lift millions out of poverty will be to perform high value, high productivity in lean factories serving their own regional demands. Thirty years after that, the economists of the world will 'discover' this economic shift, and will race each other to Oslo to win the prize for their insight. By then I doubt anyone will care.