American Manufacturing’s Unmatchable Competitive Advantage

By Fred Stahl
December 18, 2013
General Foundation

China is headed for economic upheaval. As I wrote here recently, China’s currency has appreciated 25% against the U.S. dollar over the last decade. At the same time, manufacturing labor costs in the coastal industrial provinces continue to escalate much faster than in the United States. The outlook for China’s competiveness is bleak and it’s going to get worse. The country’s labor force will peak in the next couple of years and then decline sharply, which will undermine the main pillar of the country’s competitive strategy: cheap labor. 

In response, Chinese government policy will increase pressure on companies to raise productivity. As in the United States, Beijing will encourage producers to invest in technology and innovation. But some observers foresee new and more aggressive strategies. They expect the government to pressure factory managers “to make much deeper and longer lasting improvements in their management and operational practices.”

This is good news for American manufacturers who are installing advanced production systems that take advantage of unique features of American workplace cultures to dramatically improve productivity of factory workers. The results are powerful and unmatchable competitive advantages for American enterprises compared to fossilized factory cultures in Mainland China. What are those new production systems and how does the American culture boost their competitiveness? 

We already see technology and innovation in American product designs and manufacturing processes contributing to what many call the renaissance of manufacturing in the United States. But there is another, less visible and potentially more powerful factor in play: the human side of production. 

American manufacturing managers have begun to understand that programs to improve productivity must deal with both the technical and human sides of production. One manager at General Electric called employees "the secret sauce" without which companies fail at lean manufacturing (a system of policies and practices developed by Toyota and designed to reduce wasted labor, time, and material in production.). Managers at John Deer put it this way: First change the culture and then change production. 

These new, advanced production systems go well beyond lean manufacturing. They harness the most valuable asset of any organization—the minds of its workers. They apply a concept and practice called Worker Leadership. Based on tested methods for organizing and managing production, Worker Leadership asks workers to lead production. Executives transfer responsibility and authority for production operations from managers and foremen to trained teams of workers. They are empowered to use their skills, experience, judgment, and hands-on knowledge to manage day-to-day operations, find and fix production problems, and improve manufacturing processes. As a consequence, Worker Leadership delivers extraordinary levels of enterprise productivity, levels that are out of reach of other production systems. Worker Leadership is the future of work and production in the twenty-first century. 

Worker Leadership rejects the traditional and ineffectual premise of human relations management: that a happy worker is a productive worker. Instead, Worker Leadership releases the full productive power of the workforce by applying a fresh and effective premise of human behavior in work: A productive worker is a happy worker. Workers love jobs that offer big opportunities to be creative and productive—the bigger the opportunity to be productive, the greater their job satisfaction—in any organization, not just in factories. 

The physical side of Worker Leadership is organized using methods of lean manufacturing made famous by Toyota. Clean, lean shops give empowered workers the visibility and control essential to manage factory operations to high levels of enterprise productivity. 

Worker Leadership also offers important benefits for organized labor. It promotes the vitality and growth of labor unions through a shared responsibility with management for improving the productivity—and value—of every worker. Popular strategies for improving competitiveness focus on the input end of productivity, that is, lowering the cost of labor. In contrast, Worker Leadership works on the output end of productivity by improving the value added by every worker—and hence the value of every job. This strategy aligns the goals of enterprises, workers, and unions. 

Can Chinese firms adopt Worker Leadership to achieve the deeper and longer lasting improvements in their management and operational practices needed to compete in the future? The answer is: Not many—if any. Most are struggling, unsuccessfully, with lean manufacturing. Recent field studies by scholars from Chinese universities found that most Mainland companies that try to deploy lean manufacturing fail. They found that industrial cultures in China present almost insurmountable barriers to implementing lean manufacturing. Worker Leadership presents even higher cultural hurdles to factory managers in China. 

U.S. manufacturers, in contrast, have unmatched cultural advantages. The unique American national culture of rugged individualism prepares workers to step into leadership roles. Workplace cultures in stratified societies do not. 

Worker Leadership amplified by the American national culture of individualism gives American enterprises a singular and enduringly powerful competitive advantage in the global battle for industrial competitiveness.

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Fred Stahl is the author of Worker Leadership: America’s Secret Weapon in the Battle for Industrial Competitiveness (MIT Press, Fall 2013). He can be reached at fred@fredstahl.com