In January 1914, Henry Ford surprised everyone by announcing $5/day wage rate, now known as the “five-dollar-day” plan. At that time, the average wage in Detroit automobile industry was $2.40, while the going wage at Ford Motor Company was $2.70. A lot of discussion has taken place on why Ford decided to introduce this unprecedented hike. There have been numerous papers, articles and even a school of thought – “Fordism”: mass production of inexpensive goods, that attempt to explain the reasoning behind this action. Philanthropy, clairvoyance, Labour-pattern experimentation-you name it, all have been touted as probable explanations for the move.

Henry Ford was an engineer and industrialist. In 1903, Ford founded the Ford Motor Company in Detroit with $28,000 in cash from twelve investors. From 1903 to 1908, Ford produced various models, and simultaneously focussed on improving the manufacturing process in terms of speed and accuracy.

Refinement of the assembly line and in-house vertical integration of production were two of his key innovations. These enhancements, specially the modified assembly-line, aided the quick and efficient mass-production of Ford Model T in 1908 – which was their most famous model, and remained relevant for around 20 years. The model sold millions, and was one of their most-publicized models as well. Ford’s dedication to cheap mass production was bolstered by his belief that global consumerism was closely related to international peace.

Now, coming back to the “Five-dollar-day” plan. One of the reasons that people believe is that he wanted to make workers so well off, that they go ahead and purchase Ford cars, thus boosting his own demand. This does not seem like a logical model from the get-go. Why would a company, already doing very well in terms of sales, require additional market demand so much that they were paying their own labour to buy it? Another reason mentioned often by Fordists is simple philanthropy. Ford might be very altruistic, but promising double wages and antagonising your industrial peers does not seem the right way to go.

Well, if we were to believe the research and Ford documentation, this was elaborate experimentation. This experimentation came through the Ford Sociological Department set up in 1913, to promote worker welfare. This department led extensive research amongst workers, collecting data about savings, spending and even habits or vices. The officially stated aim was to establish workers’ condition, and they would take a sample of suitable workers. Apparently, this was done by letting suitable workers in on the massive profits the company was enjoying through double wages. The interior conversations of the Sociological Department have been documented well. In such conversations, John R. Lee, the head of the Department, often cites the goal of Ford, which is to share profits with certain “eligible” workers. Eligibility was determined on the answers of the previous questions. Ford also pursued Lee to see if the incentive of greater income, i.e. share in the profits, would allure workers previously ineligible to the scheme to alter their habitude and become eligible later on. If you were eligible, the Department would keep a definite track on you, measuring your thrift, work culture and increase in output. Mind you, if they did not find marked improvement in the measured factors, you could be taken off the profit-sharers list.

Another reason why people feel this scheme was started was to prevent the huge workforce turnover that Ford was facing. Ford was losing massively in turnover costs. To curb this, Henry Ford thought of incentivizing loyalty and working in long-run with Ford. This sentiment was put in words by Nobel Laureate Paul Krugman- “But in any case there is a fundamental flaw in the argument: surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage “compared with other companies” — and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.” Ford felt that paying extremely high wages would compel workers on its own to work as efficiently as they could. But was this an economically viable long-term plan?

Turns out, No. This immense increase led to a large expenditure on Ford’s balance sheet, and since the cars sales were not extraordinarily jumping higher than previous benchmark, they could not recoup the cost of high wages. This activity was not the one in the Department’s wheelhouse. Often, Ford would have various ideas of labour sociological experimentation, which were called Ford’s open-shop and scientific management policies. The Five-Dollar-Day Plan was under a different name. It was called the Ford Profit-Sharing Plan.

A lot of post-research has been done by sociologists on the plan. Unsurprisingly, the post-studies have raised a lot of concerns as well as positives. Some have heralded this as ahead of its time, while other doubted the moral and ethical side. Also, some believed that the wage jump may in fact, instil negative behaviour amongst workers, since they would spend the extra money on their vices. However, the subjects were restricted to family men, which meant that the questionnaires about the subject’s habits were often filled by relatives and close ones. Often, the subjects reported discomfort to the intrusive questions being asked, which could have severely affected the quality of answers they gave. However, all being said, Ford’s workforce experimentation was an eye-opener to a lot of labour economists. Such was the scale of this trial, this often led to huge losses that Ford incurred. However, that would not be a problem, since cars would begin growing immensely in demand and Ford would dominate the American market till the onset of the 21st century. Important manufacturing innovations such as the moving assembly line and Ford’s goal to maximise the efficiency of his workers, were major contributing factors to Ford’s dominance, despite casting a shadow in terms of research ethics and morals for social scientists to come. But perhaps we should not look at the past from the narrow prism of the present and diminish Ford’s breakthroughs – after all, in a competitive market, brilliance is often built on taking substantial risks and trying something that has never been thought of before.

By Abhijay Pandita