Opinion Editorial | |
| Wednesday, May 19, 1999 | |
Mass Customization Is Improving Living Standards |
One of the puzzles of the current economic expansion is why workers do not seem to be clamoring for higher pay the way they normally do at this point in the business cycle. Despite rapid growth in gross domestic product, productivity and employment, wages have been relatively flat. This has helped keep a lid on inflation, but still the question is: Why are workers behaving this way?
One explanation comes from the Federal Reserve Bank of Dallas. In its recently published annual report for 1998, the bank's economists return to the issue of living standards, which has been the subject of several recent reports. They show how mass customization is enormously improving living standards in ways that our economic statistics do not even come close to capturing. Yet people implicitly feel these improvements in their everyday lives. Thus they may not feel as compelled to push for higher wages because their living standards are rising without it.
The Dallas Fed economists make a persuasive case that mass customization is at the core of today's "new era" economy, just as mass production was at the heart of the Industrial Revolution. They point out that the wealthy have always been able to get what they wanted, made specifically to their order. The cost was high, but they could afford it. The Industrial Revolution dramatically lowered the cost of many goods, especially clothing, with enormous improvements in the well-being of ordinary people.
As the great economist Joseph Schumpeter pointed out, the Industrial Revolution did almost nothing to improve the lot of the rich; they were already well off. Its benefits accrued almost entirely to the masses. "It is the cheap cloth, the cheap cotton and rayon fabric, boots motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man," he wrote. "The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."
Yet while the Industrial Revolution did improve standards of living, it did so at a price. That price was the loss of customization. Whereas once all suits had to be tailor-made, fitted specifically to a single customer, mass production demanded that everyone wear much the same thing. This loss of individuality was depressing for both producers and consumers, engendering discontent that was a major element of Karl Marx's critique of capitalism.
Producers responded by increasing the variety of their goods. We went from the Model-T Ford in the 1920s, where there was exactly one style and one color available, to a point by the 1950s where every auto company offered several different lines of cars in many colors and a range of optional equipment. By 1980, consumers had a choice of 172 different vehicles--135 cars and 37 other vehicles. But even with this increase in variety, many consumers were still unable to get exactly what they wanted and had to settle for less. The same was true with almost all other goods as well.
In the 1990s, however, computers have allowed almost infinite customization at no increase in cost. One can now buy computers, compact disks, clothing and a wide variety of other goods made to order. The producer does not even begin production until the customer tells him exactly what to make. The result has been both lower costs for producers, who no longer need to hold inventories or suffer losses on products for which there is no demand, and improved satisfaction for consumers.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 19, 1999.
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