Monday, June 20, 2011

Edison, Tammany, Labor Relations, and Forward Pricing

When I was a teen, my contemporaries chased girls and worshiped sports stars. I did electrical experiments and my boyhood heroes were Thomas Alva Edison and Mr. Wizard!
In those days I was most interested in the technology behind Edison's clever inventions. I did not fully appreciate his real genius which was making them into commercially-successful, practical products the public needed and wanted to purchase. Nor did I realize the system engineering aspect of his work. His incandescent light bulb would have been useless had he not pioneered the electrification of Manhattan and other city centers.
I just read a book originally published in 1910 titled EDISON, HIS LIFE AND INVENTIONS By Frank Lewis Dyer (General Counsel For The Edison Laboratory and Allied Interests) and Thomas Commerford Martin (President of the American Institute of Electrical Engineers). The book is available free for the iPad at the iTunes store, or may be downloaded to your PC from this link:

Here are some highlights with which you may not be familiar:

1) Government Inspectors

To electrify the downtown area of New York City, Edison had to bury miles of copper wires encased in iron pipes. That required the permission of the city government, controlled by the corrupt Tammany Hall political machine. Then, as now, the politicians claimed to be looking out for the safety of the public. However, as Edison tells the story, all they really wanted was pay-offs.
"When I was laying tubes in the streets of New York, the office received notice from the Commissioner of Public Works to appear at his office at a certain hour. I went up there with a gentleman to see the Commissioner, H. O. Thompson. On arrival he said to me: 'You are putting down these tubes. The Department of Public Works requires that you should have five inspectors to look after this work, and that their salary shall be $5 per day, payable at the end of each week. Good-morning.' I went out very much crestfallen, thinking I would be delayed and harassed in the work which I was anxious to finish, and was doing night and day. We watched patiently for those inspectors to appear. The only appearance they made was to draw their pay Saturday afternoon."
2)  Trading Jobs for Tammany Favors

The corrupt Tammany Hall machine allowed businesses to violate zoning regulations in return for jobs for their supporters.
"The street was lined with rather old buildings and poor tenements. We had not much frontage. As our business increased enormously, our quarters became too small, so we saw the district Tammany leader and asked him if we could not store castings and other things on the sidewalk. He gave us permission--told us to go ahead, and he would see it was all right. The only thing he required for this was that when a man was sent with a note from him asking us to give him a job, he was to be put on. We had a hand-laborer foreman--'Big Jim'--a very powerful Irishman, who could lift above half a ton. When one of the Tammany aspirants appeared, he was told to go right to work at $1.50 per day. The next day he was told off to lift a certain piece, and if the man could not lift it he was discharged. That made the Tammany man all safe. Jim could pick the piece up easily. The other man could not, and so we let him out. Finally the Tammany leader called a halt, as we were running big engine lathes out on the sidewalk, and he was afraid we were carrying it a little too far. The lathes were worked right out in the street, and belted through the windows of the shop."
3) Labor Troubles Solved by Automation

Edison was generous with his employees and he expected loyalty in return.
"After our works at Goerck Street got too small, we had labor troubles also. It seems I had rather a socialistic strain in me, and I raised the pay of the workmen twenty-five cents an hour above the prevailing rate of wages, whereupon Hoe & Company, our near neighbors, complained at our doing this. I said I thought it was all right. But the men, having got a little more wages, thought they would try coercion and get a little more, as we were considered soft marks. Whereupon they struck at a time that was critical. However, we were short of money for pay-rolls; and we concluded it might not be so bad after all, as it would give us a couple of weeks to catch up. So when the men went out they appointed a committee to meet us; but for two weeks they could not find us, so they became somewhat more anxious than we were. Finally they said they would like to go back. We said all right, and back they went. It was quite a novelty to the men not to be able to find us when they wanted to; and they didn't relish it at all. ...
"One of the incidents which caused a very great cheapening [of the cost of production of light bulbs] was that, when we started, one of the important processes had to be done by experts. This was the sealing on of the part carrying the filament into the globe, which was rather a delicate operation in those days, and required several months of training before any one could seal in a fair number of parts in a day. When we got to the point where we employed eighty of these experts they formed a union; and knowing it was impossible to manufacture lamps without them, they became very insolent.
"One instance was that the son of one of these experts was employed in the office, and when he was told to do anything would not do it, or would give an insolent reply. He was discharged, whereupon the union notified us that unless the boy was taken back the whole body would go out. 
"It got so bad that the manager came to me and said he could not stand it any longer; something had got to be done. They were not only more surly; they were diminishing the output, and it became impossible to manage the works. He got me enthused on the subject, so I started in to see if it were not possible to do that operation by machinery. 
"After feeling around for some days I got a clew how to do it. I then put men on it I could trust, and made the preliminary machinery. That seemed to work pretty well. I then made another machine which did the work nicely. I then made a third machine, and would bring in yard men, ordinary laborers, etc., and when I could get these men to put the parts together as well as the trained experts, in an hour, I considered the machine complete. I then went secretly to work and made thirty of the machines. Up in the top loft of the factory we stored those machines, and at night we put up the benches and got everything all ready. Then we discharged the office-boy. Then the union went out. It has been out ever since."  
4) Forward Pricing

I thought "forward pricing" was a relatively new idea. However, it turns out that Edison made use of this practice, which is selling initial production runs well below cost to build a market, at prices that would be achieved at later mass production quantities.
"When we first started the electric light we had to have a factory for manufacturing lamps. As the Edison Light Company did not seem disposed to go into manufacturing, we started a small lamp factory at Menlo Park with what money I could raise from my other inventions and royalties, and some assistance.
"The lamps at that time were costing about $1.25 each to make, so I said to the company: 'If you will give me a contract during the life of the patents, I will make all the lamps required by the company and deliver them for forty cents.' The company jumped at the chance of this offer, and a contract was drawn up.
"We then bought at a receiver's sale at Harrison, New Jersey, a very large brick factory building which had been used as an oil-cloth works. We got it at a great bargain, and only paid a small sum down, and the balance on mortgage. We moved the lamp works from Menlo Park to Harrison.
"The first year the lamps cost us about $1.10 each. We sold them for forty cents; but there were only about twenty or thirty thousand of them.
"The next year they cost us about seventy cents, and we sold them for forty. There were a good many, and we lost more money the second year than the first.
"The third year I succeeded in getting up machinery and in changing the processes, until it got down so that they cost somewhere around fifty cents. I still sold them for forty cents, and lost more money that year than any other, because the sales were increasing rapidly.
"The fourth year I got it down to thirty-seven cents, and I made all the money up in one year that I had lost previously. I finally got it down to twenty-two cents, and sold them for forty cents; and they were made by the million. Whereupon the Wall Street people thought it was a very lucrative business, so they concluded they would like to have it, and bought us out.

Ira Glickstein

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