A parable for corporate America...

"What's right about America is that although we have a mess of problems, we have great capacity - intellect and resources - to do some thing about them."
Henry Ford

Henry Ford launched Ford Motor company in a converted factory in 1903 with $28,000 from 12 investors. He was 40 years old when he founded the company, which would go on to become one of the largest and most profitable companies in the world, as well as being one of the few to survive the Great Depression. Ford had a global vision, with consumerism as the key to peace, and in a true reflection of America's "great capacity" he pulled in resources, fought hard, and ultimately succeeded in turning his vision into reality. He regularly reflected in his career that the capacity to do what he did, was made possible by the "great capacity" that existed in America at the time, and that perhaps didn't in large parts of the rest of the world.

It was 5 long years between the formation of Ford Motor Company and the time that it started to become scalable and economical. The vision that Ford brought to his investors during those difficult, unprofitable years was the idea that car travel was not solely to remain the privilege of the very wealthy elite, but that the "common man" could come to enjoy. He claimed:

"I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be low enough in price that no man making a good salary will be unable to own one - and enjoy with his family the blessing of hours of pleasure in God's great open spaces".

Even prior to the formation of Ford Motor Company in 1903, Ford had held this vision and had been working against the tide of opinion on his "whacky" idea that car travel could be for all. He had some success as an engineer in developing racing cars and managed to convince an old acquaintance, Alexander Malcomson (a Detroit area coal dealer) to form a partnership with him. "Ford and Malcomson, Ltd" would manufacture inexpensive automobiles. The duo leased a factory and contracted with a machine shop (owned by the Dodge family) to supply $160,000 worth of parts. Sales of Ford and Malcomsons cars were slow and a crisis arose when the Dodge brothers demanded payment for their supplies. In response Ford managed to convince another group of investors to reform and capitalise a new company and for the Dodge family to accept payment via ownership of a portion of this new company - Ford Motor Company.

The patience and vision that Fords investors shared with him during that decade long period without much success was a testament to a prevailing sense of "can do" that must have existed in each of their minds - "the great capacity" that Ford spoke of in the quote above. Surely there were plenty of moments when they questioned their own sanity.

In 1908 Henry Ford introduced the Model T. Earlier models were produced at a rate of only a few a day at a rented factory, with groups of 2-3 men working on each car from components made to order by other companies. The first Model Ts were built at the Piquette Road Manufacturing Plant, the first company-owned factory. In its first full year of production, 1909, about 18,000 Model Ts were built. As demand for the car grew, the company moved production to the much larger Highland Park Plant were they produced close to 70,000 and 170,000 respectively in the first 2 years on that site. By 1913, the company had developed all of the basic techniques of the assembly line and mass production. Ford introduced the worlds first moving assembly line that year, which reduced chassis assembly time from 12.5 hours to 2 hours and 40minutes (in just one month) and ultimately to 1 hour and 33 minutes. Annual output rose to 202,667 units that ear. Ford raised wages to $5/ day (almost double local rates), through a "profit-sharing" approach with employees and sales rose over 300,000 in 1914 and over 1/2million units by 1915. In 1920 production exceeded 1mm units. And the rest as they say "is history".

As of 2008 it is thought that the Detroit auto-industry employs directly and indirectly over 3mm Americans. Over the past century it has no doubt, created countless wealth for these people and changed the lives of many who enjoy with their families "...the blessing of hours of pleasure in God's great open spaces." As of today, the US auto industry stands on the precipice, however, as the last several decades have seen the industry become inflexible, unresponsive and badly managed. In fact it has probably moved about as far away from Henry Fords vision of the entrepreneurial economy as any set of companies in America.

Had that set of early investors in Fords vision been swayed a century ago, and pulled the plug on his ambitions, then its almost certain that the world auto industry would have come into being in some other form. Nevertheless, the thing that has made the US the economic powerhouse that it has been, was the likelihood that as individuals, as Henry Ford said "...they have great capacity - intellect and resources - to do something about them". Perhaps that "great capacity" has weakened over the years as the US has been struck by the "winners curse".

More probably, as the world has become a more competitive place, the "great capacity" is springing up from Bombay, Shanghai or Moscow.

This week has seen the National Intelligence Council (NIC), which is a center of strategic thinking within the US government, release a report called "Global Trends 2025: A Transformed World". They produce a similar forward looking strategic report every four years, with a focus on the changing position of the US in the world. This years report draws up 4 main ideas about where things are going.
The whole international system—as constructed following WWII—will be revolutionized. Not only will new players—Brazil, Russia, India and China— have a seat at the international high table, they will bring new stakes and rules of the game.
The unprecedented transfer of wealth roughly from West to East now under way will continue for the foreseeable future.
Unprecedented economic growth, coupled with 1.5 billion more people, will put pressure on resources—particularly energy, food, and water—raising the specter of scarcities emerging as demand outstrips supply.
The potential for conflict will increase owing partly to political turbulence in parts of the greater Middle East.
All pretty grand stuff. The projects primary goal is to provide US policy-makers with a view of how developments could evolve, identifying opportunities and potentially negative developments that might warrant policy action. In the context of the changing world, more competitive world it's seems pretty important to think of where the next Ford Motor Company is going to come from, and how to ensure that the next 3mm job industry is based in America and not in Taipei.

We can't race to an answer to that question, but there are impressive innovations happening in the US, some of which could hit the jackpot in this regard. What will the Model T Ford of the 21st Century look like?

A visionary company based in Albuquerque, New Mexico, echoes Fords vision of a revolutionary mode of transport that would be "...low in price that no man making a good salary will be unable to own one - and enjoy with his family the blessing of hours of pleasure in God's great open spaces". Eclipse Aviation (http://www.eclipseaviation.com/#/eclipse500/style/gallery/) manufactures VLJs (very light jets). It was founded by one of the earliest employees of Microsoft, who i think it's fair to say were quite visionary. He had a vision much like Bill Gates did for personal computing at Microsoft - that jet ownership in the 21st century could be like car ownership was in the 20th century.

The company produces revolutionary 6-seater VLJs (very light jets), that travel at the same speeds as commercial jets (top speed >400mph), are much more fuel efficient, are extremely safe and are considerably cheaper to produce (about 1/3 cost) than the next best thing. Eclipse is not at the point where it can produce a jet that anyone earning a good salary can afford, but it has the vision that at some point in the future this will be the case. Notably, the price of a Model T only dropped to the "affordable level" of $440 in 1915, some 15 years after it was first conceived.

Eclipse Aviation currently finds itself in a similar position to that which Ford Motor Company found itself early in its life. Ford and Malcomson Ltd., you recall had to pay its suppliers (Dodge) in shares in a recapitalised company, because their car sales were slow in the early years. Eclipse is actually in a better position than Ford at that time in that they have an order book for over 2500 of the Eclipse 500 model, but through the usual teething problems in its early stage production process, now largely resolved, it was using cash faster than its production line could produce saleable planes.

As of last week, it was on the precipice of insolvency. This comes as a consequence of suppliers not getting paid on time - they stop supply of the parts that are key for Eclipse to make its planes, and you end up in a vicious cycle until everything stops. Here is a company with a fantastic vision, a fantastic product and an amazing order book of demand, that although it has made mistakes along the way could well be in possession of a truly transformational technology. Perhaps a mirror image of Ford Motor company in the period from 1900-1908, prior to the Model T production line really starting to work.

The question for Eclipse after several rounds of private financing, and an incredibly tough global market situation is: Where are the American investors with that "great capacity" that Ford spoke of?

Sadly for the US, is that they are being replaced in this case by a "greater capacity" from other parts of the world. Eclipse are likely to be recapitalised by 2 European companies, with the backing of 2 European governments. These two organizations are close to committing to recapitalise Eclipse which will enable suppliers to be paid, and the production line to start rolling. Much of the production will be moved to those countries, where job creation is the goal of the backing governments. The private investors involved in the deal share the vision of the idea that this is a transformational technology that they can profit extensively from. An order book of 2500 will hopefully be increased, and a large scale new market will open up. Not least the business that my brother helped found, Taxijet, based in Barcelona, that relies on the supply of Eclipse 500s for its business model to work will benefit hugely.

So on reflection: The Model T - designed in America, manufactured in Detroit and exported the world over. Tax revenue, job creation all to the credit of the USA. The Eclipse 500; designed in America, manufacture moved to Europe and, with time, used the world over. Tax revenue and job creation - not to the benefit of the burgeoning hole in the US finances. Is this a sign of things to come, as foretold by the NIC report?

It's been said before, but Barack Obama has a lot on his plate.