Machine tools – machines that cut or form metal – are the heart of industrial civilization. Sometimes called “mother machines” (because they’re machines that make other machines), machine tools are required to make almost everything. Nearly every manufactured good is made using machine tools, or by machines which were made using machine tools:
> between 1964 and 1967, Japanese machine tool exports to the US rose over 1200%.
Worthwhile to note the reason behind those dates is that the US entered the Vietnam war by shipping a massive amount of full containers across the Pacific ocean which would then make a leg across to Japan to fill their containers for the journey home, massively decreasing the cost of exporting to the US market. A huge chunk of the Japanese economy was put into overdrive via this inadvertent subsidy.
Given how over-used the word "disruption" is (the word in the Clayton Christensen sense), I hesitate to write this, but... this looks like a good case of true disruption. In that the Japanese found it easier to sell simple machines and then upgrade their capabilities, than the Americans found it to bring down the cost of their more advanced machines. I did some consulting work in the 1980s for one of the last independent American MT companies standing, Lamb Technicon, which to its credit spent half its Board meeting time figuring out how to compete... but the other half reassuring itself that the Japanese tools were cheap/uncompetitive/not serious/etc. I think after a series of M&A moves LT is now owned by a German company.
So wait, the companies that took over machine tooling were exactly the axis powers? I wonder if there's a common element where losing their original machine tooling industry forced them to build a modern one from scratch, which was better in the long term.
This was very interesting, thanks for writing this up. Some questions:
1. You mentioned American companies were hit by this accelerator effect, but why weren't Japanese companies?
2. It's a trope that MBAs came in and ruined everything. Is there an explanation for this trope? If every company that hires MBAs sees their assets decline over time and loss of shareholder value, why do they keep getting hired? It sounds like these conglomerates lost a lot of money buying these American machine tool companies. Is that because of the MBAs who demanded higher output, or because the Japanese companies had higher output for lower price? These are mutually exclusive narratives!
3. Is there actually a broad problem with publicly held companies not investing in long term R&D? Why are investors ok with lots of R&D spend for modern software companies but not these machine tool companies?
This is excellent, except it completely omits the German ascendency in machine tools between the world wars. When I visited the Deutsches Museum in the later '80s, I was gobstruck walking into the exhibit on machine tools. It was precisely a replica of the shop my dad worked in in the '50s, owned by German immigrants to Chicago. My dad also worked in the can-making industry, including with Japanese partners in the '70s.
I love your choice of topics. I think machine tools are perhaps the most neglected industrial technology compared to their importance. It is really hard to find good books on the topic.
You might be interested in my summary of this book about machine tools in the early Industrial Revolution:
One of the heroes in the book is "Big Bill" Knudsen, who was the creative engineering genius behind both Ford Motors and General Motors. He also played a critical role in organizing the military buildup in WW2. The man was unbelievable!
I remember that he believed the key factors of the American military build-up were:
1) The Pentagon deciding how many of each weapon system they needed, so private industry could do the following:
2) Ordering machine tools and arranging them in the most efficient manner on the factory floor.
3) Hiring and training of skilled laborers who knew how to run those machine tools.
He believed that if you get those factors right, then the rest would fall into place. He was also the only one to understand how complicated it was to rebuild the American machine tool industry after it collapsed in the Great Depression.
US manufacturing is stronger in other areas though. Believe it or not, additive is being pioneered here by a number of aerospace companies or their immediate domestic suppliers. Medical continues to be fairly well established too, higher up the value chain. Then there's industrial automation, which is doing really well.
There's a huge opportunity to reshore though. And not just machine tools, but for consumer and home appliances. We should rethink quality and product longevity and how OEMs keep a stable business without planned obsolescence.
he story of the US machine tool industry's boom during the rise of the automobile is mind-blowing! From cranking out 30% of machine tools for cars in 1910 to Ford's assembly plant with a whopping 50,000 tools.
Where was the Soviet machine tool industry in all this? That’s the second great 20th century industrial power. They imported an entire Ford factory and a US Steel mill during the ‘20s and Depression. Did they also import American machine tools? Presumably they couldn’t do that by the time of the war. Did they have an exporting industry? Then there’s the famous scandal of them buying Toshiba and Swedish CNC machines in the early ‘80s. Now I’m going to be down a rabbit hole if I can.
Many factors contributed to the downfall of the American machine tool industry. Some things that are not mentioned here are: The propensity of machinery builders to build large one off, special purpose machinery for the space program and other high technology industries. Gene Haas saw this mistake- he built machines for the lowly job shops and he prospered. And he does it in the unfriendly to business state of California. Another thing is that the the Japanese government and the German government nurtured their machine tool industry. They realized the importance of this industry. Another thing- the adversarial relationship between unions and management in America, both seem to be more interested in short term gains than the long term health of the company. I have seen unions break a company and management go along with it, knowing that it will be somebody else’s problem, meanwhile management retires with fat bonuses.
Thank you for the amazing review. Graduated in 1991 from the Tech University of Ruse, Bulgaria, the year USSR collapsed, and Bulgarian economy stumbled, there were no jobs for mechanical engineers. So, I started working on a CNC machining center, learned to set it up and to program it. Spent some 12-13 years doing that. For the rest of the time till today I changed several positions, being production engineer, an R&D employee for a few years, back as production engineer for a now fully assembly operation and presently Service specialist for a range of products at a well-known industrial name. I used to hate being machinist, the dirt, the oily hands, the noise, the heat in the summer and the cold in the winter. Now from a hindside, this was the best job I ever had. I was dealing with a machine mostly. Nowadays I deal with people. I wouldn't mind going back to that profession again, if a possibility comes along.
> between 1964 and 1967, Japanese machine tool exports to the US rose over 1200%.
Worthwhile to note the reason behind those dates is that the US entered the Vietnam war by shipping a massive amount of full containers across the Pacific ocean which would then make a leg across to Japan to fill their containers for the journey home, massively decreasing the cost of exporting to the US market. A huge chunk of the Japanese economy was put into overdrive via this inadvertent subsidy.
Given how over-used the word "disruption" is (the word in the Clayton Christensen sense), I hesitate to write this, but... this looks like a good case of true disruption. In that the Japanese found it easier to sell simple machines and then upgrade their capabilities, than the Americans found it to bring down the cost of their more advanced machines. I did some consulting work in the 1980s for one of the last independent American MT companies standing, Lamb Technicon, which to its credit spent half its Board meeting time figuring out how to compete... but the other half reassuring itself that the Japanese tools were cheap/uncompetitive/not serious/etc. I think after a series of M&A moves LT is now owned by a German company.
So wait, the companies that took over machine tooling were exactly the axis powers? I wonder if there's a common element where losing their original machine tooling industry forced them to build a modern one from scratch, which was better in the long term.
This was very interesting, thanks for writing this up. Some questions:
1. You mentioned American companies were hit by this accelerator effect, but why weren't Japanese companies?
2. It's a trope that MBAs came in and ruined everything. Is there an explanation for this trope? If every company that hires MBAs sees their assets decline over time and loss of shareholder value, why do they keep getting hired? It sounds like these conglomerates lost a lot of money buying these American machine tool companies. Is that because of the MBAs who demanded higher output, or because the Japanese companies had higher output for lower price? These are mutually exclusive narratives!
3. Is there actually a broad problem with publicly held companies not investing in long term R&D? Why are investors ok with lots of R&D spend for modern software companies but not these machine tool companies?
This is excellent, except it completely omits the German ascendency in machine tools between the world wars. When I visited the Deutsches Museum in the later '80s, I was gobstruck walking into the exhibit on machine tools. It was precisely a replica of the shop my dad worked in in the '50s, owned by German immigrants to Chicago. My dad also worked in the can-making industry, including with Japanese partners in the '70s.
I love your choice of topics. I think machine tools are perhaps the most neglected industrial technology compared to their importance. It is really hard to find good books on the topic.
You might be interested in my summary of this book about machine tools in the early Industrial Revolution:
https://techratchet.com/2020/05/01/book-summary-tools-for-the-job-a-short-history-of-machine-tools-by-ltc-rolt/
I don't have a summary of it, but I would also recommend reading "Freedom's Forge":
https://www.amazon.com/Freedoms-Forge-American-Business-Produced/dp/0812982045
One of the heroes in the book is "Big Bill" Knudsen, who was the creative engineering genius behind both Ford Motors and General Motors. He also played a critical role in organizing the military buildup in WW2. The man was unbelievable!
I remember that he believed the key factors of the American military build-up were:
1) The Pentagon deciding how many of each weapon system they needed, so private industry could do the following:
2) Ordering machine tools and arranging them in the most efficient manner on the factory floor.
3) Hiring and training of skilled laborers who knew how to run those machine tools.
He believed that if you get those factors right, then the rest would fall into place. He was also the only one to understand how complicated it was to rebuild the American machine tool industry after it collapsed in the Great Depression.
https://www.militarytrader.com/militaria-collecting-101/remembering-big-bill
This is the best posting I’ve read in a long time.
US manufacturing is stronger in other areas though. Believe it or not, additive is being pioneered here by a number of aerospace companies or their immediate domestic suppliers. Medical continues to be fairly well established too, higher up the value chain. Then there's industrial automation, which is doing really well.
There's a huge opportunity to reshore though. And not just machine tools, but for consumer and home appliances. We should rethink quality and product longevity and how OEMs keep a stable business without planned obsolescence.
> Japanese companies were also not above simply illicitly duplicating American designs
Which law(s) did they break?
he story of the US machine tool industry's boom during the rise of the automobile is mind-blowing! From cranking out 30% of machine tools for cars in 1910 to Ford's assembly plant with a whopping 50,000 tools.
Where was the Soviet machine tool industry in all this? That’s the second great 20th century industrial power. They imported an entire Ford factory and a US Steel mill during the ‘20s and Depression. Did they also import American machine tools? Presumably they couldn’t do that by the time of the war. Did they have an exporting industry? Then there’s the famous scandal of them buying Toshiba and Swedish CNC machines in the early ‘80s. Now I’m going to be down a rabbit hole if I can.
"A strong dollar made imports even cheaper by comparison, and high interest rates reduced the demand for capital investment."
I think this period was very short, and this argument can explain only a small part of the decline in the U.S. Machine Tool Industry
Have you read Nathan Rosenberg's famous article on the industry? From "portentously rapid" rise to precipitous decline...
Many factors contributed to the downfall of the American machine tool industry. Some things that are not mentioned here are: The propensity of machinery builders to build large one off, special purpose machinery for the space program and other high technology industries. Gene Haas saw this mistake- he built machines for the lowly job shops and he prospered. And he does it in the unfriendly to business state of California. Another thing is that the the Japanese government and the German government nurtured their machine tool industry. They realized the importance of this industry. Another thing- the adversarial relationship between unions and management in America, both seem to be more interested in short term gains than the long term health of the company. I have seen unions break a company and management go along with it, knowing that it will be somebody else’s problem, meanwhile management retires with fat bonuses.
Thank you for the amazing review. Graduated in 1991 from the Tech University of Ruse, Bulgaria, the year USSR collapsed, and Bulgarian economy stumbled, there were no jobs for mechanical engineers. So, I started working on a CNC machining center, learned to set it up and to program it. Spent some 12-13 years doing that. For the rest of the time till today I changed several positions, being production engineer, an R&D employee for a few years, back as production engineer for a now fully assembly operation and presently Service specialist for a range of products at a well-known industrial name. I used to hate being machinist, the dirt, the oily hands, the noise, the heat in the summer and the cold in the winter. Now from a hindside, this was the best job I ever had. I was dealing with a machine mostly. Nowadays I deal with people. I wouldn't mind going back to that profession again, if a possibility comes along.
There is an interesting book about how US manufacturers post WWII drove a market for machine tools that could, in theory, be used to reduce the power of skilled trades, even at the expense of production efficiency and how this interacted with the important influence of military production https://www.abebooks.com/9781412818285/Forces-Production-Social-History-Industrial-1412818281/plp