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Economy 4.0

Decline of Kodak offers lessons for U.S. business

David Brancaccio Dec 20, 2011

Kai Ryssdal: Kodak shares closed at a somewhat amazing 67 cents today. The company that was once the name in photography isn’t anymore. It’s restructuring to stave off a bankruptcy that analysts say could come sooner rather than later. To crib from Paul Simon, it was digital photography that took the Kodachrome away. Kodak made an huge mistake in business strategy about 30 years ago, but it’s one that holds lessons for the future of jobs in this country. Our series Economy 4.0 is all about how to make the global economy work better for more people.

So we sent Marketplace’s David Brancaccio to the capital of Kodak: Rochester, N.Y.

David Brancaccio: What got me launched on this story was a former Treasury Secretary comparing Kodak to Apple. Writing in the Financial Times, Larry Summers had pointed out that Apple Computer doesn’t create all that many good factory jobs, and many are overseas. But Eastman Kodak gave Rochester “a thriving middle class for two generations.” Actually for even longer — until things began to unravel.

Art Frisbee: When I started there in 1980 there were 62,000 people, now there’s less than 7,000 people.

Art Frisbee is talking Kodak jobs in Rochester. He worked for 27 years in a mill making photo paper. Today, tidy grass is planted where many a factory facility once stood in massive Kodak Park.

Frisbee: It’s a ghost town.

While Kodak knocked down so many of its factory buildings, the delightful houses that encircle Kodak Park are still there.

Carolyn Vacca: This is the Maplewood section.

Professor Carolyn Vacca is the official historian for Monroe, the local county.

Vacca: You can see the tree-lined streets, the lovely homes with gracious front porches, um…

Brancaccio: This is pretty upscale, is this where the top executives of Eastman Kodak would have lived?

Vacca: No, this is what people who worked hard at Kodak, but weren’t, you know, managers or anything, could afford, could live in, and could raise their families during that era.

Founder George Eastman wanted workers to have decent lives. He had a paternalistic streak a mile wide plus it was strategic — Eastman knew success requires a critical mass of loyal employees innovating and sharing good ideas.

Vacca: You do find these circles of thought forming. And Eastman was one who promoted that kind of “circles of thought” particularly where he lived — inviting people in to talk about things — almost like a salon.

It’s a reason Bob Harris wanted to work for Kodak. He’s retired now, but back when he started in the 50s, there was a decent shot it would be a job for life.

Bob Harris: After about two years at Kodak, I bought a house. You go into a bank and they say, “Well, give us the information, where do you work?” I say: “I work at Kodak.” “That’s all I need to know.”

Harris spent 35 years at the company teaching and promoting photography to kids, grown ups, even astronauts. One plum assignment: Harris got to demonstrate an early Kodak digital camera for passengers on a cruise.

Harris: They loved to come back during cocktail hour, and look at the images right there on the television set in the lounge on the cruise ship. But they just weren’t interested in buying one.

Turns out, Kodak actually invented what would become for the company a doomsday device: A digital camera prototype, back in 1975. But even pioneers can make mistakes. Kodak was used to making money on film not cameras.

Willy Shih: So Kodak decided — let’s let the camera business go. And it went to Japan.

Willy Shih teaches at the Harvard Business School, but in 1997 he became head of Kodak’s Consumer Digital unit and it was his job to get his company back into the digital camera manufacturing business. But professor Shih struck out.

Shih: With digital there is no film. You make your money by selling cameras. And you now needed to make components. You needed to make lenses; you needed to make shutters — all kinds of things that the skills for which no longer existed in Rochester.

Because Kodak had let the equipment, the knowledge, the suppliers go somewhere else, they had unwittingly damaged what Shih calls the “industrial commons.” Think of it as a concentration of expertise. Silicon Valley has it, but parts of Rochester’s industrial commons have gone fallow. And the question becomes how do you replant it?

Shih: It’s a troubling question. That’s why I think one of the things we as a country need to do is start thinking deeply about the capabilities that we want to have on our shores in the 21st century.

And not let those capabilities slip away along with the good middle class jobs. And while Shih is not a fan of the government picking winners and losers, he does like government investments in basic research and education. These could target America’s industrial commons to restore them to the brilliance of a Kodachrome photo.

In Rochester, N.Y., I’m David Brancaccio for Marketplace.

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