Part 6 (1/2)
The change in organization which has, to a considerable degree, specialized the spheres of business and management is comparable in its importance to that which separated business and labor a century and a half ago. It is specially momentous for the consumer. As long as the functions of manager, technician and capitalist were combined, as in the cla.s.sical era of the factory system, in the single person of ”the employer,” it was not unreasonable to a.s.sume that profits and productive efficiency ran similarly together. In such circ.u.mstances the ingenuity with which economists proved {172} that, in obedience to ”the law of subst.i.tution,” he would choose the most economical process, machine, or type of organization, wore a certain plausibility. True, the employer might, even so, adulterate his goods or exploit the labor of a helpless cla.s.s of workers. But as long as the person directing industry was himself primarily a manager, he could hardly have the training, ability or time, even if he had the inclination, to concentrate special attention on financial gains unconnected with, or opposed to, progress in the arts of production, and there was some justification for the conventional picture which represented ”the manufacturer” as the guardian of the interests of the consumer. With the drawing apart of the financial and technical departments of industry--with the separation of ”business” from ”production”--the link which bound profits to productive efficiency is tending to be snapped.
There are more ways than formerly of securing the former without achieving the latter; and when it is pleaded that the interests of the captain of industry stimulate the adoption of the most ”economical”
methods and thus secure industrial progress, it is necessary to ask ”economical for whom”? Though the organization of industry which is most efficient, in the sense of offering the consumer the best service at the lowest real cost, may be that which is most profitable to the firm, it is also true that profits are constantly made in ways which have nothing to do with efficient production, and which sometimes, indeed, impede it.
The manner in which ”business” may find that the methods which pay itself best are those which a truly {173} scientific ”management” would condemn may be ill.u.s.trated by three examples. In the first place, the whole ma.s.s of profits which are obtained by the adroit capitalization of a new business, or the reconstruction of one which already exists, have hardly any connection with production at all. When, for instance, a Lancas.h.i.+re cotton mill capitalized at 100,000 is bought by a London syndicate which re-floats it with a capital of 500,000--not at all an extravagant case--what exactly has happened? In many cases the equipment of the mill for production remains, after the process, what it was before it. It is, however, valued at a different figure, because it is antic.i.p.ated that the product of the mill will sell at a price which will pay a reasonable profit not only upon the lower, but upon the higher, capitalization. If the apparent state of the market and prospects of the industry are such that the public can be induced to believe this, the promoters of the reconstruction find it worth while to recapitalize the mill on the new basis. They make their profit not as manufacturers, but as financiers. They do not in any way add to the productive efficiency of the firm, but they acquire shares which will ent.i.tle them to an increased return. Normally, if the market is favorable, they part with the greater number of them as soon as they are acquired. But, whether they do so or not, what has occurred is a process by which the business element in industry obtains the right to a larger share of the product, without in any way increasing the efficiency of the service which is offered to the consumer.
Other examples of the manner in which the control of {174} production by ”business” cuts across the line of economic progress are the wastes of compet.i.tive industry and the profits of monopoly. It is well known that the price paid by the consumer includes marketing costs, which to a varying, but to a large, extent are expenses not of supplying the goods, but of supplying them under conditions involving the expenses of advertis.e.m.e.nt and compet.i.tive distribution. For the individual firm such expenses, which enable it to absorb part of a rival's trade, may be an economy: to the consumer of milk or coal--to take two flagrant instances--they are pure loss. Nor, as is sometimes a.s.sumed, are such wastes confined to distribution. Technical reasons are stated by railway managers to make desirable a unification of railway administration and by mining experts of mines. But, up to the war, business considerations maintained the expensive system under which each railway company was operated as a separate system, and still prevent collieries, even collieries in the same district, from being administered as parts of a single organization. Pits are drowned out by water, because companies cannot agree to apportion between them the costs of a common drainage system; materials are bought, and products sold, separately, because collieries will not combine; small coal is left in to the amount of millions of tons because the most economical and technically efficient working of the seams is not necessarily that which yields the largest profit to the business men who control production. In this instance the wide differences in economic strength which exist between different mines discourage the unification which is economically desirable; naturally the {175} directors of a company which owns ”a good thing” do not desire to merge interests with a company working coal that is poor in quality or expensive to mine.
When, as increasingly happens in other industries, compet.i.tive wastes, or some of them, are eliminated by combination, there is a genuine advance in technical efficiency, which must be set to the credit of business motives. In that event, however, the divergence between business interests and those of the consumers is merely pushed one stage further forward; it arises, of course, over the question of prices. If any one is disposed to think that this picture of the economic waste which accompanies the domination of production by business interests is overdrawn, he may be invited to consider the criticisms upon the system pa.s.sed by the ”efficiency engineers,” who are increasingly being called upon to advise as to industrial organization and equipment. ”The higher officers of the corporation,”
writes Mr. H. L. Gantt of a Public Utility Company established in America during the war, ”have all without exception been men of the 'business' type of mind, who have made their success through financiering, buying, selling, etc.... As a matter of fact it is well known that our industrial system has not measured up as we had expected.... _The reason for its falling short is undoubtedly that the men directing it had been trained in a business system operated for profits, and did not understand one operated solely for production_.
This is no criticism of the men as individuals; they simply did not know the job, and, what is worse, they did not know that they did not know it.”
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In so far, then, as ”Business” and ”Management” are separated, the latter being employed under the direction of the former, it cannot be a.s.sumed that the direction of industry is in the hands of persons whose primary concern is productive efficiency. That a considerable degree of efficiency will result incidentally from the pursuit of business profits is not, of course, denied. What seems to be true, however, is that the main interest of those directing an industry which has reached this stage of development is given to financial strategy and the control of markets, because the gains which these activities offer are normally so much larger than those accruing from the mere improvement of the processes of production. It is evident, however, that it is precisely that improvement which is the main interest of the consumer.
He may tolerate large profits as long as they are thought to be the symbol of efficient production. But what he is concerned with is the supply of goods, not the value of shares, and when profits appear to be made, not by efficient production, but by skilful financiering or shrewd commercial tactics, they no longer appear meritorious. If, in disgust at what he has learned to call ”profiteering,” the consumer seeks an alternative to a system under which product is controlled by ”Business,” he can hardly find it except by making an ally of the managerial and technical _personnel_ of industry. They organize the service which he requires; they are relatively little implicated, either by material interest or by psychological bias, in the financial methods which he distrusts; they often find the control of their professions by business men who are {177} primarily financiers irritating in the obstruction which it offers to technical efficiency, as well as sharp and close-fisted in the treatment of salaries. Both on public and professional grounds they belong to a group which ought to take the initiative in promoting a partners.h.i.+p between the producers and the public. They can offer the community the scientific knowledge and specialized ability which is the most important condition of progress in the arts of production. It can offer them a more secure and dignified status, larger opportunities for the exercise of their special talents, and the consciousness that they are giving the best of their work and their lives, not to enriching a handful of uninspiring, if innocuous, shareholders, but to the service of the great body of their fellow-countrymen. If the last advantage be dismissed as a phrase--if medical officers of health, directors of education, directors of the co-operative wholesale be a.s.sumed to be quite uninfluenced by any consciousness of social service--the first two, at any rate, remain. And they are considerable.
It is this gradual disengagement of managerial technique from financial interests which would appear the probable line along which ”the employer” of the future will develop. The subst.i.tution throughout industry of fixed salaries for fluctuating profits would, in itself, deprive his position of half the humiliating atmosphere of predatory enterprise which embarra.s.ses to-day any man of honor who finds himself, when he has been paid for his services, in possession of a surplus for which there is no a.s.signable reason. Nor, once large incomes from profits have been extinguished, need his salary be large, {178} as incomes are reckoned to-day. It is said that among the barbarians, where wealth is still measured by cattle, great chiefs are described as hundred-cow men. The manager of a great enterprise who is paid $400,000 a year, might similarly be described as a hundred-family man, since he receives the income of a hundred families. It is true that special talent is worth any price, and that a payment of $400,000 a year to the head of a business with a turnover of millions is economically a bagatelle. But economic considerations are not the only considerations. There is also ”the point of honor.” And the truth is that these hundred-family salaries are ungentlemanly.
When really important issues are at stake every one realizes that no decent man can stand out for his price. A general does not haggle with his government for the precise pecuniary equivalent of his contribution to victory. A sentry who gives the alarm to a sleeping battalion does not spend next day collecting the capital value of the lives he has saved; he is paid 1/- a day and is lucky if he gets it. The commander of a s.h.i.+p does not cram himself and his belongings into the boats and leave the crew to scramble out of the wreck as best they can; by the tradition of the service he is the last man to leave. There is no reason why the public should insult manufacturers and men of business by treating them as though they were more thick-skinned than generals and more extravagant than privates. To say that they are worth a good deal more than even the exorbitant salaries which a few of them get is often true. But it is beside the point. No one has any business to {179} expect to be paid ”what he is worth,” for what he is worth is a matter between his own soul and G.o.d. What he has a right to demand, and what it concerns his fellow-men to see that he gets, is enough to enable him to perform his work. When industry is organized on a basis of function, that, and no more than that, is what he will be paid. To do the managers of industry justice, this whining for more money is a vice to which they (as distinct from their shareholders) are not particularly p.r.o.ne. There is no reason why they should be. If a man has important work, and enough leisure and income to enable him to do it properly, he is in possession of as much happiness as is good for any of the children of Adam.
[1] The Coal Mines Department supplied the following figures to the Coal Industry Commission (Vol. III, App. 66). They relate to 57 per cent. of the collieries of the United Kingdom.
Salary, including bonus and Number of Managers value of house and coal 1913 1919
100 or less ............................... 4 2 101 to 200 ............................... 134 3 201 to 300 ............................... 280 29 301 to 400 ............................... 161 251 401 to 500 ............................... 321 213 501 to 600 ............................... 57 146 601 and over .............................. 50 152
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XI
PORRO UNUM NECESSARIUM