New Incentives
We say in conversation: “Oh, no, he’s not a business man,--he has a
profession.” That sounds like an invidious distinction, and no doubt
there is a good deal of caste and snobbery in the sentiment. But
that isn’t all there is. We imagine that men enter the professions
by undergoing a special discipline to develop a personal talent.
So their lives seem more interesting, and their incentives more
genuine. The business man may feel that the scientist content with a
modest salary is an improvident ass. But he also feels some sense of
inferiority in the scientist’s presence. For at the bottom there is a
difference of quality in their lives,--in the scientist’s a dignity
which the scramble for profit can never assume. The professions may
be shot through with rigidity, intrigue, and hypocrisy: they have,
nevertheless, a community of interest, a sense of craftsmanship, and
a more permanent place in the larger reaches of the imagination. It
is a very pervasive and subtle difference, but sensitive business men
are aware of it. They are not entirely proud of their profit-motive:
bankers cover it with a sense of importance, others mitigate it
with charity and public work, a few dream of railroad empires and
wildernesses tamed, and some reveal their sense of unworthiness by
shouting with extra emphasis that they are not in business for their
health.
It is a sharp commentary on the psychological insight of the orthodox
economist who maintains that the only dependable motive is profit.
Most people repeat that--parrot-fashion, but in the rub they don’t
act upon it. When we began to hear recently that radium might subdue
cancer, there was a fairly unanimous demand that the small supply
available should be taken over by the government and removed from
the sphere of private exploitation. The fact is that men don’t trust
the profiteer in a crisis, or wherever the interest at stake is of
essential importance. So the public regards a professor on the make as
a charlatan, a doctor on the make as a quack, a woman on the make as
an adventuress, a politician on the make as a grafter, a writer on the
make as a hack, a preacher on the make as a hypocrite. For in science,
art, politics, religion, the home, love, education,--the pure economic
motive, profiteering, the incentive of business enterprise is treated
as a public peril. Wherever civilization is seen to be in question, the
Economic Man of commercial theorists is in disrepute.
I am not speaking in chorus with those sentimentalists who regard
industry as sordid. They merely inherit an ancient and parasitic
contempt for labor. I do not say for one instant that money is the root
of evil, that rich men are less honest than poor, or any equivalent
nonsense. I am simply trying to point out that there is in every-day
life a widespread rebellion against the profit motive. That rebellion
is not an attack on the creation of wealth. It is, on the contrary, a
discovery that private commercialism is an antiquated, feeble, mean,
and unimaginative way of dealing with the possibilities of modern
industry.
The change is, I believe, working itself out under our very eyes.
Each day brings innumerable plans for removing activities from the
sphere of profit. Endowment, subsidy, state aid, endless varieties
of consumers’ and producers’ coöperatives; public enterprise--they
have been devised to save the theater, to save science and invention,
education and journalism, the market basket and public utilities from
the life-sapping direction of the commercialist. What is the meaning
of these protean efforts to supersede the profiteer if not that his
motive produces results hostile to use, and that he is a usurper where
the craftsman, the inventor and the industrial statesman should govern?
There is no sudden substitution of sacrifice for selfishness. These
experiments are being tried because commercialism failed to serve
civilization: the coöperator intrenched behind his wiser organization
would smile if you regarded him as a patient lamb on the altar of
altruism. He knows that the old economists were bad psychologists and
superficial observers when they described man as a slot machine set in
motion by inserting a coin.
It is often asserted that modern industry could never have been created
had it not been given over to untrammeled exploitation by commercial
adventurers. That may be true. There is no great point in discussing
the question as to what might have happened if something else had
happened in the past. Modern industry was created by the profiteer,
and here it is, the great fact in our lives, blackening our cities,
fed with the lives of children, a tyrant over men and women, turning
out enormous stocks of produce, good, bad, and horrible. We need waste
no time arguing whether any other motive could have done the work.
What we are finding is that however effective profit may have been for
inaugurating modern industry, it is failing as a method of realizing
its promise. That is why men turned to coöperatives and labor unions;
that is why the state is interfering more and more. These blundering
efforts are the assertion of all the men and all those elements of
their natures which commercialism has thwarted. No amount of argument
can wipe out the fact that the profit-system has never commanded the
whole-hearted assent of the people who lived under it. There has been
a continuous effort to overthrow it. From Robert Owen to John Stuart
Mill, from Ruskin through Morris to the varied radicalism of our day,
from the millionaire with his peace palaces to Henry Ford with his
generous profit-sharing, through the consumer organizing a coöperative
market, to the workingmen defying their masters and the economists by
pooling their labor, you find a deep stream of uneasiness, of human
restlessness against those impositions which are supposed to rest on
the eternal principles of man’s being.
There is scarcely any need to press the point, for no one questions
the statement that endowment, coöperation, or public enterprise are
attempts to employ motives different from those of the profiteer. The
only dispute is whether these new motives can be extended and made
effective. It is, I think, a crucial question. It lies at the root of
most theoretical objection to socialism in the famous “human nature”
argument. Far from being a trivial question, as socialist debaters
like to pretend,--it is the hardest nut they have to crack. They are
proposing a reconstruction of human society, and in all honesty, they
cannot dodge the question as to whether man as we know him is capable
of what they ask. Persian, Mexican, Turkish and Chinese experience with
constitutional democracies ought to show how easy it is, as Macaulay
said, for a tailor to measure the clothes of all his customers by
the Apollo Belvedere. In a matter like this there is little to choose
between the socialist who is sure his plan will work and the “anti”
who is sure it will not. The profit-motive is attacked, that is
certain; that more or less successful attempts are made to supplant
it, is obvious, but how far we can go, that remains an open question.
We cannot answer it by analogy: it does not follow from the success
of a coöperative grocery that the Steel Trust can be governed on the
same plan. If our expectations are to have any solidity we must find
evidence for them in those great private industries which seem to be
completely in the hands of profit. That is where the issues join. The
theater has always been a stamping ground for “queer” people; scholars
are notoriously incompetent in “business”; scientific research pays so
well, is so undeniably valuable, that few dare grudge it a subsidy;
public utilities, like the highways, are by tradition not business
propositions; and coöperatives have had a stormy history. There are,
of course, the army and navy, which no man wishes to see organized by
private individuals on the make. The most conservative have doubted
recently whether armaments should be manufactured for profit. Yet
such analogies, impressive as they are, offer nothing conclusive. But
if we find that in the staple industries like steel and oil a silent
revolution is in progress, then we have a basis for action. If there
the profit-motive is decadent and new incentives ready, then perhaps
what look like irresponsible outcries and wanton agitation will assume
the dignity of a new morality.
* * * * *
In the last thirty years or so American business has been passing
through a reorganization so radical that we are just beginning to
grasp its meaning. At any rate for those of us who are young to-day
the business world of our grandfathers is a piece of history that we
can reconstruct only with the greatest difficulty. We know that the
huge corporation, the integrated industry, production for a world
market, the network of combinations, pools and agreements have played
havoc with the older political economy. The scope of human endeavor
is enormously larger, and with it has come, as Graham Wallas says, a
general change of social scale.[2] Human thought has had to enlarge
its scale in order to meet the situation. That is why it is not very
illuminating to say, for example, that the principles of righteousness
are eternal and that the solution of every problem is in the Golden
Rule. The Golden Rule in a village, and the Golden Rule for a nation
of a hundred million people are two very different things. I might
possibly treat my neighbor as myself, but in this vast modern world
the greatest problem that confronts me is to find my neighbor and
treat him at all. The size and intricacy which we have to deal with
have done more than anything else, I imagine, to wreck the simple
generalizations of our ancestors. After all, they were not prophets,
and the conservative to-day makes an inhuman demand when he expects
them to have laid out a business policy for a world they never even
imagined. If anyone thinks that the Fathers might have done this let
him sit down and write a political economy for the year 1950.
“Since the Sherman Act was passed (1890),” says President Van Hise
of Wisconsin University, “a child born has attained its majority.”
Indeed he has, much to the surprise of the unwilling parents. Now a new
business world has produced a new kind of business man. For it requires
a different order of ability to conduct the Steel Trust, than it did to
manage a primitive blast-furnace by means of a partnership. The giant
corporation calls for an equipment unlike any that business has ever
known: the minds of the managers are occupied with problems beyond
the circle of ideas that interested the old-fashioned chop-whiskered
merchants. They have to preserve intimate contact with physicists and
chemists, there is probably a research laboratory attached to the
plant. They have to deal with huge masses of workingmen becoming every
day more articulate. They have to think about the kind of training
our public schools give. They have to consider very concretely the
psychology of races, they come into contact with the structure of
credit, and a money squeeze due to the Balkan war makes a difference
in their rate of output. They have to keep thousands of ignorant
stockholders somewhere in the back of their mind, people who don’t know
the difference between puddling and pudding. They may find themselves
an issue in a political campaign, and if they are to be successful they
must estimate correctly the social temper of the community. Diplomacy
is closely related to the selling department, and perhaps at times they
may have to dabble in Latin-American revolutions.
Mr. Louis D. Brandeis commented on this change of scale in his
testimony before the Committee on Interstate Commerce.[3]
“Anyone who critically analyzes a business learns this: that success
or failure of an enterprise depends usually upon one man.... Now while
organization has made it possible for the individual man to accomplish
infinitely more than he could before, aided as he is by new methods of
communication, by the stenographer, the telephone, and system, still
there is a limit for what one man can do well ... When, therefore, you
increase your business to a very great extent, and the multitude of
problems increases with its growth, you will find, in the first place,
that the man at the head has a diminishing knowledge of the facts, and,
in the second place, a diminishing opportunity of exercising careful
judgment upon them.”
In this statement, you will find, I believe, one of the essential
reasons why a man of Mr. Brandeis’s imaginative power has turned
against the modern trust. He does not believe that men can deal
efficiently with the scale upon which the modern business world is
organized. He has said quite frankly, that economic size is in itself
a danger to democracy. This means, I take it, that American voters are
not intelligent enough or powerful enough to dominate great industrial
organizations. So Mr. Brandeis, in company with many important thinkers
the world over, has turned de-centralizer. The experience of history
justifies his position in many respects: there is no doubt that an
organization like the Holy Roman Empire was too large for the political
capacity of human beings. It is probably true that the Morgan empire
had become unwieldy. It may be that the Steel Trust is too large for
efficiency. The splendid civilizations of the past have appeared in
small cities. To-day if you go about the world you find that the
small countries like Belgium, Holland, Denmark, are the ones that have
come nearest to a high level of social prosperity. I once heard George
Russell (Æ), the Irish poet and reformer, say that an ideal state would
be about the size of County Cork.
Yet it is not very helpful to insist that size is a danger, unless you
can specify what size.
The senators asked Mr. Brandeis that question. They pressed him to
state approximately what percentage of an industry he considered an
effective unit. He hesitated between ten per cent. and forty per cent.,
and could not commit himself. Obviously,--for how could Mr. Brandeis be
expected to know? Adam Smith thought the corporations of his day doomed
to failure on the very same grounds that Mr. Brandeis urges against
the modern corporation. Now the million dollar organization is not too
large for efficiency and the billion dollar one may be. The ideal unit
may fall somewhere between? Where? That is a problem which experiments
alone can decide, experiments conducted by experts in the new science
of administration.
The development of that science is the only answer to the point Mr.
Brandeis raises. Remarkable results have already been produced. Every
one of us, for example, must wonder at times how the President of the
United States ever does all the things the papers say he does. When,
for example, does the man sleep? And is he omniscient? The fact is that
administration is becoming an applied science, capable of devising
executive methods for dealing with tremendous units. No doubt the
President with his increasing responsibilities is an overworked man. No
doubt there are trusts badly administered. No doubt there are inflated
monopolies created for purely financial reasons. But just what the
limits of administrative science are, a legislature is no more capable
of determining than was Mr. Brandeis. Only experience, only trial and
ingenuity, can demonstrate, and in a research so young and so swift in
its progress, any effort to assign by law an arbitrary limit is surely
the most obvious meddling. Say to-day that one unit of business is
impossible, to-morrow you may be confronted with an undreamt success.
Here if anywhere is a place where negative prophecy is futile. It
is well to remember the classic case of that great scientist Simon
Newcomb, who said that man would never fly. Two years before that
statement was made, the Wright brothers had made secret flights.
It may well be that the best unit is smaller than some of the modern
trusts. It does not follow that we must break up industry into units of
administration whose ideal efficiency is spent in competing with one
another. I can understand, for example, the desire of many people to
see Europe composed of a larger number of small nations. But I take it
that everyone wishes these small nations to coöperate in the creation
of a common European civilization. So it is with business. The unit of
administration may be whatever efficiency demands. It may be that the
steel industry would gain if it were conducted by forty corporations.
But at the same time there are advantages in common action which
we cannot afford to abandon. Technical improvement must be for the
whole industry, the labor market must be organized and made stable,
output must be adjusted to a common plan. The appearance of federal
organization seems to suggest a possible compromise in which the
administrative need for decentralization is combined with the social
demand for a unified industrial policy.
No one, surely, proposes to revive the little business monarch who
brooded watchfully over every operation in factory and office,
called his workingmen by their pet names, and was impelled at almost
every turn by Adam Smith’s “natural propensity to truck and barter.”
For just as in political government “the President” does a hundred
things every day he may never even hear of, just as the English
Crown acts constantly through some unknown civil servant at $1,500
a year,--so in big business,--the real government is passing into a
hierarchy of managers and deputies, who, by what would look like a
miracle to Adam Smith, are able to coöperate pretty well toward a
common end. They are doing that, remember, in the first generation of
administrative science. They come to it unprepared, from a nation that
is suspicious and grudging. They have no tradition to work with, the
old commercial morality of the exploiter and profiteer still surrounds
these new rulers of industry. Perhaps they are unaware that they are
revolutionizing the discipline, the incentives, and the vision of the
business world. They do brutal and stupid things, and their essential
work is obscured. But they are conducting business on a scale without
precedent in history.
The real news about business, it seems to me, is that it is being
administered by men who are not profiteers. The managers are on
salary, divorced from ownership and from bargaining. They represent
the revolution in business incentives at its very heart. For they
conduct gigantic enterprises and they stand outside the higgling of the
market, outside the shrewdness and strategy of competition. The motive
of profit is not their personal motive. That is an astounding change.
The administration of the great industries is passing into the hands of
men who cannot halt before each transaction and ask themselves: what
is my duty as the Economic Man looking for immediate gain? They have
to live on their salaries, and hope for promotion, but their day’s
work is not measured in profit. There are thousands of these men, each
with responsibilities vaster than the patriarchs of industry they
have supplanted. It is for the commercial theorists to prove that the
“ability” is inferior, and talent less available.
It is no accident that the universities have begun to create graduate
schools of business-administration. Fifty years ago industry was an
adventure or perhaps a family tradition. But to-day it is becoming a
profession with university standing equal to that of law, medicine,
or engineering. The universities are supplying a demand. It is big
business, I believe, which has created that demand. For it is no longer
possible to deal with the present scale of industry if your only
equipment is what men used to call “experience,” that is, a haphazard
absorption of knowledge through the pores. Just as it is no longer
possible to become a physician by living with doctors, just as law
cannot be grasped by starting as a clerk in some attorney’s office, so
business requires a greater preparation than a man can get by being a
bright, observant, studious, ambitious office boy, who saves his money
and is good to his mother.
What it will mean to have business administered by men with a
professional training is a rather difficult speculation. That it
is a very far-reaching psychological change, I have no doubt. The
professions bring with them a fellowship in interest, a standard of
ethics, an esprit de corps, and a decided discipline. They break up
that sense of sullen privacy which made the old-fashioned business man
so impervious to new facts and so shockingly ignorant of the larger
demands of civilized life. I know that the professions develop their
pedantry, but who was ever more finicky, more rigid in his thinking
than the self-satisfied merchant? It would be idle to suppose that
we are going suddenly to develop a nation of reasonable men. But at
least we are going to have an increasing number of “practical” men who
have come in contact with the scientific method. That is an enormous
gain over the older manufacturers and merchants. They were shrewd,
hard-working, no doubt, but they were fundamentally uneducated. They
had no discipline for making wisdom out of their experience. They had
almost no imaginative training to soften their primitive ambitions. But
doctors and engineers and professional men, generally, have something
more than a desire to accumulate and outshine their neighbors. They
have found an interest in the actual work they are doing. The work
itself is in a measure its own reward. The instincts of workmanship, of
control over brute things, the desire for order, the satisfaction of
services rendered and uses created, the civilizing passions are given a
chance to temper the primal desire to have and to hold and to conquer.