Among the reforms suggested for remedying some of the evils incident
to the modern wage system those of profit-sharing and co-operation
occupy a prominent place. The separation of the community into
capitalists and laborers, classes different in conditions and ideals,
constitutes a menace to the peace and progress of industrial society.
The wage system moreover is thought by many to have broken down the
former intimate relation of employer and worker, and some scheme is
needed to correlate their interests again and to bind them together.
To secure this result profit-sharing is advocated. As defined by the
International Co-operative Congress in 1897 this is “the agreement,
freely entered into, by which the employe receives a share, fixed in
advance, of the profits.” It is not a change from the present wage
system, but simply a modification of that system according to which
the laborer receives a share in the profits in addition to his wages.
The purpose is to identify the interests of the employes with those of
their employer and thus to give him some of the same motives for
energy, care, and thrift in the conduct of the business. Three
principal methods of profit-sharing may be mentioned, though the
variations are manifold. The favorite method in England and the United
States is the payment of a cash bonus at the end of a fixed period, 111
as a year. A second plan, which is the rule in France, is a deferred
participation by means of a savings bank deposit, provident fund, or
annuity, for the purpose of providing for old age and disability. The
third plan, which has recently grown in favor in this country, is the
payment in shares of stock of the company.
The economic theory of profit-sharing is that by inducing greater care
and diligence on the part of the employe he will himself create the
fund from which he is paid. It is claimed by its advocates that it
increases both the quantity and the quality of the product and that it
promotes greater care of implements and materials, thus reducing the
cost at the same time that it increases the output. The classic
example of this is the case of the original profit-sharing scheme, the
Maison Leclaire, in Paris; the result of the first six years’
experiment was a dividend on wages of $3,753 a year, derived entirely
from the increased economy and care of the workers. In some cases,
however, the object of the employers is to secure immunity from
strikes and other labor disturbances and a greater permanence of the
labor force; and participation in profits is conditioned on the men
abstaining from joining a trade union, or on uninterrupted service. In
these cases the deferred participation plan is used. The advantages
claimed for the system are not merely the increase in product already
spoken of and the greatest efficiency of the worker, but also the
improvement in his material and moral standards, and the promotion of
industrial peace by lessening discontent and friction. The main basis
for the system, since it is economic and not philanthropic in its
nature, must of course be the increase in production brought about by
its adoption.
More weighty, however, appear the objections against profit-sharing,
which seem to have had sufficient force to cause the failure of a
number of ventures in this direction. In the first place, the 112
relation between the increased effort of a single workman and the
success of a general business is so remote, especially in our
complicated modern industry, that it is unlikely to act as a very
powerful stimulus. But even if it should, the savings thus effected
might be swept away by the poor business management of the employer.
“It is quite possible that the workman who, in the hope of earning
‘bonus to labor,’ has done work 10 per cent in excess of the normal
standard, may, even under a liberal scheme, find that, instead of
receiving an addition to his normal wages of, say, 7 per cent, the bad
management of his employer has reduced his bonus to so low a level
that he has to be content with a supplement equivalent to only 2 per
cent on his wages, or that, as has been the case in a large proportion
of the schemes … no bonus whatever is forthcoming.”[34] It is
undesirable to make the earnings of the laborer dependent in any way
upon the fluctuations of business or the ability of the employer. The
ordinary wage system has at least the merit that the reward of the
laborer is made dependent only on his own efforts. The lot of the
modern worker is too unstable and employment too unsteady to add a new
element of uncertainty in wages. If the laborer has really earned the
premium, say labor leaders, why not add it to his wages instead of
adopting this roundabout method. The sliding scale, or a system of
premiums or bonus payments for increased output, would be better than
profit-sharing, and is rapidly spreading.
This leads to the second objection, which is that profit-sharing
paralyzes the efforts of the laborers to better their own conditions
through trade unions, strikes or other methods. The trade union
attitude was vigorously stated by President Gompers of the American
Federation of Labor in his testimony before the Industrial
Commission[35]:
“There have been few, if any, of these concerns which have been even 113
comparatively fair to their employes…. They made the work harder,
longer hours, and when the employes of other concerns in the same line
of trade were enjoying increased wages, shorter hours of labor, and
other improvements, tending to the material progress of the worker,
the employes of the concern where so-called profit-sharing was the
system at the end of the year found themselves receiving lower wages
for harder work than were those who were not under that beneficent
system.” As long as the system is viewed with suspicion by the laborer
or used as a weapon in industrial bargaining by employers, the plan is
foredoomed to failure. But even were it managed in the proper spirit,
it is after all applicable to only a comparatively few industries,
those, namely, in which labor makes up the largest part of the cost of
production. In most modern industries capital plays such an important
role as compared with labor that the field for this plan is
comparatively limited.
In the actual practice of profit-sharing there have been many
interesting experiments, and not a few failures. It may be said to
date from 1842, when M. Leclaire, a Parisian painter and house
decorator, introduced it into his business, and has since spread over
France and England; it has met with little success in the rest of
Europe. In the United States the movement has also been more recent
and of smaller proportions. The reason for this is suggested by
President Hadley as follows[36]: “Where the laborers under the old
wage system are not working up to a high standard of efficiency, there
is more chance for the success of profit-sharing. This seems to be the
reason why it works better on the Continent than in England, and
better in England than in America.” It was estimated in 1900 that
there had been in the entire world some 500 experiments in
profit-sharing, of which about 400 were still in existence: a more 114
conservative estimate would place the latter number at about 300.
More radical than profit-sharing, which involves only a change in the
method of payment of wages, is co-operation, which involves a change
of management as well. Its final goal, in the minds of its advocates,
is the radical modification if not ultimate abolition of the present
wage system. While profit-sharing is paternalistic and is directed to
an increase of production, co-operation may be said to be democratic,
and to aim at a more equitable distribution. Under this plan the
laborers hope to divert to themselves the large amount of profits
which they now see going into the possession of their employers. By
eliminating the manager or enterpriser they hope to save his profits
for themselves. Two different kinds of co-operation are usually
distinguished--distributive or consumers’ co-operation, and producers’
co-operation--which we may profitably take up in turn.
Successful consumers’ co-operation may be said to have originated in
Great Britain when twenty-eight Rochdale workingmen founded their
famous society of Equitable Pioneers. The success and growth of this
remarkable experiment, starting with a capital of £28, to a great
system of 8,000 members with a capital of £200,000 in 1874, is a most
romantic story. It was largely imitated and retail co-operative stores
sprang up all over England. In 1864 the English Co-operative Wholesale
Society was started, for the purpose of the joint purchase of supplies
for the retail co-operative stores on better terms than these could
secure singly from ordinary wholesalers. It effected large economies
and was successful from the beginning; by 1901 it had a capital of
£2,500,000 and acted as purchaser for over 1,000 retail societies.
From buying, the society soon passed to making its own goods and now
manufactures directly a long list of commodities. In 1868 the Scottish
Wholesale Society was inaugurated upon practically the same plan. 115
Consumers’ co-operation has met with considerable success in Europe
also. In the United States, however, experiments of this kind have in
general had only a brief existence. It is impossible to say how many
such societies exist today as no adequate statistics on the subject
exist. Trade union stores in New England, the grange stores of the
Patrons of Husbandry and later similar ones of the Sovereigns of
Industry, and a few sporadic movements since in different parts of the
country, show what has been attempted. The reasons for the lack of
success in this country are not hard to find. Co-operation requires a
willingness to take considerable trouble for small economies, which
American workingmen, with their generally high wages, have not yet
been willing to take. It also requires a considerable degree of
homogeneity in thought and interests on the part of a people, which is
naturally less present in the United States with its large admixture
of foreign population than in England or the countries of Europe.
The methods of the Rochdale Society will serve as an illustration of
the way in which the savings effected by co-operation are distributed
among the members. Any one might become a member upon payment of one
shilling and was then entitled to trade at the store. The prices
charged were those current in the town, but purity of goods was
assured; cash payments were an essential feature. At the end of the
year the profits were divided among the members in proportion to the
amount of their purchases. On the other hand, it may be noted that no
attempt was made to, introduce profit-sharing with the employes, who
are paid ordinary but good wages only. Other forms of consumers’
co-operation are those which undertake to supply insurance, or credit,
like the co-operative insurance companies, banks, and building and
loan associations. The latter especially have had considerable success
in the United States and have helped many a laborer or man of small 116
means to the ownership of a home.
Producers’ co-operation differs from that just described in that it is
a union on the part of laborers to do away with the employer and to
secure for themselves the profits. The object of the first is to lower
prices for the co-operators as consumers; the object of the second is
rather to secure higher prices for themselves as producers by
eliminating the profits of the industrial manager. They hope to
perform his function by their collective effort, and to manage as well
as labor; indeed, by diminishing friction and strikes they even hope
to increase the profits. Examples of successful co-operation of this
sort are not numerous, as it has great difficulties to contend with.
Most of the experiments have failed, though recently it would seem
that the movement is making substantial though slow progress,
especially in France and England. Most of those in the latter country,
however, seem to be of simple industries, as agriculture and
dairy-farming. The most notable example of successful productive
co-operation in the United States has been furnished by the coopers of
Minneapolis, who organized a shop of their own in 1868 and have
steadily increased their business since that time. Other instances
often cited are the wood-workers in St. Louis and boot and shoe
companies in Massachusetts. More recently there has been a
considerable extension of co-operative creameries, cheese factories
and similar businesses of a simple kind.
The advantages of co-operation are summed up as follows by President
Walker.[37] From the laborer’s point of view: “First, to secure for
the laboring class that large amount of wealth, which … goes
annually in profits to the employer. Second, to secure for the laborer
the opportunity to produce independently of the will of an
employer…. In addition to these, the political economist beholds in
cooperation three sources of advantage. First, co-operation would, 117
by the very terms of the case, do away with strikes…. Second, the
workman would be incited to greater industry and to greater
carefulness in dealing with materials and with machinery. Third, in no
small degree frugality would be encouraged.” To these may be added
other advantages, mostly realizable, however, in consumers’
co-operation. Saving in store-room, clerk hire, advertising,
book-keeping, etc., is effected, while above all, the practice of cash
payments saves all loss from bad debts. The initial success of the
Rochdale pioneers was in large part due to the economy in this line,
as a system of long credits burdened the retail trade of England at
the time they began. In this country the large department stores have
introduced this system and have thus been able to give their customers
lower prices, and by so much have lessened the motive for consumers’
co-operation. The educative effects of successful co-operation upon
the participators in developing habits of thrift, careful management
and a knowledge of business principles, is one of the chief advantages
of the system. The ultimate ideal of enthusiastic co-operators does
not, however, stop short of a mere saving in price. The goal is stated
as follows by the Right Relationship League of America, which has
several co-operative stores in the Northwest: Consumers’ co-operation
is merely the first step which “will lead next to co-operative
production, next to public ownership of natural resources and finally
to complete industrial and economic equality, social and political
right relationship--the Kingdom of God on Earth.”
The defects of co-operation have already been suggested in the account
of their failure. In the first place, the importance and need of
intelligent and efficient management are usually underrated by
workingmen. They are unwilling to pay high salaries and as a
consequence lose the best men and secure inefficient service.
Co-operation has therefore succeeded best in retail trade where the
processes are comparatively simple, or in those branches of production 118
where industry counts for most and management for least. But even if
it were possible to secure an efficient and progressive manager for a
co-operative shop, it is found very difficult for a man chosen by the
workmen to enforce discipline among them. A second disadvantage is the
difficulty of securing capital. Where, as in many branches of
large-scale manufacturing today, the average investment of capital
amounts to more than $1,000 per employe, the impossibility of
obtaining this by the contributions of the workers is obvious. Nor are
capitalists usually willing to lend to such organizations, as the
risks are too great. To meet this difficulty Ferdinand Lassalle, a
German socialist, proposed that the state should advance the necessary
capital to associations of workmen. But the experience so far with
productive co-operation would seem to suggest that the social benefits
would not equal the waste of public capital. There is danger also that
if successful the co-operative associations would tend to become
monopolies; they are profit-seeking societies and would probably not
differ materially in their methods from ordinary joint stock
enterprises.
It seems impossible, therefore, to expect from co-operation a final
solution of the labor problem, such as John Stuart Mill, for instance,
hoped for. Where successful, it has succeeded in distributing profits
among a larger number of persons than would otherwise have received
them. Its educative and moral effects, moreover, in the appeals which
it makes to higher motives and to character, are of the highest value.
But as an industrial system of enterprise it cannot supplant the
present system as long as the manager of industry is needed. Today he
performs a useful social service and profits are his pay therefor. If
he is to be eliminated, society must first be raised to a higher plane
of efficiency, intelligence, and morality. But just because it makes
these high demands upon the members of the laboring class, attempts 119
at co-operation should receive all reasonable encouragement.