Council is to develop an entirely new system of industrial control by
the members of the industry itself--the actual producers, whether by
hand or brain, and to bring them into co-operation with the State as
the central representative of the community whom they are organized to
serve." Instead of unlimited profits, so "indispensable as an
incentive to efficiency," the employer is to be paid a salary for his
services as manager, and a rate of interest on his capital which is to
be both fixed and (unless he fails to earn it through his own
inefficiency) guaranteed; anything in excess of it, any "profits" in
fact, which in other industries are distributed as dividends to
shareholders, he is to {108} surrender to a central fund to be
administered by employers and workmen for the benefit of the industry
as a whole. Instead of the financial standing of each firm being
treated as an inscrutable mystery to the public, with the result that
it is sometimes a mystery to itself, there is to be a system of public
costing and audit, on the basis of which the industry will assume a
collective liability for those firms which are shown to be competently
managed. Instead of the workers being dismissed in slack times to
struggle along as best they can, they are to be maintained from a fund
raised by a levy on employers and administered by the trade unions.
There is to be publicity as to costs and profits, open dealing and
honest work and mutual helpfulness, instead of the competition which
the nineteenth century regarded as an efficient substitute for them.
"Capital" is not to "employ labor." Labor, which includes managerial
labor, is to employ capital; and to employ it at the cheapest rate at
which, in the circumstances of the trade, it can be got. If it employs
it so successfully that there is a surplus when it has been fairly paid
for its own services, then that surplus is not to be divided among
shareholders, for, when they have been paid interest, they have been
paid their due; it is to be used to equip the industry to provide still
more effective service in the future.
So here we have the majority of a body of practical men, who care
nothing for socialist theories, proposing to establish "organized
Public Service in the Building Industry," recommending, in short, that
their industry shall be turned into a profession. And they do it, it
{109} will be observed, by just that functional organization, just that
conversion of full proprietary rights into a mortgage secured (as far
as efficient firms are concerned) on the industry as a whole, just that
transference of the control of production from the owner of capital to
those whose business is production, which we saw is necessary if
industry is to be organized for the performance of service, not for the
pecuniary advantage of those who hold proprietary rights. Their Report
is of the first importance as offering a policy for attenuating private
property in capital in the important group of industries in which
private ownership, in one form or another, is likely for some
considerable time to continue, and a valuable service would be rendered
by any one who would work out in detail the application of its
principle to other trades.
Not, of course, that this is the only way, or in highly capitalized
industries the most feasible way, in which the change can be brought
about. Had the movement against the control of production by property
taken place before the rise of limited companies, in which ownership is
separated from management, the transition to the organization of
industry as a profession might also have taken place, as the employers
and workmen in the building trade propose that it should, by limiting
the rights of private ownership without abolishing it. But that is not
what has actually happened, and therefore the proposals of the building
trade are not of universal application. It is possible to retain
private ownership in building and in industries like building, {110}
while changing its character, precisely because in building the
employer is normally not merely an owner, but something else as well.
He is a manager; that is, he is a workman. And because he is a
workman, whose interests, and still more whose professional spirit as a
workman may often outweigh his interests and merely financial spirit as
an owner, he can form part of the productive organization of the
industry, after his rights as an owner have been trimmed and limited.
But that dual position is abnormal, and in the highly organized
industries is becoming more abnormal every year. In coal, in cotton,
in ship-building, in many branches of engineering the owner of capital
is not, as he is in building, an organizer or manager. His connection
with the industry and interest in it is purely financial. He is an
owner and nothing more. And because his interest is merely financial,
so that his concern is dividends and production only as a means to
dividends, he cannot be worked into an organization of industry which
vests administration in a body representing all grades of producers, or
producers and consumers together, for he has no purpose in common with
them; so that while joint councils between workers and managers may
succeed, joint councils between workers and owners or agents of owners,
like most of the so-called Whitley Councils, will not, because the
necessity for the mere owner is itself one of the points in dispute.
The master builder, who owns the capital used, can be included, not
_qua_ capitalist, but _qua_ builder, if he surrenders some of the
rights of ownership, as the Building Industry Committee proposed that
he should. But {111} if the shareholder in a colliery or a shipyard
abdicates the control and unlimited profits to which, _qua_ capitalist,
he is at present entitled, he abdicates everything that makes him what
he is, and has no other standing in the industry. He cannot share,
like the master builder, in its management, because he has no
qualifications which would enable him to do so. His object is profit;
and if industry is to become, as employers and workers in the building
trade propose, an "organized public service," then its subordination to
the shareholder whose object is profit, is, as they clearly see,
precisely what must be eliminated. The master builders propose to give
it up. They can do so because they have their place in the industry in
virtue of their function as workmen. But if the shareholder gave it
up, he would have no place at all.
Hence in coal mining, where ownership and management are sharply
separated, the owners will not admit the bare possibility of any system
in which the control of the administration of the mines is shared
between the management and the miners. "I am authorized to state on
behalf of the Mining Association," Lord Gainford, the chief witness on
behalf of the mine-owners, informed the Coal Commission, "that if the
owners are not to be left complete executive control they will decline
to accept the responsibility for carrying on the industry."[2] So the
mine-owners blow away in a sentence the whole body of plausible
make-believe which rests on the idea that, while private ownership
remains {112} unaltered, industrial harmony can be produced by the
magic formula of joint control. And they are right. The
representatives of workmen and shareholders, in mining and in other
industries, can meet and negotiate and discuss. But joint
administration of the shareholders' property by a body representing
shareholders and workmen is impossible, because there is no purpose in
common between them. For the only purpose which could unite all
persons engaged in industry, and overrule their particular and
divergent interests, is the provision of service. And the object of
shareholders, the whole significance and _metier_ of industry to them,
is not the provision of service but the provision of dividends.
In industries where management is divorced from ownership, as in most
of the highly organized trades it is to-day, there is no obvious
halfway house, therefore, between the retention of the present system
and the complete extrusion of the capitalist from the control of
production. The change in the character of ownership, which is
necessary in order that coal or textiles and ship-building may be
organized as professions for the service of the public, cannot easily
spring from within. The stroke needed to liberate them from the
control of the property-owner must come from without. In theory it
might be struck by action on the part of organized workers, who would
abolish residuary profits and the right of control by the mere
procedure of refusing to work as long as they were maintained, on the
historical analogy offered by peasants who have destroyed {113}
predatory property in the past by declining to pay its dues and admit
its government, in which case Parliament would intervene only to
register the community's assent to the _fait accompli_. In practice,
however, the conditions of modern industry being what they are, that
course, apart from its other disadvantages, is so unlikely to be
attempted, or, if attempted, to succeed, that it can be neglected. The
alternative to it is that the change in the character of property
should be affected by legislation in virtue of which the rights of
ownership in an industry are bought out simultaneously.
In either case, though the procedure is different, the result of the
change, once it is accomplished, is the same. Private property in
capital, in the sense of the right to profits and control, is
abolished. What remains of it is, at most, a mortgage in favor of the
previous proprietors, a dead leaf which is preserved, though the sap of
industry no longer feeds it, as long as it is not thought worth while
to strike it off. And since the capital needed to maintain and equip a
modern industry could not be provided by any one group of workers, even
were it desirable on other grounds that they should step completely
into the position of the present owners, the complex of rights which
constitutes ownership remains to be shared between them and whatever
organ may act on behalf of the general community. The former, for
example, may be the heir of the present owners as far as the control of
the routine and administration of industry is concerned: the latter may
succeed to their right to dispose of residuary profits. The elements
composing property, have, in fact, to be {114} disentangled: and the
fact that to-day, under the common name of ownership, several different
powers are vested in identical hands, must not be allowed to obscure
the probability that, once private property in capital has been
abolished, it may be expedient to re-allocate those powers in detail as
well as to transfer them _en bloc_.
The essence of a profession is, as we have suggested, that its members
organize themselves for the performance of function. It is essential
therefore, if industry is to be professionalized, that the abolition of
functionless property should not be interpreted to imply a continuance
under public ownership of the absence of responsibility on the part of
the _personnel_ of industry, which is the normal accompaniment of
private ownership working through the wage-system. It is the more
important to emphasize that point, because such an implication has
sometimes been conveyed in the past by some of those who have presented
the case for some such change in the character of ownership as has been
urged above. The name consecrated by custom to the transformation of
property by public and external action is nationalization. But
nationalization is a word which is neither very felicitous nor free
from ambiguity. Properly used, it means merely ownership by a body
representing the nation. But it has come in practice to be used as
equivalent to a particular method of administration, under which
officials employed by the State step into the position of the present
directors of industry, and exercise all the power which they exercised.
So those who desire to maintain the system under which industry is
carried on, not as a profession {115} serving the public, but for the
advantage of shareholders, attack nationalization on the ground that
state management is necessarily inefficient, and tremble with
apprehension whenever they post a letter in a letter-box; and those who
desire to change it reply that state services are efficient and praise
God whenever they use a telephone; as though either private or public
administration had certain peculiar and unalterable characteristics,
instead of depending for its quality, like an army or railway company
or school, and all other undertakings, public and private alike, not on
whether those who conduct it are private officials or state officials,
but on whether they are properly trained for their work and can command
the good will and confidence of their subordinates.
The arguments on both sides are ingenious, but in reality nearly all of
them are beside the point. The merits of nationalization do not stand
or fall with the efficiency or inefficiency of existing state
departments as administrators of industry. For nationalization, which
means public ownership, is compatible with several different types of
management. The constitution of the industry may be "unitary," as is
(for example) that of the post-office. Or it may be "federal," as was
that designed by Mr. Justice Sankey for the Coal Industry.
Administration may be centralized or decentralized. The authorities to
whom it is intrusted may be composed of representatives of the
consumers, or of representatives of professional associations, or of
state officials, or of all three in several different proportions.
Executive work may be placed in the hands of civil {116} servants,
trained, recruited and promoted as in the existing state departments,
or a new service may be created with a procedure and standards of its
own. It may be subject to Treasury control, or it may be financially
autonomous. The problem is, in fact, of a familiar, though difficult,
order. It is one of constitution-making.
It is commonly assumed by controversialists that the organization and
management of a nationalized industry must, for some undefined reason,
be similar to that of the post-office. One might as reasonably suggest
that the pattern exemplar of private enterprise must be the Steel
Corporation or the Imperial Tobacco Company. The administrative
systems obtaining in a society which has nationalized its foundation
industries will, in fact, be as various as in one that resigns them to
private ownership; and to discuss their relative advantages without
defining what particular type of each is the subject of reference is
to-day as unhelpful as to approach a modern political problem in terms
of the Aristotelian classification of constitutions. The highly
abstract dialectics as to "enterprise," "initiative," "bureaucracy,"
"red tape," "democratic control," "state management," which fill the
press of countries occupied with industrial problems, really belong to
the dark ages of economic thought. The first task of the student,
whatever his personal conclusions, is, it may be suggested, to
contribute what he can to the restoration of sanity by insisting that
instead of the argument being conducted with the counters of a highly
inflated and rapidly depreciating verbal currency, the exact situation,
{117} in so far as is possible, shall be stated as it is; uncertainties
(of which there are many) shall be treated as uncertain, and the
precise meaning of alternative proposals shall be strictly defined.
Not the least of the merits of Mr. Justice Sankey's report was that, by
stating in great detail the type of organization which he recommended
for the Coal Industry, he imparted a new precision and reality into the
whole discussion. Whether his conclusions are accepted or not, it is
from the basis of clearly defined proposals such as his that the future
discussion of these problems must proceed. It may not find a solution.
It will at least do something to create the temper in which alone a
reasonable solution can be sought.
Nationalization, then, is not an end, but a means to an end, and when
the question of ownership has been settled the question of
administration remains for solution. As a means it is likely to be
indispensable in those industries in which the rights of private
proprietors cannot easily be modified without the action of the State,
just as the purchase of land by county councils is a necessary step to
the establishment of small holders, when landowners will not
voluntarily part with their property for the purpose. But the object
in purchasing land is to establish small holders, not to set up farms
administered by state officials; and the object of nationalizing mining
or railways or the manufacture of steel should not be to establish any
particular form of state management, but to release those who do
constructive work from the control of those whose sole interest is
pecuniary gain, in order that they may be free to {118} apply their
energies to the true purpose of industry, which is the provision of
service, not the provision of dividends. When the transference of
property has taken place, it will probably be found that the necessary
provision for the government of industry will involve not merely the
freedom of the producers to produce, but the creation of machinery
through which the consumer, for whom he produces, can express his
wishes and criticize the way in which they are met, as at present he
normally cannot. But that is the second stage in the process of
reorganizing industry for the performance of function, not the first.
The first is to free it from subordination to the pecuniary interests
of the owner of property, because they are the magnetic pole which sets
all the compasses wrong, and which causes industry, however swiftly it
may progress, to progress in the wrong direction.
Nor does this change in the character of property involve a breach with
the existing order so sharp as to be impracticable. The phraseology of
political controversy continues to reproduce the conventional
antitheses of the early nineteenth century; "private enterprise" and
"public ownership" are still contrasted with each other as light with
darkness or darkness with light. But, in reality, behind the formal
shell of the traditional legal system the elements of a new body of
relationship have already been prepared, and find piece-meal
application through policies devised, not by socialists, but by men who
repeat the formulae of individualism, at the very moment when they are
undermining it. The Esch-Cummins Act in America, the {119} Act
establishing a Ministry of Transport in England, Sir Arthur Duckham's
scheme for the organization of the coal mines, the proposals with
regard to the coal industry of the British Government itself, appear to
have the common characteristic of retaining private ownership in name,
while attenuating it in fact, by placing its operators under the
supervision, accompanied sometimes by a financial guarantee, of a
public authority. Schemes of this general character appear, indeed, to
be the first instinctive reaction produced by the discovery that
private enterprise is no longer functioning effectively; it is probable
that they possess certain merits of a technical order analogous to
those associated with the amalgamation of competing firms into a single
combination. It is questionable, however, whether the compromise which
they represent is permanently tenable. What, after all, it may be
asked, are the advantages of private ownership when it has been pared
down to the point which policies of this order propose? May not the
"owner" whose rights they are designed to protect not unreasonably
reply to their authors, "Thank you for nothing"? Individual enterprise
has its merits: so also, perhaps, has public ownership. But, by the
time these schemes have done with it, not much remains of "the simple
and obvious system of natural liberty," while their inventors are
precluded from appealing to the motives which are emphasized by
advocates of nationalization. It is one thing to be an entrepreneur
with a world of adventure and unlimited profits--if they can be
achieved--before one. It is quite another to be a director of a
railway company or coal {120} corporation with a minimum rate of profit
guaranteed by the State, and a maximum rate of profit which cannot be
exceeded. Hybrids are apt to be sterile. It may be questioned
whether, in drawing the teeth of private capitalism, this type of
compromise does not draw out most of its virtues as well.
So, when a certain stage of economic development has been reached,
private ownership, by the admission of its defenders, can no longer be
tolerated in the only form in which it is free to display the
characteristic, and quite genuine, advantages for the sake of which it
used to be defended. And, as step by step it is whittled down by tacit
concessions to the practical necessity of protecting the consumer, or
eliminating waste, or meeting the claims of the workers, public
ownership becomes, not only on social grounds, but for reasons of
economic efficiency, the alternative to a type of private ownership
which appears to carry with it few rights of ownership and to be
singularly devoid of privacy. Inevitably and unfortunately the change
must be gradual. But it should be continuous. When, as in the last
few years, the State has acquired the ownership of great masses of
industrial capital, it should retain it, instead of surrendering it to
private capitalists, who protest at once that it will be managed so
inefficiently that it will not pay and managed so efficiently that it
will undersell them. When estates are being broken up and sold, as
they are at present, public bodies should enter the market and acquire
them. Most important of all, the ridiculous barrier, inherited from an
age in which municipal corporations were corrupt oligarchies, which
{121} at present prevents England's Local Authorities from acquiring
property in land and industrial capital, except for purposes specified
by Act of Parliament, should be abolished, and they should be free to
undertake such services as the citizens may desire. The objection to
public ownership, in so far as it is intelligent, is in reality largely
an objection to over-centralization. But the remedy for
over-centralization, is not the maintenance of functionless property in
private hands, but the decentralized ownership of public property, and
when Birmingham and Manchester and Leeds are the little republics which
they should be, there is no reason to anticipate that they will tremble
at a whisper from Whitehall.
These things should be done steadily and continuously quite apart from
the special cases like that of the mines and railways, where the
private ownership of capital is stated by the experts to have been
responsible for intolerable waste, or the manufacture of ornaments
[Transcriber's note: armaments?] and alcoholic liquor, which are
politically and socially too dangerous to be left in private hands.
They should be done not in order to establish a single form of
bureaucratic management, but in order to release the industry from the
domination of proprietary interests, which, whatever the form of
management, are not merely troublesome in detail but vicious in
principle, because they divert it from the performance of function to
the acquisition of gain. If at the same time private ownership is
shaken, as recently it has been, by action on the part of particular
groups of workers, so much the better. There are more ways of killing
a cat than {122} drowning it in cream, and it is all the more likely to
choose the cream if they are explained to it. But the two methods are
complementary, not alternative, and the attempt to found rival schools
on an imaginary incompatibility between them is a bad case of the
_odium sociologicum_ which afflicts reformers.
[1] Reprinted in _The Industrial Council for the Building Industry_.
[2] _Coal Industry Commission, Minutes of Evidence_, Vol. I, p. 2506.
{123}
VIII
THE "VICIOUS CIRCLE"