PROFIT SHARING AND COÍPERATION
A. PROFIT SHARING
110. THE NATURE OF PROFIT SHARING.--The essence of profit sharing is
that the workmen in a given enterprise receive, in addition to their
regular wages, a share in the profits which would ordinarily go
entirely to the entrepreneur. The share going to the employees varies
with the establishment, but generally from one quarter to three
quarters of the profits are divided among them.
Distribution is by various methods. The workmen may receive their
share in cash at the end of the year. Sometimes the money is placed in
a provident fund for the workmen as a body; in other cases it is
deposited in savings banks to the account of the individual workmen.
In still other cases the workman's share is invested in the business
for him, the workman thereafter receiving dividends on this invested
capital.
In every case, however, the division of profits among the individual
laborers is on the basis of the wages received, that is to say, the
higher the regular wage received by a workman, the larger will be his
share of the profits set aside for distribution. Generally, too, only
workmen who are steadily employed are allowed to share in the
distribution of profits.
111. LIMITS OF PROFIT SHARING.--Profit sharing was once considered a
remedy for many of our industrial troubles, but it is now generally
conceded that the plan is decidedly limited in scope. Profit sharing
increases the income of the workmen involved, but for this very reason
it is often bitterly opposed by the trade unions. The unions fear, of
course, that the plan will make the workmen interested chiefly in the
employees of their particular establishment, rather than in the
workmen in the trade as a whole. The trade unions also maintain that
profit sharing is often administered in a patronizing manner, which is
offensive to the self-respect of the workmen.
To a large extent, the spread of profit sharing depends upon the
development of altruism among employers. But unfortunately altruistic
employers are rare, and the majority of entrepreneurs will not adopt
the profit-sharing plan unless it promises to result in some distinct
advantage to themselves. This attitude explains, in part, the failure
of many profit-sharing experiments. Employers have sometimes tried out
profit sharing in the hope that it would prevent strikes and other
labor troubles. In some cases this expectation has been realized; in
many other cases serious labor troubles have continued. This
continuance of labor troubles has rendered profit sharing less
attractive to certain types of employers.
In certain cases employers have experimented with profit sharing in
the hope that it would stimulate efficiency and economy on the part of
the workmen. Sometimes the immediate effect of the adoption of the
plan has been to make the workmen more efficient and more interested
in their tasks, but after the novelty of the scheme has worn off they
have generally fallen back into their former pace. In justice to the
workmen, it should be noted here that in most enterprises the
conditions of the market and the employer's managerial ability have
more influence upon profits than have the personal efforts of
individual workmen. Where workmen realize this, they tend to lose
faith in their ability to influence the share accruing to them under
the profit-sharing plan.
A last important reason why profit sharing is limited in scope is that
in many hazardous enterprises, such as mining, agriculture, fishing,
or building construction, the refusal and inability of the workmen to
share in possible losses prevent the adoption of the plan. A mining
corporation, for example, may make large profits one year, and lose
heavily the second year. Profit sharing is here inadvisable, if not
impossible. The distribution among the workmen of a large share of the
profits accruing at the end of the first year might so deplete the
financial reserves of the entrepreneur that he would be unable to meet
the losses of the second year.
B. COÍPERATION
112. RELATION OF PROFIT SHARING TO COÍPERATION.--Profit sharing
permits the workmen to secure more than a regular wage from a given
enterprise, without, however, giving them any control over the
management of the business. Co÷peration goes a step farther, and
attempts to dispense with either a number of middlemen or with the
managing employer, or with both middlemen and employer. In the case of
a profit-sharing scheme in which the share of the profits accruing to
the workmen is invested in the business for them, ultimate control of
the enterprise may come into the hands of the workmen through profit
sharing. In such a case the plant might be conducted co÷peratively. In
practically every instance, however, co÷peration does not grow out of
profit sharing, but arises independently.
113. ESSENCE OF COÍPERATION.--The essence of co÷peration is that a
group of individuals undertake to perform for themselves those
functions which are commonly carried on by the business man.
Co÷peratives are often workmen, though not necessarily so.
Under the co÷perative plan, all of the profits of the enterprise are
divided among the co÷perators; on the other hand, the risks of the
business must also be borne by them. Management of the enterprise is
conducted partly by officers or committees serving without pay, and
partly by paid agents. The general policies of the business are
settled by the co÷perators acting as a body.
Co÷peration seeks to exchange the centralized control of the business
man for the diffuse control of a group of co÷perators. This
arrangement, its advocates hope, will permit wealth and power to be
distributed among more and more people, and especially among those
classes that possess relatively little property. Let us inquire
briefly into the four types of co÷peration.
114. CONSUMERS' COÍPERATION.--Consumers' co÷peration, also known as
distributive co÷peration or co÷peration in retail trade, is the most
common form of co÷peration. It is also probably the most successful
form.
In this form of co÷peration, a number of individuals contribute their
savings to a common fund, buy certain desired commodities at wholesale
prices, and distribute these among themselves. Generally, the
co÷perative store sells to its members at the regular retail price,
but at stated intervals throughout the year the profits of the
business are distributed among the co÷peratives in proportion to the
amount of their individual purchases. Thus the difference between the
wholesale and the retail price--minus the expense of conducting the
store--goes to the co÷perators, instead of to a store keeper or other
middleman.
One of the best examples of consumers' co÷peration is the Rochdale
Society of Equitable Pioneers, established in England in 1844. This
type of co÷peration has also been remarkably successful in Germany,
Belgium, and other continental countries. The idea was taken up in the
United States about the middle of the nineteenth century, and at the
present time there are in this country about 2000 co÷perative stores,
many of them doing a thriving business. These stores are located
chiefly in New England, the North Central States, and the West, few
being found in the South.
115. COÍPERATION IN CREDIT.--Credit co÷peration may take any one of a
number of forms. In one of the best known forms, a group of persons
form a credit society by contributing a proportion of their personal
savings to a common fund. On the strength of this capital, and of
their own individual liability, they borrow more capital. The total
amounts thus got together are then loaned to the members of the
society at a specified rate of interest. This rate of interest is
higher than that at which the group had borrowed money from outside
sources; nevertheless, it is lower than the rate members would have to
pay if they individually sought loans at a bank. This is the aim of
co÷peration in credit: to enable persons of small means to secure
loans without paying the high rates which as individuals they would
ordinarily have to meet, if, indeed, they as individuals could secure
loans under any conditions.
Credit co÷peration has been most successful in Germany, particularly
among artisans and small farmers. It has also attained considerable
success among the small tradesmen and artisans of Italy. In the United
States co÷peration in credit is less highly developed, but recently
its influence has been slowly increasing. In many cases it supplies
the principle underlying building and loan associations in this
country.
116. COÍPERATION IN MARKETING.--The co÷perative principle has also
been applied to the marketing of agricultural products. In Denmark,
for example, it has been found that farmers can market their dairy
products co÷peratively, and thus save for themselves much of the
profit that would otherwise go to commission agents and other
middlemen. A similar saving has been effected in Holland, Belgium,
and, to some extent, in France. Of recent years, co÷peration in
marketing has become important in the United States, finding
particular favor among the farmers of the Middle and Far West. At the
present time there are in this country more than two thousand
co÷perative cheese factories, and more than three thousand co÷perative
creameries. There are also more than a thousand societies for the
co÷perative marketing of fruit, as well as numerous live-stock selling
agencies.
117. COÍPERATION IN PRODUCTION.--The three forms of co÷peration which
we have been considering seek to eliminate unnecessary middlemen from
industry. In producers' co÷peration, on the other hand, the attempt is
made to get rid of the entrepreneur, or managing employer. A group of
workmen get together, subscribe or borrow the required capital,
purchase tools, materials, and plant, and set up as producers. They
seek markets for their product, direct the enterprise either as a
group or through salaried agents, share the profits among themselves,
and accept the risks of the enterprise.
Co÷peration in production has been tried repeatedly in the various
countries of Europe, but without success. True producers' co÷perative
associations have also met with almost universal failure in the United
States, though experiments have been made in a variety of industries,
and in nearly every part of the country. Formerly the Minneapolis
Co÷pers were a co÷perative group which seemed destined to attain a
considerable success in production, but this group has now abandoned
the co÷perative principle. The co÷perative marketing of fruit, cheese,
and other agricultural products is, of course, not true producers'
co÷peration, but rather the co÷perative marketing of commodities
produced by individual enterprisers.
118. BACKWARDNESS OF COÍPERATION IN THE UNITED STATES.--In all forms
of co÷peration, progress has been much slower in this country than in
Europe. There are several reasons for this. For one thing, American
workmen move about to a greater extent than do European workmen,
whereas co÷peration succeeds best where the co÷perators have a fixed
residence and develop a strong sense of group solidarity. The fact
that our population is made up of diverse racial types likewise checks
the growth of the feeling of solidarity.
An important reason for the backwardness of the co÷perative movement
in this country is that American workmen "make, rather than save
money," whereas co÷peration requires thrift, and a willingness to
practice small economies. Again, the efficiency and progressiveness of
our industrial system renders co÷perative ventures less necessary in
this country than in some parts of Europe. It is particularly true
that retail stores in the United States are more efficient than
similar shops in England and on the Continent.
Altogether, the most successful co÷perators in this country are not
native-born Americans, but groups of Finns, Russians, Slovaks, and
other peoples of immediately foreign derivation. It is among these
groups that the thrift and group solidarity demanded by co÷peration
are best found.
119. LIMITS OF COÍPERATION.--Consumers' co÷peration, co÷peration in
credit, and co÷peration in marketing all seek to improve the
capitalistic system by eliminating some of the unnecessary middlemen
from our industrial life. In so far as this is true, these forms of
co÷peration are desirable developments, and deserve to succeed. Though
the movement is limited by the considerations set forth in the
preceding section, it is to be hoped that these three forms of
co÷peration will in the future show a considerable development in this
country.
Producers' co÷peration is a different affair. Rather than attempting
to decrease the number of unnecessary middlemen, it attempts to
supersede the entrepreneur or managing employer where he is most
needed. For this reason producers' co÷peration will probably continue
a failure. To run a modern business of any size at all requires a
degree of intelligence, imagination, judgment, courage, and
administrative ability which is altogether too rare to be found among
casual groups of laborers. Varied experience, high ability, the
determination to accept the risks of the enterprise, and a consistent
singleness of purpose are necessary in modern production. Even though
co÷perators are able to secure an amount of capital sufficient to
initiate production, they rarely have the requisite ability or
experience; too often they object to accepting the risks of the
enterprise; practically never can they administer the business with
that unity of control which characterizes the most successful business
enterprises.
120. BENEFITS OF COÍPERATION.--While no longer considered a far-
reaching industrial reform, the co÷perative movement brings with it
many benefits. Co÷peration in retail trade, credit, and marketing cuts
down the waste between consumer and producer, and thus helps
substantially to reduce the cost of living. Co÷peration in production,
though it fails to reach its chief objective, has the virtue of
demonstrating to groups of workmen that the entrepreneur is of far
more value in our industrial life than they might otherwise have
realized. Aside from these advantages, co÷peration in any form is an
important educative force. It fosters the spirit of solidarity and
mutual helpfulness among members of a group or community. It teaches
thrift. It trains the co÷perating individuals to exercise foresight
and self-control. Altogether the training which it affords is
productive of good citizenship.
QUESTIONS ON THE TEXT
1. Explain clearly the nature of profit sharing.
2. What is the attitude of the trade unions toward profit sharing?
3. What is the attitude of the employer toward profit sharing?
4. Does profit sharing result in increased efficiency on the part of
the workmen? Explain.
5. What is the relation of profit sharing to co÷peration?
6. What are the essential features of co÷peration?
7. Explain the principle involved in consumers' co÷peration.
8. Where has this form of co÷peration been most successful?
9. What are the essential features of credit co÷peration?
10. Where is credit co÷peration most successful?
11. What is the aim of co÷peration in marketing?
12. In what way does producers' co÷peration differ from the other
forms of co÷peration?
13. To what extent is producers' co÷peration a success?
14. Why is co÷peration backward in this country?
15. Outline the chief benefits of co÷peration.
REQUIRED READINGS
1. Williamson, _Readings in American Democracy_, chapter xii.
Or all of the following:
2. Fay, _Co÷peration at Home and Abroad_, part iv, chapter v.
3. Harris, _Co÷peration, the Hope of the Consumer_, chapter vi.
4. _International Encyclopedia_, vol. 19, article on "Profit Sharing"
and vol. 6, article on "Co÷peration."
5. Taussig, _Principles of Economics_, vol. ii, chapter lxix.
QUESTIONS ON THE REQUIRED READINGS
1. What is the principle upon which profit sharing is based?
(_International Encyclopedia_, vol. 19, page 244.)
2. Discuss the origin of profit sharing in the United States.
(_International Encyclopedia, vol. 19, page 244.)
3. Give some examples of profit sharing in this country.
(_International Encyclopedia_, vol. 19, pages 244-245.)
4. Describe the earlier forms of co÷peration in this country.
(_International Encyclopedia_, vol. 6, page 44.)
5. For what purpose was the "Rochdale plan" originated? (Harris, page
88.)
6. Discuss voting rights under the Rochdale plan. (Harris, pages 90-
91.)
7. Describe the store service under the Rochdale plan. (Harris, pages
93-94.)
8. How does the Rochdale plan promote thrift? (Taussig, pages 348-
349.)
9. Why has co÷peration succeeded in Great Britain? (Taussig, page
350.)
10. What is the Schulze-Delitzsch plan? (Taussig, pages 352-353.)
11. What is the Raiffeisen plan? (Taussig, page 354.)
12. Among what classes of the population is co÷peration of greatest
importance? (Taussig, pages 347-349.)
13. How does co÷peration teach self-government? (Fay, pages 324-325.)
14. How has co÷peration encouraged thrift? (Fay, page 329.)
TOPICS FOR INVESTIGATION AND REPORT
I
1. Make a study of a profit-sharing plan in your locality. (Write to
the Bureau of Labor Statistics at your State Capitol, asking for the
names and addresses of employers in your locality who have
experimented with profit sharing.)
2. Interview, or write to, an employer, explaining the essence of
profit sharing, and asking his opinion as to its practicability in his
business.
3. Interview, or write to, the officials of a trade union, regarding
their attitude toward profit sharing.
4. Write to the Co÷perative League of America, 2 West 13th Street, New
York City, asking for free literature on co÷peration in your section.
If any of the groups of co÷perators in your section are found to be
close at hand, make a study of a typical co÷perative group.
5. Draw up a plan for a co÷perative buying club, and discuss with your
fellow students the chances for its success. (Consult Harris,
_Co÷peration, the Hope of the Consumer_, chapter xiv.)
6. Draw up a plan for the co÷perative marketing of some agricultural
product in your section. Send a description of the plan, giving
advantages, etc., to a farm journal in your section. (Consult Powell,
_Co÷peration in Agriculture>/i>, chapter iv, and Coulter, _Co÷peration
Among Farmers_.)
II
7. Profit sharing as a method of securing industrial peace. (Burritt,
and others, _Profit Sharing_, chapter vii.)
8. Profit sharing as a means of stabilizing labor. (Burritt, and
others, _Profit Sharing,_ chapter vi.)
9. Relation of co÷peration to advertising. (Harris, _Co÷peration, the
Hope of the Consumer,_ chapter xix.)
10. Credit co÷peration in Germany. (Fay, _Co÷peration at Home and
Abroad,_ part i, chapter ii.)
11. Co÷peration in dairying. (Fay, _Co÷peration at Home and Abroad,_
part ii, chapter vi.)
12. Co÷peration among New England farmers. (Ford, _Co÷peration in New
England,_ chapters vi-ix.)
13. Co÷peration among immigrants in New England. (Ford, _Co÷peration
in New England,_ chapter iii.)
14. Co÷peration in the fruit industries. (Powell, _Co÷peration in
Agriculture,_ chapter viii.)
15. The relation of thrift to nation-building. (_Annals,_ vol.
lxxxvii, pages 4-9.)
16. The relation of co÷peration to socialism. (Fay, _Co÷peration at
Home and Abroad,_ pages 350-355; Sonnichsen, _Consumers' Co÷peration,_
part ii, chapter ii.)