THE RIGHT RELATIONSHIP BETWEEN EMPLOYERS AND EMPLOYED
3. PRODUCTION IN INDUSTRY
The Importance of Production—What Production Depends on—The
Workers’ Notion of the Secret Fund—“Passing it on”—The
Workers’ Belief in Restricted Output—Introduction of Time- and
Labour-Saving Appliances—Payment by Results—Subdivision and
Simplification of Process—No “Niggling” at Prices.
The Importance of Production
It is unnecessary to stress the national, the social, the industrial
need for production. That does not mean more output with no improvement
in the ratio of efficiency. It means more output accompanied with
increased efficiency and therefore lower cost of production. It is
on cheapness of output that the demands of the home and the foreign
consumer for commodities largely depend. Restriction of output means
for the community high costs of commodities, less purchasing power, a
lower standard of living; it means that there will not be available
either the wealth to finance social reforms, or the capital required
for industry, and therefore worse conditions and less work for the
workers; it means reduced export trade and adverse exchanges. Apart
from production, there is no fund from which labour can be paid, the
only fund is that consisting of the commodities and services and values
which are produced. As the fund is made greater by the joint efforts of
employers and workmen, so can the wage paid to the worker be increased.
One worker is needed to realize the goods, values or services produced by
another worker. If both increase their output as much as is reasonably
practicable, each has the maximum available for exchange, and both can
secure for themselves the greatest possible standard of living. On the
other hand, if one particular worker limits his production, say, by
one-half of its reasonable maximum, he not only injures himself and
his dependents, because he throws away the opportunity of disposing
of one-half of his labour, but he also injures the other workman
who, directly or indirectly, exchanges with him, and who would like
to exchange the whole of the goods and values and services which he
produces, but who is prevented from disposing of more than one-half by
reason of his opposite number’s selfish and stupid action. The present
national standard of living can by no human ingenuity be maintained under
to-day’s conditions of output.
What Production Depends on
Lord Weir has truly pointed out[21] that there are only four methods of
improving the volume and efficiency of our national production:
(1) An increase in intensity of effort per operative hour;
(2) An increase in the number of operative hours per individual per day;
(3) An increase in the number of operative individuals;
(4) A perfecting of methods, processes and organizations, by which waste
of operative hours is eliminated.
Accepting this as an accurate statement, which it is, of how alone output
can be increased, I wish to point out the immediate obstacles to an
achievement of these four objects. They are these:
In regard to (1)—the workman’s low conception of work, his tendency, in
many trades, to lose time, his inveterate belief in restriction of output.
In regard to (2)—the conception of organized Labour that the present
47- or 48-hour ordinary working week is a social reform with which no
tampering will be permitted, and that if in times of trade prosperity
more hours are necessary, they ought to be worked as overtime.
In regard to (3)—the insistence of the Trade Unions, in this country,
on their rigid lines of demarcation of work—in other words, on certain
work being always reserved for certain Unions, without reference to the
prevailing industrial or commercial conditions.
In regard to (4)—the opposition of the workers to the introduction of
time- and labour-saving appliances, or of payment by results—and Lord
Weir adds: the killing of the spirit of enterprise among employers,
as the result of the taxation policy of the Government; the lack of
reciprocity and co-operation on the part of the Trade Unions, amounting
to active obstruction; and bad statesmanship on the part of the
employers’ organizations.
To state these four methods in their order of relative practicability,
they run (1), (4), (3) and (2). All the obstacles enumerated above to
securing greater production by methods (1), (4) and (3), are the fruit of
unsound economic theories that have for many years past been sedulously
instilled into Labour, and are now accepted by it as part of its everyday
rule of life and conduct.
The Workers’ Notion of the Secret Fund
Foremost, in normal times, comes the erroneous belief that all the
aspirations of Labour for increased remuneration, shorter hours,
improved conditions of employment, can be satisfied to the full out of
the existing profits of employers and current production. This has been
argued incessantly before myself. It is honestly believed that all that
is necessary to liquidate the demands of Labour is to devote to that
purpose part only of the existing profits of industry, in their entirety
said to be appropriated by avaricious employers. The sole impediment
is considered to be the greed of employers, coupled with the fact that
as industry is now organized they hold the money-bags. But this error
can be exposed if the demands of Labour are reduced to a definite
charge per annum on the industry in question, and each particular
establishment involved. It can usually be shown on the actual accounts in
typical establishments, at any rate in the engineering and shipbuilding
industries, that the demands of Labour could not be met out of existing
profits. In fact, in many cases, if the whole of employers’ profits were
handed over to Labour, and Capital left without any return whatsoever,
the demands of Labour could not be satisfied to anything like the full
extent.
This delusion is one of the most pernicious in industry, because of its
widespread acceptance and its fatal results. It has been fostered by the
war conditions, as has already been explained. Employers made profits
which exceeded in many cases those retainable under the Munitions of War
or Finance Acts, and so it frequently did not matter to them what rate of
wages they paid in order to expedite work. Moreover, war advances, far
above the rate of wages, were distributed under order of the Government
Courts of Arbitration to cover the increased cost of living arising out
of the abnormal conditions resulting from the war. These war advances
were generally paid by Government, in addition to the contract price for
munitions. Thus the workman saw very high nominal rates of wages paid,
and the employers at the same time making much greater profits than they
could by law appropriate. Nothing was, therefore, more natural than
to suppose that all demands could on the current basis of output be
satisfied out of existing profits.
“Passing it on”
Accepting, as will some sections of Labour, that their demands cannot
be met out of employers’ profits on present output, the alternative
is, they say, that the manufacturer must raise his selling price by an
amount sufficient to cover the extra cost. In this it is assumed, of
course, that the rate of production remains the same. It is a fixed
idea that every manufacturer and the owners in every industry can raise
prices without any difficulty whatsoever. In discussing this delusion,
as I have frequently done, it becomes quite obvious that workmen do not
appreciate the effect which an increase in the cost of production has
in reducing the ambit of the market for the sale of the commodity in
question, or in lessening the demand for it in a specific market, with
consequential curtailment of employment, and undermining of standard
rates of wages. The regulation retort is that any trade not able to pay
proper wages ought not to live. That, of course, depends on what is
“proper,” When the wages are starvation wages, every one will agree the
industry ought not to live. When the wages, though sufficient to cover
(1) subsistence, are not sufficient for (2) reasonable amenities of life,
nor to allow adequately for (3) trade-skill, there may be difference
of opinion, according to the circumstances of the particular industry,
whether it should be maintained or not. When, however, full and adequate
remuneration is paid to cover (1), (2) and (3), it is suicidal policy for
Labour to insist on such advances in wages as must kill the industry.
In advancing the contention that if the employer cannot, out of his
existing profits, pay the advance on wages claimed, it should be added to
the sales price, workmen invariably repudiate as wholly immaterial the
resultant effect on trades other than their own, and especially on the
consuming community. If those claiming the advance are engaged in what is
inelegantly called a “key industry,” that is to say, where their output
is raw or semi-raw material for other industries, it is obvious that
any rise in its cost may inflict serious damage on both employers and
employed in the dependent industries. But the workman’s retort is “let
them pass it on.” I have had that put to me on hundreds of occasions. The
effect on the community is dismissed as quite irrelevant.
During the war, the fashion of general advances in wages to cover
increased cost of living came into vogue. The consequent reaction on
prices set up the “vicious circle” known to all economists where a
general advance in wages raises prices, thus forcing up the cost of
living, and so creating a fresh demand for a further increase in wages.
Over and over again by simple illustrations I have tried to make this
“vicious circle” clear to workmen. I have always been much impeded by
one circumstance. In the early days of the war, in certain districts, as
soon as a general advance in wages was awarded by the wages tribunals, or
conceded by Government, the various lodging-house keepers put up their
rents for rooms, or their charge for board. This was stigmatized by
Labour as “profiteering.” Arguing by analogy, the workpeople contended
that when a general rise in prices followed a general advance in wages,
it was entirely due to profiteering. It was never admitted by the
workmen that any part of the rise in prices was the natural, inevitable,
logical result of the general advances in wages, through the increase
of purchasing power operating on the same supply of commodities. War
experiences have equally confused workmen’s minds with regard to the
effect of high wages on the volume of employment. Whatever glimmering
suspicion the workmen had before the war that an advance in wages in
many industries tended directly, through increased cost of production,
to bring about unemployment, has now practically been dissipated by the
war. Time after time, I have been told that none of the general advances
in wages during the war has ever caused unemployment. The explanation,
of course, is that during the war workmen were not to any great extent
producing commodities for an ordinary commercial market, but munitions of
war for the Government, and all they could turn out the Government could
take, so insatiable was its demand.
The Workers’ Belief in Restricted Output
We come to another dangerous and widespread fallacy, the assumed
advantage of restricting output. This declares itself in many varied
forms. One of the commonest is a definite limitation on the tonnage, or
feet lineal or square of the day’s work. When the day’s work is completed
the workman, if paid on time, will frequently remain at work, but doing
nothing until the “hooter goes.” In other cases if paid on a piece-work
basis, the workman will sometimes leave the shop after his day’s work or
“stint” is finished. I have investigated cases where workmen coming on
at 7 a.m. finished their day’s work and went home by 10.30 or 11 a.m.
Other methods of reaching the same end are less open. The operative,
instead of finishing his work early and then allowing his machine “to
cut air” for the rest of the day, will with nice calculation slow down
all day long so as to spin out the allotted day’s work more or less
uniformly over the working day. Industrial experience during the war
has proved the existence, to an almost inconceivable extent, of this
latter method of limiting production. Perhaps I can best illustrate it
from some cases within my personal knowledge. In one instance some boys
straight from a board school were put on to do a simple operation from
which men had been withdrawn for more arduous duty. Working at the men’s
piece-prices, they averaged £4. 15_s._ per normal working week against
the men’s £2 10_s._ That meant the boys turned out—nor were they any the
worse for it physically—almost twice the men’s output. Women I put on
to replace men at some simple machining operations made, after a short
period of training, £6-£10 per week, against the men’s £4-£5. The women
were paid the men’s piece-prices for the operation. In another case men
who were working on piece-work, after learning of the announcement of
the Minister of Munitions that under no circumstances would piece-prices
be “cut,” speeded up their output by 120 per cent. These are only a few
selected illustrations out of a large number.[22] They are concrete
exemplifications of the appalling extent to which the false doctrine of
limiting output is rampant in industry—operative as an active orthodox
Trade Union principle.
By limiting output the workman genuinely believes that he is performing
a moral duty to himself and to his trade. He argues first, that he is
reducing unemployment by making the work go round; secondly, that he
is keeping up the value of his handicraft by putting a premium on its
application. Workmen have described to me the difference between possible
and actual production as being “their reserve fund.” Over and over
again this policy has been justified to me by reference to the action
of commercial trade combinations which pool orders and limit the output
of the works of certain of their members in order to ensure business
for other members less fortunately situated, and also by reference to
groups of manufacturers who systematically keep up prices by “keeping the
bottom in the market” through restricting the quantity of their output
that is offered for sale. The workmen will tell you in words to which
no economist can object that value is due to utility and to limitation
of supply. What he overlooks is that all that is thereby established
in practice is a minimum rate of wages, and that maximum earnings
depend on maximum output. There are many classical instances, well
within memory, where unemployment in certain trades was in fact almost
entirely abolished by restricting the output of those employed, notably
by discontinuing the then existing systems of payment by results—“blood
money” as it was called. These recollections live. But, as a matter
of fact, these instances prove nothing. They occurred just about the
commencement of a depression in trade, and, in fact, the extra cost of
production subsequently caused by the limitation of output, accelerated
the unemployment in those very trades. Still working men, like most men,
argue from particular cases of personal experience to universals.
The only way to attack the heresy is from the concrete illustration
drawn from the United States of America. There restriction of output is
not merely unknown, it is definitely repudiated by the Trade Unions.
Unfortunately, many labour intellectuals who have no knowledge of
American conditions pervert the facts and hold up to execration the
industrial organization in the United States of America. “Scientific
management,” they have told the British workman, “is merely cunningly
devised slavery in which the shackles of serfdom are so precisely
adjusted that the workman is a mere cog, helplessly and inhumanly
enmeshed in a grinding anti-social mechanism.” The average workman,
however, pays little attention to rhetoric and rodomontade, from
whomsoever it may emanate, and I have succeeded in satisfying bodies of
workmen as to the value of production by taking an American establishment
and giving the output, hours and remuneration per man per annum, or
any other convenient period of time, along with the output, hours and
remuneration per man for the same period in a comparable establishment
in England. The output will be expressed in pounds sterling of wholesale
market prices. This really does sink in. Then the moral can be driven
home. The vital truth can be shown that in a well-run establishment, as
output increases, the cost of the fixed charges per unit of production
decreases. Consequently every percentage increase in output—assuming no
“softening” of the selling price—results in a larger percentage increase
in the amount available for division between workmen and employer.
If that division is effected on equitable lines, there is an obvious
advantage to the worker. That is why the workman in the United States
of America can take home much higher real earnings than his brother in
this country. It is not difficult to satisfy the hard-headed practical
English worker that these higher American earnings are neither manna
dropped from heaven nor doles from more compassionate employers.
If there is scepticism as to the value to Trade Unions of production,
there is complete apathy as to the necessity of production for the
nation’s sake. What is wanted is to secure conviction of the need by
simple homely illustrations. The extent to which in any community
increased production conduces to plenty, and plenty to employment, good
wages, a higher standard of living, and low prices is beyond the present
ken of Labour. In other words, the proposition that the prosperity of a
country depends upon the production in the country obtains no credence
whatsoever; it is generally treated by working men as a sheer irrelevance.
On the other side of the account some reactionary employers, and
under-managers and foremen, cling to the hoary fallacy that however high
the output may be, workmen are never worth high earnings. Such persons
seem to think that the payment of high wages, even when accompanied
by high output, is a reflection on the management of the shop. They
constantly argue that high wages degenerate the workmen, and lead to
lost time. In order to reduce earnings, when they are considered to be
inordinately high, the piece-prices are “cut,” and time-allowances are
“docked.” This is a peculiarly English folly. No American employer would
dream of it. The results in England are disastrous. With the fear of
having his trade-prices reduced, the workman will not “go all out,” but
will limit output and maintain his earnings at such a figure as he thinks
will not stimulate the employer to reduce prices or time-allowances. In
commencing a piece-job the operative will deliberately go slow so as to
get a high price fixed, and thereby allow for any future cutting. The
employer ought to know that the more jobs that pass through or over a
workman’s machine or bench in the shift or working day the greater is the
number of jobs over which standing and fixed charges and the invariable
portion of the working costs are apportioned, and, therefore, the smaller
is the debit on each operation and the lower is the cost of production.
If the employer can get high production, it is to his direct interest to
allow high earnings for it. This is well accepted by American employers,
and represents normal shop practice in the United States of America.
Introduction of Time- and Labour-Saving Appliances
Anyone acquainted with industry in the United States of America and in
England cannot fail to notice one further striking contrast. In the
United States of America time- and labour-saving appliances, machines and
methods are being continually put into service by employers, and loyally
operated by labour. It is recognized as being in the joint interests
of them both. It clearly is. Anything that results in a net reduction
of output-cost, after allowing for extra interest and depreciation,
benefits not merely employers, but also employed. In England, however,
workpeople seriously regard time- and labour-saving devices as inimical
to their interests, and subversive of trade-rights. It is contended that
the introduction of such devices leads to the displacement of labour
and to unemployment. In this connection labour has learned nothing from
experience. Improved machinery has enormously bettered the worker’s lot.
In the United States of America the resultant reduction in output-cost
is admittedly the reason for the much higher real wages of American
workmen as compared with their English and Scottish confrères. Nor
has it led to unemployment in the United States of America. There is
no reason why it should do so even temporarily. The introduction of
time- and labour-saving appliances is always a gradual process in any
factory. Ordinary foresight and organization by an employer ought to
enable any men displaced still to be retained in employment. But many
English employers have impeded the introduction of labour-saving devices
by haggling over the readjustment of piece-rates in respect of the
installation of machines giving improved output. The American employer,
on the other hand, tries, after allowing for the costs of the new
machine, to maintain, as far as possible, the old piece-rates, with the
result that the workmen’s daily earnings are increased by its use. The
English employer is inclined to think that he is justified in reducing
piece-rates so long as the workmen’s daily earnings are maintained. It
is unnecessary to point out which policy is most likely to attract the
wage-earner to the use of improved machinery.
Payment by Results
Nothing in industry is surrounded by so much confusion and ignorance,
both among employers and employed, as the question of payment by
results. The value of this method of payment in promoting production is
indisputable. I have many actual cases in mind where the introduction of
piece-work in place of time-work resulted in an increase of output up
to 110 per cent., thereby materially reducing the cost of production.
Yet while in some trades, for example the cotton trade, the operatives
refuse to work on any basis other than piece-work, in other trades,
for example carpentering and many sections of engineering, piece-work
is considered a “pestilential system” [_sic_] tending to unemployment,
degradation of the worker, and untold evils. It is in regard to payment
by results on the premium bonus system that the greatest misconception
prevails amongst both masters and men. That is a system under which a
time is fixed for each job. If the job is done in less than the fixed
time, the time saved is divided in a definite proportion between employer
and worker—generally half and half in England—and the latter paid for
his portion at his ordinary time-rate. The system has provoked in this
country, unlike the United States of America, the greatest animosity on
the part of the Trade Unions. Their point is that on a piece-work basis,
where the man is paid a definite price for each article or operation,
the more he does the more he is paid. For all time he saves in finishing
an article, he receives the full benefit, the employer’s benefit being
the lower cost of production resulting from increased output. What right
then, it is argued, has the employer, like a parasite, to make anything
out of the time which the worker saves on the premium-bonus system. The
argument is plausible, but misleading. It entirely overlooks the fact
that under a piece-work system, where the workman is paid for all the
time saved, prices are necessarily fixed on a much less liberal basis
than time allowances on a premium-bonus basis. In the latter case, just
because the employer gets a share of the time saved, he can adjust the
rate generously, or as rate-fixers put it, “fix the price loosely.”
If production is to be furthered in this country, the whole system of
payment proportioned to output must be lopped free of its perversion by
certain employers, and emancipated from the prejudice of Trade Unions.
When displayed intelligibly in its true economic characteristics, the
system will speak for itself. The actual rates to be fixed under any
particular system are, of course, a fair matter for collective bargaining.
Subdivision and Simplification of Process
An idea is commonly encountered among the rank and file that to keep
up the labour costs of every operation or job is the best way to
maintain the general value of the labour of the operatives concerned. An
illustration may be taken from the engineering industry. In engineering,
as is well known, England was the pioneer. The practice in the early
days was for a skilled turner or millwright, or other craftsman, to
undertake a job, perform all the necessary machine and bench operations,
and carry it through to completion. Later, as work increased in volume,
and still later in diversity, there gradually evolved a differentiation
between the turner and the fitter, and in more recent times, between
turners and fitters and other kinds of engineering craftsmen. But the
essence of the business was that every person concerned in the work
should be a tradesman, or skilled man. In recent times, the employers
succeeded in establishing “their right”—which is now being questioned—to
promote unskilled men, perhaps shop labourers, to work certain classes
of machines, capstan and turret lathes, etc. These men were graded as
machinists, and when the trade became organized generally received
about three-fourths of the skilled turner’s rate. They were designated
“semi-skilled” men. The point to be observed is that any operation
among the many thousands that constitute skilled work is deemed to be a
“skilled operation,” performable only by a skilled man, and if in special
circumstances it is undertaken by any other person, supposing such an
improbable case, it carries the full skilled rate of pay. Very similar,
but somewhat less rigid, conventions exist in regard to semi-skilled
work. The inflexible way in which the engineering Unions enforce these
trade practices has certainly reserved exclusively for skilled men a
large sphere of work, but it keeps up production costs, and retards
development of the industry. Whenever a new and improved machine has been
introduced, a machine, say, of a type where the skill was mainly in the
machine, and no longer to anything like the same degree required of the
worker, there has been a constant struggle between the Unions and the
employers as to whether the machine should or should not be operated by
a skilled man. Sometimes the employers have won, sometimes the Unions—it
is a pure question of relative strength. But the obvious waste of skill
in employing one skilled man on one of these machines when he could
manage two or more, and the payment of the skilled rate, all added to the
prevailing limitation of production, have discouraged English employers
from installing up-to-date appliances and so cheapening production.
This is not all the story. In the United States of America the invariable
practice is to subdivide every job into its simple constituent
operations, allocate each simple machine operation to a machine expressly
designed, or “set up” or “rigged” for that special operation, and
capable of being tended by an unskilled person after a small modicum of
training. So also in regard to non-machine operations, that is to say,
assembling or fitting. Each operation is allocated to a special person,
in the first instance probably quite unskilled, who becomes proficient
and efficient at this one line of work. There is little or no haggling
about the remuneration of these unskilled operatives. The volume of
production and the consequent ability to pay high wages obviate that. It
is never contended by the Machinists’ Union that all of these subdivided
operations must be done by skilled men, and by them only. Yet in England
it is practically a rule that no man in a Union engineering workshop may
lift a file and do the smallest amount of “rough” filing unless he is a
skilled fitter.
It is a platitude to insist that the natural and efficient evolution of
industry involves subdivision. It is, in fact, the governing condition of
efficiency and low production cost. It is equally evident, from American
experience, that there is nothing in subdivision really hurtful to the
skilled men, their trade, or their standard of remuneration. Subdivision
in the United States of America has led to an enormous output. All
the vast number of machines in service must be set up, repaired, and
periodically overhauled. Only the skilled men can do that. The machine
“tenders” or “minders” must be supervised. That, again, is work for
skilled men. All the tools for the machines must be ground, repaired,
and in most cases “set up”—more work for which skilled men alone are
suitable. In short, in the United States of America, the skilled men
enjoy better conditions, a higher status, and receive greater real wages
than the skilled men in this country. The latter must be helped to
realize, and quickly, that their present policy of preserving for skilled
men exclusively each simple constituent operation now included in skilled
men’s work is detrimental to their interests, is stifling industry, and
strangling the trade of the nation.
No “Niggling” at Prices
At the same time, a stern caution must be administered to certain
employers. With labour charges forming so large a proportion of the costs
of production, some employers are constantly on the alert to pull down
wages by fair means or foul. A slight alteration is made in the method
of manufacture, or some device that would not deceive a first year’s
apprentice is fitted to a machine, and it is then claimed that the work
has become such as entitles the employer to put unskilled or semi-skilled
men on to it, or alternatively, to reduce the skilled man’s price. Sharp
practice of that sort sours the shop. It intensifies enormously the
difficulty, at present great enough, of the good employer, struggling
to reorganize his business fairly and properly on efficient and honest
subdivision lines. Present trade customs, as long as they effectively
exist, must be honoured. No employer should be entitled to vary the
accepted trade grading of the work or its accompanying rate of wages
or prices unless there is a genuine and substantial change in process
or machinery which in reality supplants the skill of the worker and
manifestly increases production.
So far as improvement of production is concerned, the difficulty first,
last, and all the time is the bitter enslavement of the mind of the
worker, and, if I may borrow the phrase, the “collective mind” of
the Trade Unions, by economic fallacy, and this must be attacked and
vanquished before any real progress can be made. The remedy is education.