Labour policy—false and true

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. 15s. per normal working week against the men’s £2 10s. 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.