Labour policy—false and true

We propose now to offer some broad criticisms upon Labour’s Industrial and Land Policy.

What Capitalism Is

The primary object, as we have shown, of the Labour Party is to abolish capitalism. What, therefore, do we understand by that? It cannot be better described than has been so admirably done by that distinguished writer, Mr. Hartley Withers, in the Case for Capitalism, p. 13:

The capitalistic system dates from the Industrial Revolution (1780-1830), when domestic industry was replaced by factory production. Since those days, as Labour was plentiful and ill-organized and capital more difficult to obtain, the capitalist occupied relatively to the worker a stronger position in industry. This transient incident is what Mr. Sidney Webb in his A Constitution for a Socialist Commonwealth of Great Britain describes as “the central wrong of the Capitalist System”:—

Our Debt to Capitalism

Labour’s proposal, therefore, is to abolish capitalism and replace it by that brand of Socialism known as “nationalization and democratic control.” We should first realize what we owe to the capitalism which we are asked to destroy. Our first debt is certainly liberty. This is convincingly worked out by Mr. Harold Cox in his Economic Liberty, p. 2. Liberty to possess and use property consistently with the good of the community, liberty to buy, to sell, to work, to strike, in fact complete liberty in all economic relations. This is to be surrendered and replaced by the bureaucratic control of the State Socialist, or the equally autocratic control under the scheme of the Guild Socialist. Liberty is a prize not hastily to be relinquished. This capitalistic system is not the selfish system as described by Labour. It can only exist provided it supplies commodities and services, of which the community stands in need, at prices which the community can afford to pay. That is no light responsibility. One of the necessary consequences of any socialistic organization of industry is that the community must use and pay for such commodities as it is convenient and desirable for industry to produce; under any socialistic regime, therefore, the consumer, instead of being an object of regard, becomes a mere wheel in the mechanism of production.

The capitalistic system develops energy and thrift, though the former has been largely neutralized by the sterilizing effect of Trade Union doctrines against output, and the latter frustrated by the inability of industry as a result of production thus restricted to pay high wages. Under a socialistic regime the worker is to receive not wages but “pay” and whether he works or not. All progress in industry depends upon initiative and enterprise and the readiness to take risks. To-day risks are assumed by the owner of capital and, if they materialize, they are borne by him and not by the workers or the community. It would be ludicrous to say that either the State under State Socialism or industry under any form of democratic control would or could exert the same initiative or show the same enterprise as the private capitalist. Economic history teems with examples of great industries now employing thousands of workers which were originally established by capitalists who, stubbornly persistent, refused to accept failure and by sheer dogged enterprise won through. The world has wonderfully prospered under the capitalistic organization in industry. We see social conditions enormously improved, innumerable social reforms effected, the welfare and well-being of the people prodigiously advanced. Sir Josiah Stamp—an outstanding authority—said in 1921, as a result of a statistical investigation, “the ordinary person of to-day is four times as well off in real commodities as the person in the corresponding stage in the scale in the beginning of the nineteenth century.” During this hundred years the population has quadrupled. The lot of the worker steadily progressed from 1800 up till 1900, when, in certain industries, there set in tendencies of retrogression. It has been one continuous record of rise in standard of living, and in wages, both nominal amount and purchasing power, due to improvement in production from the introduction of machinery, development of food production in new countries, and expansion of our export trade. This has been largely the result of the capitalistic organization of industry, and of its ability to meet the demands of the consumer, and of the extraordinary elasticity inherent in the system of adapting itself to varying circumstances.

Without the machinery provided by the much-abused capitalist Labour would to-day be “scratching the ground” to extract a penurious livelihood. The capitalistic organization of industry would never have survived, had it not been in the main economically sound, and, on the whole, a system which made for the good of society. This is the system which is to be wholly destroyed by the Labour Party because of certain alleged defects, and replaced by an untried socialistic regime.

The Alleged Defects of Capitalism

First, it is said that under capitalism the incentive stands ethically condemned in that an employer is actuated wholly by a desire for his own private profit. I fail to see any turpitude in that motive; an employer can only make profit if he succeeds in serving the community. There are, of course, some—I personally have met very few—employers who deliberately try to foist on credulous consumers an adulterated or spurious article. But it is exactly for the same motive, namely, for profit, that the worker serves his employer, or, if that is an unacceptable analogy, that a member of a gang of workers serves his fellow-worker who is head of the gang and employing him. There are just as many workmen, indeed more, who are ready to pass off bad work upon their employer as employers prepared to pass off bad work upon the community.

As against this incentive of private profit the Syndicalists would substitute the imaginary incentive that each worker would work for the good of his own group of workers; the National Guildist that each worker would work for the benefit of his Guild of workers, and the State Socialist that each worker would work for the State. Reduced to its elements, it means that each worker would, in the end, work for what he could get out of it, or if he found that he got the same advantage without working so hard, then he would not work so energetically. The suggestion that workers would work more vigorously for the community or State is so absolutely contrary to my own experience that I find it difficult to treat the suggestion with respect. It was never so during the war—in Government factories, dockyards, arsenals, there was just as much restriction of production as in the works of private employers, and considerably more strikes. In none of our municipal services is it found to be a fact. The railway strike of September 1919, while the railways were under Government control, is only another illustration of the falsity of the suggestion.

It is said that Labour under the capitalistic system is bought and sold as a commodity. That is one of those phrases which expresses more than is meant. The lawyer sells his legal advice, the surgeon his operative skill, the musician his powers of technique, taste and expression just as a person who owns a commodity sells it. I cannot see any moral degradation whatever in the worker accepting wages any more than a private lawyer accepting his salary in a financial house, or a house-surgeon accepting his in a hospital or an organist his in a parish church. All of them are subject to notice terminating their engagements, just as a manual worker—not probably a week’s notice, but some longer period. The accusation is put even higher and the capitalist is called a thief, in other words, that he is appropriating in the shape of his own profit something which ought to belong to Labour. This proposition, palpably untrue, is so generally accepted by the workers that it deserves some examination. If a Trade Unionist, say a foreman plater, in one of our large ship repairing centres, works hard and makes, as he does in normal times, a big income, he may do one or two things with it; he may spend it on his own amusements or in wasteful extravagance; on the other hand, he may save and invest it, as I have known many do, in a small industrial concern in his own district. In the first case he is by common consent an honourable, if a foolish, man, in the second he certainly will not be called a thief. He has used by investment a part of his wealth for the purpose of producing more wealth, and his resultant increase of wealth is not robbery of the workers in the concern in which his money is invested. But then he is a member of the Labour movement. Between such a case and the case of the financial house which makes a business of collecting the savings or surplus wealth of thrifty persons for investment in industry, there is no difference in principle whatsoever.

Capitalism implies competition, and competition, Labour says, must be eradicated out of social and industrial activity. Why competition should be a good thing in every walk of human life and provide a healthy stimulus, and yet not provide an equally beneficial stimulus in industrial and commercial affairs is hard to follow. What Labour really intends to say is that competition acts so as to depress wages and lower the standard of living of the worker. That is only one side; competition acts so as to increase demand for commodities and the volume of employment, and, if production were not restricted, would increase wages. Then it is said that the capitalistic organization of industry involves economic waste, by which is meant that industry is carried on less efficiently under private management than it would be either under Government or under “democratic control.” If there is waste it is the capitalist who suffers, the Trade Unionist always receives his standard rate of wages. If there is waste on the employers’ side, as of course there is in some badly organized shops, there is greater waste in the shape of restricted production on the part of the worker. Organization and efficiency are, of course, essential to industrial progress, but to suggest that these essential qualities are better obtained under bureaucratic or democratic control is at variance with our experience during the war and of present conditions in Russia where democratic control has laid the hand of death on industry.

Where Reform is Admittedly Needed

It must not be assumed that the capitalistic system of organization of industry is perfect and needs no reform; unfortunately, it exhibits a number of well-marked deficiencies. First of all, an employer only employs a man as long as he desires or finds he can profitably do so, in just the same way that the workman only works for an employer as long as he finds it suits him and no better job is forthcoming. One defect certainly of the present capitalistic system is the failure of employers in industry as a whole or of each industry in particular to provide against unemployment. On this matter I have a good deal to say in a subsequent part of this book. Again, in the past there was a regrettable tendency which, in recent years, has happily disappeared amongst the best employers, to disregard the human qualities, aspirations, needs and susceptibilities of the worker, coupled with a neglect to provide effectively for his welfare and well-being in the works. This, however, is nothing intrinsic in the capitalistic organization of industry; I have heard equally bitter complaints by the workers when I have been sitting as arbitrator in disputes between employees of the “non-capitalistic” co-operative societies and the societies’ democratic managements.

There is, however, a complaint against capitalism which, although it has been very largely remedied in recent years, yet in normal times, immediately prior to the war, certainly existed—that was the insufficient distribution amongst the workers of the product of the industry; capital in many cases received an undue share of the reward. This was a short-sighted policy; for good wages to the workers, provided the workers give good output, results in the workers possessing good purchasing power; and as so many workers are also consumers, this results in a good demand for commodities and so is to the benefit of manufacturers, and the community. But if some employers appropriated by way of profit an unduly large share of the product of industry, the workers did exactly the same if opportunity presented itself. One has illustrations of this in the way in which, by agreement between the building employers and the building Trade Unions, costs were forced up by wage-agreements which largely contributed to the shortage of housing and placed the unskilled builder’s labourer in a wage-position substantially higher than that of the skilled engineer tradesman, who normally stands on a higher wage-level.

The Failure of Past Socialistic Experiments

When we are discussing on a priori hypotheses the practical operation of the elemental motives of average men and women, it is wise to learn what experience has to teach us. There have been at least seventy attempts to carry secular Socialism into effect, of which five only survived their fourth year of life. There was the new Harmony Community of Equality, financed and founded in America in 1825 by Robert Owen. One of its articles of constitution provided that “every member shall render his or her services for the good of the whole.” It was a disastrous failure. Owen had supplied lands, houses and the use of capital, giving to some persons leases of large tracts of land for 2,000 years at a nominal rent and for moral considerations only. Addressing the settlers in 1827, he said: “I find that the habits of the individualistic system are so powerful that these leases have been, with few exceptions, applied for individual purposes and individual gain.” There was also the Brook Farm Phalanx, established in 1842, with which Emerson was associated; the Wisconsin Phalanx, established in 1844, and the North American Phalanx, a few years later.

The leading facts and the history of these Socialistic adventures ought to be read in Mr. W. H. Mallock’s the Limits of Pure Democracy, Book IV, chap. 2, p. 201, where they are set out with much acute criticism. The last of these great experiments was in 1893, when William Lane established his “New Australia” in Paraguay. In Lane’s constitution the workers were controlled and directed by officials of their own choosing. The colony came to sad grief and ultimately decided by vote that every man should be entitled to dispose of the fruits of his own industry. A new grant of land was made by the Government to a large number of the original colonists; they retrieved their failure and became, under the stimulus of each working for himself, successful farmers. The causes of the unhappy end of those great adventures are summed up thus by Mr. Mallock (p. 216):—“To speak broadly they may be reduced to two, one of them inhering in the nature of all collective industry, the other inhering in the nature of human beings with the sole exception of small and essentially select minorities. The first of these causes was a want of ability in industrial direction. The second was a want of any general sentiment sufficiently strong and persistent to ensure that directions, if given, should be accepted with submission on the one hand and carried out with a diligence punctual and sustained on the other, under a social system the essential object of which was to render the conditions of the worst worker equal to the conditions of the best.”

Limits within which Nationalization is Practicable

Labour, of course, will say that these small experiments have no bearing on the question of the nationalization and control of great industries. To some extent they are right. There are, however, certain definite limits to successful nationalization. An industry which is confined to rendering services is a totally different thing to an industry whose business it is to produce commodities. There is nothing like the same severe restrictions on efficiency in the former case as in the latter. The services may indeed be of such a character that they can only be efficiently carried out under the State or under a municipality If the service is one the successful provision of which depends upon a monopoly being preserved, there may be a case for nationalization; as illustrative of this, one may take the case of the Post Office. Again, a comprehensive service may be necessary, in parts of the country where it has to be provided at a loss, in other parts where it can be provided at a profit-the loss in the former case being made good out of the profit in the latter. Under such conditions nationalization may be the only possible procedure. Sometimes continental analogies for nationalization are adduced, but the continental temperament and tradition have been entirely different from those prevailing in this country. There was never in Latin countries the same spirit of private enterprise as with us; in the former, public opinion relied on the State to provide all services in the nature of public utilities. Where there has been an opportunity of comparing the efficiency of services provided by the State with those provided by private enterprise, the comparison is always against the State. One has only to read German v. British Railways, by Edwin A. Pratt (P. S. King & Son, 1907), Historical Sketch of State Railway Ownership, by Sir William Acworth, K.C.I.E. (John Murray, 1920), to realize some of the drawbacks of nationalization. The Socialist in this country invariably falls back upon the Post Office as a convincing case of the success of State management, but the business community will hardly be prepared to accept the Post Office as a conclusive argument of the efficiency of nationalization.

The Different Schemes of Land Nationalization

What the Labour Party means by “public ownership” of land is not clear. The term “nationalization” is equally vague. In reference to land, it is commonly used to mean some form of “communization,” that is to say, acquisition and ownership either by the whole community or a section of the community. The former is true nationalization, i.e. ownership by the nation; the latter is “municipalization,” i.e. ownership by a local authority. Municipalization of land has, however, rather disappeared as a proposition.

All land nationalizers assume that ownership embraces two fundamental rights. (1) The right to draw a revenue from the use of the land, i.e. to receive the rent. (2) The right to control the way in which the land shall be used. They describe these two rights as the “right to rent,” and the “right of control” respectively. Where land is held in fee-simple the right to rent and the right of control are usually vested in one and the same person, namely the owner. Where, however, the relation of landlord and tenant has been created by a contract of tenancy, the right to rent, when it exists, is usually vested in the landlord. The right of control is vested partly in the landlord and partly in the tenant. The landlord’s powers, partial or otherwise according to circumstances, of controlling the uses to which the tenant may put the land, depend upon the contract of tenancy.

Schemes of land nationalization fall into one of three classes according to their effect on the right to rent and the right of control. First, where the whole revenue of the land is ultimately to go to the State, but possession and the right of control of the land is to remain as it is under private ownership. There, transference of land revenues to the State is to be effected by growing national taxation of land values. This is the scheme of the school of land nationalizers who follow Mr. Henry George, and are mainly represented by the English League for the Taxation of Land Values. It is fully explained in Mr. George’s book, Progress and Poverty, and will be called the “George scheme” or “taxing-out scheme,” Second, where the right of control of the land is to be taken from private owners and vested in the State by State purchase, but the owners are to suffer no substantial loss of revenue. They are to receive Government Bonds of such capital value as will produce an annual interest equal to the net rent of the land in question. This is the plan of the Land Nationalization Society, of which the late Dr. Alfred R. Wallace, F.R.S., O.M., was the Chairman. It will be called the “Nationalization Society’s scheme” or the “state purchase scheme.” Third, where the present owners are to be expropriated, and deprived of the right to rent, and the right of control, and so lose all or a very considerable portion of their income so far as derived from land. Socialists other than the State Socialists who subscribe to the programme of the Land Nationalization Society advocate this policy. Some of them would allow the owners compensation, but nothing like sufficient to maintain their present income. For example, the National Guildists would pay trifling compensation in State Bonds equal in nominal value to the capitalized value of an annuity for two to three years of the same annual amount as the net rent. The Syndicalists, on the other hand, would confiscate the entire private property in land without any compensation whatsoever. These various schemes described under “third” will be called the “socialistic schemes.”

The Taxing-out Scheme

Mr. George thus describes his “taxing-out scheme” at p. 288 of Progress and Poverty:

In regard to the “George scheme,” the whole point is whether there is any special justification for confiscating an income derived from land as compared with other incomes.

The State Purchase Scheme

The object of the “Land Nationalization Society’s scheme” as published is “to establish public ownership of land by means of fair compensation based on its value as ascertained for purposes of taxation.” It is insisted that the State should take possession of agricultural land first and of house property at a later period.

Public ownership, it is claimed, will secure:

(1) That the use of land will be easily obtainable by all classes of the community without being subject to the veto of any landowner.

(2) That the best possible conditions of tenancy will be established so that all State tenants will have the same security as freeholders have to-day and full right to the value of the improvements they make.

(3) That the community will be able to determine in the general interests of all to what uses the land shall be put.

(4) That ultimately the whole value of the land will be secured for the common good.

This, of course, is only a summarized statement of the alleged benefits of State purchase. They are expanded into great detail by the Land Nationalization Society in its various publications.

The Socialistic Confiscation Schemes

The chief characteristic of the “socialistic schemes” is confiscation pure and simple. How exactly that is to be effected depends upon the particular school of Socialism; the constitutionalists say by legislation; the revolutionaries say by direct action culminating in the social revolution.

The Conceptions Underlying Each Scheme

The fundamental conceptions underlying the schemes are as follows:

(a) The Georgites contend that the bare land was given by God to the human race but was afterwards stolen by robber barons, or taken by wicked kings from the people and handed over on fictitious grounds or nefarious reasons to courtiers who did the royal will.

(b) The Land Nationalization Society builds up the whole of its case for State purchase upon this basic axiom:

“All men have an equal right to live, and as no man can live without land, it follows that all men have an equal right to the use of the land that is necessary to sustain their existence.” Notwithstanding this, land still remains private property; the private owner is supreme in regard to it; he can exclude everyone from it with dire economic results. Only under State ownership, says the Nationalization Society, can this be remedied.

(c) The Socialists, that is to say, the National Guildists and Syndicalists, found their scheme on both the foregoing assumptions, the Syndicalists in addition claiming that no rent should be paid even to the State, but that the land should belong outright to, and be distributed among, the people.

As a matter of practical politics the State purchase scheme of the Nationalization Society is of chief moment. Although the Georgites and the Socialists are active and vociferous, their respective schemes are of much less relative importance. Even assuming that the land was originally acquired by private persons by robbery or injustice, the best equitable answer to the “taxing-out scheme” is probably that of the Nationalization Society:

The Secretary of the Land Nationalization Society writes thus:

The practical answer to the “George” or “taxing-out scheme” is that it is not possible to separate the value of the land from the value of the improvements on it. Anything which mankind has added to the natural land is capital and should, according to the George view, be inviolate. In proposing, as “the George scheme” does, only to allow for “the value of the clearly distinguishable improvements made within a moderate time,” capital is being confiscated. That is, something is being confiscated which was not stolen. If one form of capital may be confiscated, why not all forms?

The Land Nationalization Society has formulated many objections to the “George” or “taxing-out scheme” apart from its injustice. They say it would be an interminable process, that it would not be effective—witness the failure of the heavy land taxation in Canada, New Zealand or Australia, to cheapen land or eliminate landlords—that the public would not accept it. So many persons are owners of small pieces of land, it would tend to increase the number of landlords instead of reducing them.

The way in which the advocates of State purchase try to make out their case is very simple, and they do it with great ingenuity. They first endeavour to prove their basic axiom of “the right to live” by appeal to the great English common lawyers, writers on Sociology and authorities on Political Economy. Having done that to their own satisfaction, they proceed to give at length illustrations of alleged despotic and churlish action on the part of landowners. The favourites are the Highland Clearances and landlordism in Ireland. Then in the same vein they bring forward a great collection of cases of alleged refusal of land by landowners for works of public importance, or exaction by landowners of what is said to be (without any evidence) a wholly unreasonable price for land for public purposes (see, for instance, Chapter V, “The Extortion of High Prices for Land” in The Case for Land Nationalization, by Joseph Hyder, Simpkin, Marshall & Co.). All these evils are said to be directly due to private ownership in land. These cases, if they ever existed, are amply remedied by recent Acts facilitating the acquisition of land.[7] Having got so far, every hardship or evil to which a farmer or agricultural labourer is subject is likewise under the same chain of reasoning ascribed (without proof) to private ownership in land. If, therefore, the basic axiom is to be vindicated, private ownership must be done away with. There is no logic in such reasoning, even assuming that the basic axiom in its widest extension is sound—as a matter of fact it is not. All these illustrations show is that the present land system may, in certain respects, require reform, not that it ought to be abolished. The argument makes out no case for the complete eradication of the whole landlord system, still less for State purchase. The fallacy lies in the wholly unproved assumption that State ownership is the only alternative to an unreformed land system.

The Disadvantages of State Ownership of Land

It is difficult to state succinctly the many objections[8] to State ownership of land:

(a) The first is the incompetence of the State through a rigid bureaucratic administration subject to political pressure to manage efficiently or economically a highly technical industry like agriculture, one whose conditions vary in every district and indeed on every estate (which is admitted by the Labour Party), or indeed the land on which the complex industry directly depends.

(b) State purchase would entail an enormous addition to our National Debt which we cannot afford, and for which there is no justification.

(c) If landowners were bought out, it is clear that the State would have to make itself responsible for finding annually a vast amount of capital for improvements, and also working capital for the very large number of peasant and other smallholding tenants. It would not, and could not, do it adequately nor as satisfactorily nor to the same extent as existing landowners. If it did, this speculative use of national funds would be quite unjustifiable.

(d) If it is desirable to cut up large estates and farms and to establish a vast number of peasant holders in the shape of State tenants, and all the evidence from Ireland and other countries is strongly against the expediency of this course, it can be done without the abolition of private property in land.

(e) One thing is certain, that State ownership will not tend to increase production, but will have the opposite effect.

(f) It is equally clear that States ownership involves no improvement of the lot of the agricultural labourer, but rather the reverse.

(g) There is not the land monopoly alleged. This appears from the fact that over one-half of the cultivated land in England and Wales consists of holdings of comparatively small extent—80 per cent, of the existing farmers farming holdings of under 101 acres.

(h) Tenant farmers do not want State purchase.