THE LABOR PROBLEM

Thayer School '75Formerly Chief Engineer of the Boston and Maine Railroad andOverseer of the Thayer School

In any consideration of the labor problem it is necessary first to ask: What is this problem? Apparently, from my standpoint, it is the age-old dispute between labor and capital over the division of the profits of industry; in essence analagous to the wrangles between the men and their leaders when dividing the spoils after a foray along the Scottish border a few generations ago.

We must discuss this matter in the light of our present status of civilization so far as we can. We have come a long way since Cheops built his great pyramid with forced labor; through the stages of regularly organized slavery like that of ancient Greece and Rome, the feudal era, and we are now passing through what may be called the hired-man age. Not all of the highly civilized nations are in the same development stage of this era. In eastern central Europe and Japan many vestiges of the feudal age remain, and England is still sadly handicapped by feudal traditions and privileges. Hundreds of industries in this country and some in other countries have adopted arrangements with employes that make for partnership of a sort between labor and capital. These steps are probably preludes to the next stage of culture in this long contest. All that can be safely advocated at present is a rational partnership between the capital employed in the installation and operation of an industry and the management and labor engaged in carrying it on. This ideal has been very nearly reached by a few American industries and possibly some foreign ones. If all laborers could gradually become capitalists and all capitalists laborers in some field the millenium would not be reached but conditions would be much better than they are now.

An age beyond that of partnership may be one like the subconscious vision of the Russian enthusiast where all capital is furnished by the state and all the people are workers, like the organization of honey bees and many species of ants, creatures with millions of years more experience than Homo Sapiens has enjoyed. This vision is, however, absolutely impracticable in our present stage of culture.

A Partnership Plan

I submit a plan that may be used by an existing corporation engaged in an industrial enterprise for profit.

The board of directors to be elected in the usual way by the stockholders of the company except that one member shall be elected by the employees acting through some democratic system of their own organizing by free vote, and, if the industry is a public utility, one director shall be appointed by the governor and council of the state of incorporation.

At the end of each fiscal year, after all operating expenses, fixed charges, taxes, depreciation allowances, pensions and prescribed dividends have been provided for, the remaining net, if any, shall be assigned as follows: (1) Dividends shall be declared on any outstanding stock that is not included in the prescribed dividend class, at the going commercial rate of discount on small loans at local banks, if the remaining net allows, so large a dividend.

(2) If there is any net remaining after the above dividend has been declared, one-half of it shall be set aside as an emergency fund or surplus and the other half for division as prescribed below. If and when the emergency fund becomes equal to one-half the sum of the pay-rolls for the year last past, the dividends paid on all stocks and the interest on bonds and mortgage notes, the balance shall be added to the other half of the remainder above mentioned and the sum divided pro rata between the employees, the junior stockholders and plant, according to the sacrifice of each of the three interests measured as follows: The measure of the sacrifice of the employees is their wages or salaries for the year; that of the junior stockholders is the dividends on their stock paid during the year; that of the plant is the depreciation allowance set aside during the year.

(3) The pro rata allotment shall be made as soon after the annual financial statement is compiled as practicable and the sums distributed promptly thereafter.

(4) All employes, except as described below, who have worked 30 .days or over during the year shall be eligible to the division in proportion to the compensation paid them during the year. Contractors' employes engaged on special jobs, experts or professional persons engaged temporarily for advice or service and retired pensioners shall not be included in these divisions. These allotments will be in the hands of the paymaster who will distribute them to the employes with the regular wage at the next following pay day. In case of absent payees whose addresses are not known the money shall be held for three months, when, if not claimed, it shall revert to the emergency fund.

The allotment to junior stockholders shall be distributed to those of record at the last preceding dividend period in the usual manner of paying dividends.

The allotment to the plant shall be added to the existing depreciation reserve fund.

(5) In case there is not enough remainder of net income after the prescribed dividends have been set aside to pay the commercial rate on the junior stock, the deficit may be made good from the emergency fund and there will be no further division of profits until such time as the income is enhanced. If for maintaining dividends and normal wages the emergency fund becomes exhausted, the enterprise must be classed as a losing venture and liquidation should be considered.

Plowing Earnings Back Into Property

The partnership system of labor as outlined above violates the inherent New England instinct of building up a business from earnings. This tendency was developed in the period of one-man industries where the owner was oftentimes the whole force engaged and the three interests, capital, labor and plant were concentrated in the one individual. With our present-day vast corporations and armies of employes, great property plants and the flavor of public utilities in all our business, plowing earnings back into property assumes a different aspect. It is strictly contrary to Christian ethics to expand a public utility by putting any part of the earning, except the allotment of profit due the depreciation allowance, into capital; that is to say, it is wrong to ask patrons to pay rates on an extension to a plant if that extension has been paid for out of the rates heretofore paid by the patrons. Such action would be asking the public to pay the owners returns on property paid for by themselves. Additions and betterments should, in general, be paid for with new capital. This reasoning means that if net income is unreasonably excessive in a public utility the rates should be reduced.

If it is unethical to plow earnings back into capital in case of a public utility why should it be otherwise in the case of a private corporation? In essence any enterprize whose product is bought by the public is in the same category ethically as are the so-called public utilities. In discussing this feature the almost generic difference between an individual sole owner and an organized corporation as set forth above must be held in view.

Advantages of the Partnership Plan

The advantages of the partnership plan as outlined above over the hired man system are many. It is just and fair, it conforms to the square deal and the golden rule, to the best principles of brotherhood laid down by the Christian, the Jewish and the Buddhist religions and by the ethics of Confucius. It places the two parties side by side with equal interests in the result, making them a team, whereas in the hired man plan they are natural antagonists because where fixed wages and no division of profits are the rule it is evident that what one party gets out of the enterprize the other does not get; hence the scramble. Under this plan there is an incentive to efficiency on the part of all hands engaged, the workers will throw out the slackers in their ranks whereas in the hired man system each class of workers strives to hide and protect their mates and finds it to their advantage to slow down the work.

The Effect of Efficiency

The value of the cost of anything may be expressed thus: Wages Cost=

Efficiency

This equation is true because the price of all the raw material that enters into the article is made up of wages and profit, the last being merely the wages of good management, good luck, etc. Wages, of course, include the compensation of both labor and the capital employed. The equation shows that cost is reduced if efficiency is increased. Can we expect the hired man to strive for efficiency if all the benefit of reduced cost goes to capital ? No! his interest lies in prolonging the job so that he may enjoy his fixed wages longer. The partnership plan furnishes him with a rational incentive to reduce cost.

Scores of corporations have adopted schemes of profit sharing of many kinds and in every instance improvement in relations have resulted.

The scheme proposed may not be well adapted to all enterprizes and details may be varied from those given herein but the principle of the division of profits between the three interests named according to the work of each in producing the profit is believed to be ideal.