CHAPTER FOUR

THEORY OF INDUSTRIAL ORGANIZATION

Modern industrial conditions may be considered either _a priori_ or _a posteriori_, either theoretically or _de facto_. We may examine the principles of economic organization, and conclude that they will or will not lead to low wages; or we can go to the facts themselves, and decide from an examination of actual conditions whether or not wages are low, etc., always remembering the standard we have adopted.

Beginning with the first method, we may, speaking roughly and with sufficient allowance for monopolies, say that we live under a competitive system. Men compete with others for their share in the product of industry. Goods are not put in one general fund and distributed according to each one's needs. Nor are they awarded to suit the whim of some ruler. Undoubtedly our present industrial organization is individualistic rather than socialistic, and its chief characteristic is probably a rivalry between its various members. Some assume that competition is universal and unrestrained. Then they draw conclusions as to the present system from what would happen if such competition prevailed. Others forget that competition is as universal as it really is, and that it exists not only between laborer and laborer to get the job, but between capitalist and capitalist to secure the laborer.

To subscribe to either of these errors will vitiate any conclusions as to social policy. For if unrestrained competition have certain evil tendencies, we cannot therefore assume that the present restricted form will have such results. And the fact that competition exists between capitalists as well as between laborers has very wide-reaching implications. It means no less than that competition may raise wages as well as lower them.

The average person is apt to look upon an object as drawn only to the earth by gravitation. He forgets that the same force is also pulling at it in an opposite direction. And in the same way the average person is likely to forget that competition is continually pulling wages both up and down. If we imagine some object suspended between the earth and the moon, and being constantly drawn towards each according to some power inherent in them which varies from time to time so that the object now approaches one and now the other, we shall have a rough illustration of how competition affects wages.

We can look upon the amount of wages as the object of attraction between competition on the part of laborers and competition on the part of capitalists. According as competition among capitalists is keen as compared with that among laborers, wages will rise, and vice versa; just as when, in our illustration, gravity was strong in the moon, the object rose towards it, and when it was stronger in the earth the object fell towards that body. But in both cases the result is due to the same force, though acting from different points. It would be an error, therefore, to attribute all the evils of our present system to competition, and all the good to some other agency. Competition has good results as well as bad, and this two-fold influence must always be remembered.

Doubtless absolutely unrestrained competition between laborers with no corresponding rivalry between capitalists would depress wages. But such competition does not exist. Competition is not absolutely unrestricted. It is limited by organization among the workmen, by legislation, by natural ability, and in various other ways. As a result, the effects are limited in various ways. If a bricklayers' union is strong enough practically to eliminate competition between this class of laborers while capitalists compete with each other to obtain their services, then the working out of competition has been modified in such a way as to have an upward effect upon wages.

Competition, then, is not necessarily bad. In many cases, competition is not only the life of trade, but the builder of character as well. As a whole, those who have to earn their living amid keen business rivalry are more energetic, quickwitted and resourceful than those government employees who live in a somewhat listless, non-competitive atmosphere. And the superiority of Western to Eastern civilization and character may be due to the fact that there competition has been too much limited by caste systems, repressive legislation, and unchanging custom.

Under the restricted form of competition existing to-day, many employers pay living wages and treat their employees fairly in every way. Indeed, the entrepreneur sometimes finds it to his advantage to give his employees even more than strict justice would demand. When competition for workmen is keen between employers, certain inducements may be necessary to prevent experienced men leaving and to avoid the consequent loss of breaking in new laborers.

At any rate we find that many employers do all that can reasonably be expected. For instance, in contrast with the conditions of the garment trade prevailing in many places, the Pittsburgh Survey found two factories in that city to be run on excellent lines. They were well-lighted by large windows, the ventilation was good, the walls newly whitewashed, and the floors swept and scrubbed. In one, indeed, the upper windows were opened at intervals, and the work-rooms had windows on three sides. (Butler, l. c., p. 109.) Nine others were good because they were swept daily and exhibited a manifest standard as to a work-room (l. c., p. 107). One firm, too, was found to allow its employees to share in its progress. Thus when new buttonhole machines were introduced a few years ago the girls could turn out a third more work than formerly, but they were paid at the same piece-rate (l. c., pp. 119-120).

The variation between individual stores as regards wages will be shown from the following table, adapted from page 121 of the first volume of the Pittsburgh Survey:

-------------+-----------+---------------+-------- | | Weekly wages | Article | No. of +-------+-------+ Average manufactured | operators | Min. | Max. | -------------+-----------+-------+-------+-------- Shirts | 15 | $ 6 | $12 | $ 7 Shirts | 1 | 10 | 10 | Shirts | 3 | 8 | 10 | 8 Shirts | 24 | 6 | 8 | 8 Shirts and | | | | Overalls | 39 | 4 | 12 | 8 Overalls | 26 | 6 | 10 | 8 Overalls | 75 | 6 | 10.5 | 7 Shirts | 5 | 7 | 11 | Shirts | 18 | 7 | 14 | 10 Shirts | 51 | 5 | 15 | 8 Shirts | 7 | 6.5 | 12 | 8 Pants | 114 | 4 | 14 | 9 Pants | 37 | 3 | 12 | 8 Pants | 6 | 3 | 9 | 7 Pants | 284 | 4 | 9 | 7 Pants | 10 | 4 | 9 | 8 -------------+-----------+-------+-------+--------

Such differences are reproduced in all the needle trades.[36]

Similar distinctions are also found in laundries. A very few have properly constructed plants, with wash-rooms on the upper floors and some arrangement for carrying off the inevitable steam (Butler, l. c., p. 170). In one, however, there are "exhaust pipes over the mangles, and fans in the walls, and there are windows along the side. The feeders are seated while handling small work, and the folders have comfortable benches" (p. 174). Wages, too, are considerably higher here than in other laundries. Four laundries in Pittsburgh have adopted an improved cuff-ironing machine which saves the operator from the extreme physical exertion of the old style (p. 182). A North Side laundry has set aside a bright sunny section of the building "for a lunch-room; there are attractive dishes, tables covered with white cloths, comfortable chairs. The noon interval is an hour and a half" (p. 312).

Turning to mercantile houses we also find a great contrast. Some provide only half a dozen chairs for five hundred girls, while others do not allow chairs to be used at all.[37] Many stores have a working week at Christmas of from seventy-two to eighty-four hours without extra pay (Butler, l. c., p. 303). "Some employers are generally reputed among salesgirls to assume that their women employees secure financial backing from outside relationships, and knowingly pay wages that are supplementary rather than wages large enough to cover the cost of a girl's support." (L. c., p. 306.) Indeed, some employers frankly admit this and advertise for sales-women, "preferably those living at home."[38]

Compare with these stores the one that "exemplifies a higher standard at each point under discussion; in the comprehensiveness of its ventilating system; in its observance of the spirit of the law in providing an average of four seats to a counter for its employees; in the fact that it has no Christmas overtime; ... and finally in its wage standard.... Seven hundred girls are paid $7.00; ... one hundred girls are paid $8.00 to $10.00, and sometimes $15.00 in the case of a head of stock." (Butler, l. c., p. 304.)

Some glass factories furnish shutters over the leer-mouths to protect employees from heat;[39] prevent radiation from the melting tanks by various devices (l. c., p. 79); provide blue glass screens at the glory holes (ib.); artificially cool the shops in summer (l. c., p. 80); work shorter hours (p. 98); eliminate night-work (p. 104); provide hoods and exhausts for the etching baths (p. 322) and the sand blasts (p. 317). In one woolen factory the milligrams of dust in a cubic centimeter of air were reduced from twenty to seven by the installation of an exhauster.[40]

The fact, too, that organizations such as trade unions and consumers' leagues can allow the use of their labels to certify that an article has been made under fair conditions, is a striking confirmation of the fact that some manufacturers do maintain proper factories and treat their employees justly.

Nevertheless, competition has a black as well as a silver lining. It is self-evident that for any length of time laborers cannot get more than the total product of their work coupled with the necessary capital. Nor will it be denied that capitalists will always be in a position to appropriate a part of this joint product, how much depending very largely upon the relative supply of capital and labor and the keenness of competition between them. The share that is left and which goes to the laborers is not divided equally. It is distributed competitively. Those who are economically strongest seize what they can, and the weaklings must be content with the remainder. Frequently this is not sufficient to afford them the standard we are considering, but they are helpless to remedy matters.

And there are some things that tend to keep this share at a minimum. Industrial organization is not simply a case of competition between capital and labor, but capitalists are competing with capitalists as well as with laborers, and laborers with each other as well as with capitalists. The result is that the weakest parties to this fray get hit hardest, and their only hope would seem to be the addition of some other check to competition that will prevent the present distressful consequences. This is not to say, as Socialists argue, that competition is to be abolished entirely, for we have seen that it may really have excellent effects for the workman. Rather it is to be harnessed and guided into beneficent channels, as a miller directs a stream to turn a wheel. He does not destroy the stream but makes it do his will.

An analysis of industrial society will show, I think, that despite the good work the stream of competition is doing, there is a little eddy undermining the bank and working havoc in some places. The description of one phase of competition, even though it be isolated from the rest, will probably give a correct enough idea of how this force while working out to the advantage of some, is resulting in harm to others. The considerations that must be omitted in a short sketch do not change the matter essentially. They limit the hardship wrought, but they do not prevent a considerable number of workmen from being mercilessly ground down.

Modern industry, then, is organized for sale, not use. Business men care nothing about what they manufacture so long as they can find a profitable sale for the article. The typical employer makes shoes not because he likes to, as an artist may paint a picture. He does it because he thinks a sufficient number of purchasers will want this commodity at a price paying him for his trouble.

But to get these purchasers he must (unless he have some sort of monopoly) offer his product at a price no higher than other manufacturers are willing to take for the same article. If he deviate only a few cents, the expert buyers of retail stores will know it and go elsewhere. There is a constant demand for cheapness, a universal eagerness to "get your money's worth"; and factories and retail firms must meet it, or see their trade taken away by competitors. The intense desire of individual buyers for minute savings of a cent here or a fraction of a cent there, becomes, in the aggregate, an irresistible Demand with a capital D, "a blood-power stronger than steam," compelling the retailer (who in his turn reacts upon the manufacturer) to sell cheap. "The phenomena of sweating are a standing warning against the dangers that are inherent in unregulated competition.... The underlying cause of the evil," affirms a noted English economist, "is certainly to be found in the indiscriminate preference of the public for that which is low-priced."[41]

The seller, then, must meet the Consumer's demands; and since these are for cheapness, he must sell cheap. But how can cheapness be obtained? Only by cutting down the expenses of production. Other manufacturers possess the same machinery, about the same advantages of location, and approximately the same talent. Given a system of unrestrained competition, each firm will have to count costs to within a fraction of a cent and reduce expenses to the lowest possible amount. To this end wages are often cut, workmen speeded, and the health of employees endangered.

"No one of us," says the manager of a big department store in St. Louis, "has any particular consideration in the purchase price of goods; the ease of communication and the large amount of advertising make it impossible for us to have any serious advantage over others in point of selling price. The women can go from one store to another, effectually preventing one store from being materially higher priced on the same goods than another.

"The great struggle is over the expense account. This brings up the whole question of salaries, the amount that can be paid to employees directly, the amount that is spent by us in caring for them, compensation for length of service.... All these have to be handled from the expense account, and it is on this point that some of the most delicate questions of morals arise, and they involve both the employer and the customer in the treatment of the employee."[42]

It is true that some economists have maintained that the price of an article must cover its cost of production.[43] But as Professor Carver says, such an opinion "is probably the source of more error and confusion in economic discussions than any other mistake." (Loc. cit.) It may be granted, indeed, that the price will never be much below the _expenses_ of production, understanding by "expenses of production" what the entrepreneur must pay out in wages, interest, etc. Yet even this is not because the expenses of production directly govern prices. They affect the price only indirectly by limiting the supply. For no entrepreneur will long continue in business if he be not able to sell his product at a profit, and his going out of business will decrease the supply and so raise the price by the well-known law of supply and demand.

But "costs of production," being the sum of the efforts and sacrifices of all concerned in making an article, are very different from "expenses of production."[44] It is by no means true, as Professor Sidgwick pointed out twenty-five years ago, that the amount necessary to enable a laborer to keep himself in good physical condition and reproduce himself forms a minimum below which the self-interest of an employer will not allow wages to fall.[45]

For in the first place, there is no assurance that a laborer is going to spend his wages for this purpose. How, then, can it be to his employer's advantage to pay him more than he is willing to take, when the surplus may be squandered in drink? And even assuming that the generality of laborers must receive such an amount in order to meet the demand for workmen, still they need not all receive it from their employers. An industry, such as the department stores, may try to get girls who obtain part of their support from fathers or brothers employed in other businesses.[46] Or wages of large classes may be supplemented by public or private alms. This was long the case under the English Poor Law. As the land-occupiers paid the greater portion of the rates, it was to the Manufacturers' advantage to have wages really come partly from the parish.

And the numbers of laborers can be kept stationary without each workman, or even every class, receiving enough to perpetuate himself. For their ranks can easily be recruited from an over-supply of some higher class. There is a constant pressure upon the upper strata, forcing down the unfit, and it is readily conceivable that these failures should take the places of still greater failures below.

There is, then, no physical or economic necessity forcing employers to pay fair wages to each individual worker, in the sense in which we are using the word "fair" for the sake of argument. "The effort to organize business with a view to cheap production, may be carried on in such fashion as to press unduly on those who work for wages; employers are in a position in which they may be able to drive hard bargains as to hours of work and rates of pay, and to pass on the risk of loss, which arises from fluctuations of business, to be borne by those who are thrown out of employment."[47] And not only may this, but there is every inducement and almost necessity urging that it should, be done except where the workmen are organized. No employer can afford to pay a workman more than his surplus over and above what would be produced without him, and it will be to his advantage to pay less. He is a purchaser of labor, and like every other purchaser wants to get that commodity at the lowest figure. And there are several differences between him and the purchaser of any other commodity that give him a distinct advantage in the bargain.

In the first place, not merely increased profits, what would be represented by a housewife's saving in shopping, urge him to buy cheap labor, but his own industrial existence, which will be lost if he does not get his workmen as cheap as his competitors. Having a greater prize at stake, he develops a greater skill. He has a wider view of economic conditions, a better knowledge of the state of trade elsewhere, and so he can outbargain the unorganized laborer.

Again, the laborer is in a worse position than the seller of almost any other commodity. For what he does not sell to-day disappears absolutely. If he does not dispose of it now he cannot to-morrow. A fruiterer can keep his oranges until the next day, if he is not satisfied with the current price. But to-day's labor can be sold only to-day. And if it be not sold, it is probable that the workman will be physically less fit to-morrow. Yet even if he does accept the wage offered, and it is less than enough to repair the daily waste of force, the same result will be brought about gradually. He is, therefore, confronted by the dilemma of taking what the idle are willing to accept, or becoming idle himself.

It needs only the imagining of one's self in the position of the unemployed to see that there is hardly any limit below which the wages of the weakest may not fall. A man without special skill and without savings, with not only himself but others to look out for, will be glad to get even what he knows will not completely support him.

"Without organization and by means of individual bargaining, wages are drawn downward toward the level set by what idle men will accept, which may be less than they will produce after they receive employment and will surely be less than they will produce after they have developed their full efficiency. When labor makes its bargains with employers without organization on its side, the parties in the transaction are not on equal terms and wages are unduly depressed. The individual laborer offers what he is forced to sell, and the employer is not forced to buy. Delay may mean privation for the one party and no great inconvenience or loss for the other. If there are within reach a body of necessitous men out of employment and available for filling the positions for which individual laborers are applying, the applicants are at a fatal disadvantage."[48] Such is the opinion of a conservative economist with an especially kindly feeling towards the competitive system.

It would seem, therefore, that the competitive organization of industry has a tendency to crush out the weaklings. How numerous are these weaklings, we shall now discuss.

FOOTNOTES:

[36] L. c., pp. 121, 122, 134, 152; U. S. Bur. Lab., "Men's Ready-Made Clothing," p. 303.

[37] Butler, p. 301; U. S. Bur. Lab., "Women Wage-Earners in Stores and Factories," pp. 109, 178.

[38] U. S. Bur. Lab., l. c., p. 22; Report Minneapolis Vice Commission, 1911, p. 127.

[39] U. S. Bur. Lab., "Glass Industry," p. 54.

[40] U. S. Bur. Lab., "Industrial Hygiene," 1908, p. 79.

[41] W. Cunningham, "Christianity and Social Questions," pp. 122-123: London, 1910.

[42] "The Socialised Church," p. 120, address on "The Relation of the Church to Employees in Department Stores," by Hanford Crawford, B.S.: St. Louis, N. Y., 1909.

[43] Cf. T. N. Carver, "Distribution of Wealth," p. 31: N. Y., 1908.

[44] Cf. H. R. Seager, "Introduction to Political Economy," pp. 53-54: N. Y., 1908.

[45] H. Sidgwick, "Principles of Political Economy," p. 297: London, 1887.

[46] Cf. "Wage-Earning Women in Stores and Factories," p. 22: U. S. Bureau of Labor, 1911.

[47] W. Cunningham, "Christianity and Social Questions," p. 118: London, 1910.

[48] J. B. Clark, "Essentials of Economic Theory," pp. 453 and 456: N. Y., 1907.