Chapter 2

What seems like an obvious and easy answer to all these questions is that both the Government and the road were controlled in many cases, as the people of California well know, by the same men, and these men were privately interested. As public servants or as officers of corporations they were supposed to be promoting settlement and transportation; as individuals they were promoting their own fortunes. This result was secured by the appropriation of public lands and the conversion of investments which the public lands supported. That this sort of thing occurred on a large scale and that it involved the violation of both public and private trusts is fairly clear.

Public sentiment has judged and condemned the men who in their own interests thus perverted national policy; and we approve the verdict. But it is not so easy to condemn the policy itself or to indict the generation that adopted it. Looking at the matter from the standpoint of the nation, it was precisely the inefficiency and the corruption in government which augmented the theoretical distrust of government and made it unthinkable to the people of the seventies, that the Government should build and operate railways directly. The land-grant policy entailed corruption and waste, of course; but what mattered a few million acres of land! No one had heard of a conservation problem at the close of the Civil War. Resources were limitless; without enterprise, without labor and capital, without transportation they had no value, they were free goods. The great public task of the nineteenth century was to settle the continent and make these resources available for mankind. This task it performed with nineteenth-century methods. From our standpoint they may have been wasteful methods, but they did get results. In its historical setting, the viewpoint from which the task of settlement was approached was not so far wrong.

When we examine the counts against the railroads as private enterprises, we find that the poor construction, which from our point of vantage looks like dangerous, wasteful, hand-to-mouth policy, is only in part explained by the fact of reckless and dishonest finance. I am advised by an eminent and discriminating observer that the distinguished Italian engineer to whom Argentina entrusted the building of its railroad to Patagonia, produced a structure which in engineering excellence is the equal of any in the United States to-day. But the funds are exhausted and the Patagonia railroad is halted one hundred and fifty miles short of its goal; there are no earnings to maintain the investment.

The reaction of high interest rates on the practical sense of American capitalists and engineers has made operation at the earliest possible moment and with the smallest possible investment of capital the very essence of American railway building in new territory. Actual earnings are expected to furnish capital, or a basis for credit, with which to make good early engineering defects. All this, of course, is but another way of saying that the criterion of engineering efficiency is not "perfection," but "good enough." This distinction has placed a large measure of genuine efficiency to the credit of American engineers, and it explains why Americans have done many things that others were unwilling to undertake. It is a great thing to build a fine railroad in Patagonia, but I am sure we all rejoice that the first Pacific railroad did not have its terminus in the Nevada sagebrush. The standard of technical perfection set by the Italian engineer did not fit the facts. It is not the failure to attain his standard but the failure to measure up to a well-considered standard of "good enough" that stands as an indictment against American railway enterprise.

Viewed in historical perspective the business environment of the pioneer appears to have been dominated by two outstanding facts: one, seemingly inexhaustible resources; the other, a set of political and economic doctrines which told him that these resources must be developed by individual initiative and not by the State. The faster the resources were developed the more rapidly the nation became economically independent and economically great, and since they could not be developed by the State it is not strange that private initiative was stimulated by offering men great and immediate rewards. These rewards have encouraged individuals and associations of individuals to aspire to a quick achievement of great economic power, and their aspirations have been realized. Such achievements have been a dominating feature of our business life, and we have regarded them as an index of national greatness.

Abundance of resources, if it did not make this the best way, at least made it an obvious way, for the nineteenth century to solve its business problems. From our vantage point we can see that serious mistakes were made. When we set the foresight of our fathers against our own informed and chastened hindsight their methods appear clumsy and amateurish. But in the main they did solve their problems: they gave us a settled continent; they gave us transportation and diversified industry. We now have our garden and the tools with which to work it. If the pioneer allowed the children to pick flowers and in some cases to run away with the plants and the soil, he did not fail to develop the estate.

Our inheritance from the pioneer is not only material but psychological. The pioneer attitude of mind has made a real contribution to our business standards. The very magnitude of our enterprises, the fact that we have had to develop our methods as we went, our success in approaching problems that way, have given us a confidence in ourselves and a readiness to undertake big things without counting the cost. This readiness is a large, perhaps a dominant, factor in our contribution to world progress. It is not an accident that the greatest problems of mountain railway building have been met and solved by American engineers, or that they have carried a great railroad under two rivers to the heart of our greatest city. These in a private way, and the Panama Canal in a public way, are typical of American engineering enterprise.

As with engineering, so with general business. Our pioneer managers did not lack imagination; they were not afraid to undertake; they were not constrained by worry lest they make mistakes. They made many mistakes. Some were corrected, others ignored, but many more were concealed by an abundant success. The pioneer could afford to do the next thing and let the distant thing take care of itself, and in large measure he escaped the penalties which normally follow a failure to look ahead.

Substantial forces have tended to keep the pioneer spirit alive. If some resources have been depleted, other resources have been found to take their place. Scientific discovery, invention, and the development of technique have placed new forces at our command. Products have been multiplied, but the demand for products has multiplied faster. We have been able to continue offering men great and immediate rewards for the development of new enterprises. As labor was needed, our neighbors have continued to supply it. The result is that our business has continued to go ahead without being too much concerned about the direction in which it was going.

Business has eagerly appropriated the results of science without itself becoming scientific. The difficult way of science makes slow progress against the dazzling rewards of unbridled daring. So many strong but untrained men have been enriched by seizing upon the immediate and obvious circumstance--there has been so little necessity for sparing materials or men and so little penalty for waste--that we have developed a national impatience with the slow and tedious process of finding out.

Along with our technical and business enterprise, with the courage and imagination of which we are justly proud, a too easy success has given us a tendency to drop into a comfortable and optimistic frame of mind. Imagination, intuition, power to picture the future interplay of forces, courage and capacity for quick action--all these qualities are as essential to-day as they ever were to business success. The pioneer environment reacting on our native temperament has given us these qualities in full measure, but it has also given us a habit of doing things in a hit-or-miss fashion. Our very imagination and courage applied to wrong circumstances and in perverted form have often borne the fruit of national defects.

There is a strong inclination to assume that the old approach to problems will bring the same results that it did in the past, and to forget that we are living in a new world. The problems confronting the pioneer were not the problems we face to-day. It requires great ability to draft a prospectus; in many of our greatest enterprises drafting the prospectus has been the crucial task. But a prospectus is not a going concern. There is a vast difference between promotion and administration. In the promotional stage of our business life we were solving problems made up of unknown quantities, problems for which the only angle of approach was found in the formula _x_+_y_=_z_. We still have and shall always have problems of the _x_+_y_=_z_ type, but if we apply that formula to a problem in which 2+2=4 we are not likely to get the best results.

Business may not yet be a science, but it is rapidly becoming scientific. Scientific inquiry is all the while carrying new factors from the category of the unknown to that of the known, and by so doing it is setting a new standard of business efficiency. The more brilliant qualities, like courage and imagination, must be coupled with capacity for investigation and analysis, with endless patience in seeking out the twos and the fours and eliminating them from the equation. When it is possible by scientific research to distinguish a right way and a wrong way to do a task, it is not an evidence of courage or imagination but of folly to act on a faulty and imperfect reckoning with the facts.

The person who uses scientific method takes account of all his known forces; he prepares his materials, controls his processes and isolates his factors so as to reveal the bearing of every step in the process upon an ultimate and often a far distant result. In other words, he tries at every stage to build upon a sure foundation. His trained imagination and judgment working on known facts set the limit on what he may expect to find, and interpret what he does find, all along the way.

In so far as particular business enterprises have rested on engineering, chemistry, biology, and other sciences, a scientific method of approach has long had large use in business; but the scientist in business has usually been a salaried expert--a man apart from the management--and it has been his results, and not necessarily his methods, that have influenced business practice. We are now coming to understand that scientific method is the only sure approach to all problems; it is a thing of universal application, and far from being confined to the technical departments of business, where the technical scientists hold sway in their particular specialties, it may have its widest application in working out the problems of management.

The way in which a man trained in scientific method may determine business practice in a scientific manner finds illustration in a multitude of practical business problems, ranging all the way from the simplest office detail to the most far-reaching questions of policy. To cite an example, of the simpler sort: if an item in an order sheet is identical for eight out of ten orders is it better to have a clerk typewrite the eight repetitions along with the two deviations or to use a rubber stamp? Of course, there are not one or two, but many, items in an order sheet and the repetitions and deviations are not the same for all items. In practical application, the rubber-stamp method means a rack of rubber stamps placed in the most advantageous position. It requires also a decision as to the precise percentage of repetitions which makes the stamp advantageous. Then arises the further question, why not have the most numerous repetitions numbered and keyed and thus avoid the necessity of transcribing them at all?

The rule-of-thumb approach to this kind of problem would proceed from speculations concerning the effect of interrupting the process to use the stamp, the result of such interruptions on the accuracy of work, difficulties in the way of necessary physical adjustments, and many other questions that would occur to the practical manager.

The scientific method of approach would first inquire whether there are any principles derived from previous motion study or other investigations, that apply to the case in hand. In accord with such principles it would then proceed, as far as possible, to eliminate neutral or disturbing third factors and to arrange a test. The results of the test would lead, either to a continuance of the old practice, or to the establishment of a new practice for a certain period, after which, if serious difficulties were not revealed, the new practice would be definitely installed.

It should be emphasized at this point, that there is a fundamental difference between investigations or tests which contemplate an immediate modification of practice and those investigations in which research--that is, the discovery of new truths--is the sole object. Tests which are carried on within the business must never lose sight of the fact that a business is a going concern and that it is impracticable and usually undesirable to transform a business into a research laboratory. Scientific methods in business should not be confused with the larger problem of scientific business research. This larger task, if undertaken by the individual business concern, is the work of a separate department. For business generally, it will have to be conducted either by the Government, or by business-research endowments. The point at which, in practical business, research should give place to action is a question that wise counsel and the sound sense of the trained executive must determine.

An example of the contrast between a scientific and a rule-of-thumb approach, as applied to a question of major policy, is found in discussions of the relative advantages of a catalogue and mail-order policy over against a policy of distribution by traveling salesmen. A few years ago the head of one of the largest wholesale organizations in the United States, talking with an intimate friend, expressed fear that his house, which employed salesmen, might be at a dangerous disadvantage with its chief competitor, which did an exclusively mail-order business. The friend comforted him with the assurance that there are many buyers who prefer to be visited by salesmen and to have goods displayed before them. This fact, he held, would always give an adequate basis for the prosperity of a house that employed the salesman method of distribution.

Neither the fear nor the assurance here expressed reveals a scientific attitude of mind. Careful analysis shows, on the one hand, that the mail-order policy is not the most effective means of cultivating intensively a well populated territory. On the other hand, it shows that the expense of sending salesmen to distant points in sparsely populated areas more than absorbs the profits from their sales. Individual concerns have arrived at these conclusions by experiment and accurate cost-keeping and have succeeded in reaching a scientific decision as to which territories should be cultivated by salesmen and which ones should be covered exclusively through advertising and the distribution of catalogues and other literature.

The difficulty that business men find in applying scientific method consistently in the analysis of their problems is strikingly revealed in the labor policy of the great majority of industrial concerns. While many men of scientific training are dealing with problems of employment, probably no concern has undertaken to make a scientific analysis to determine what are the foundations of permanent efficiency of the labor force which they employ. This is not surprising, when we remember how complicated is the problem and how short the time during which we have been emphasizing the human relations as distinguished from the material or mechanistic aspect of business organization.

To state even a simple problem of management, like the one concerning the order sheet, set forth above, is to reveal some of the difficulties of analysis which characterize all subject-matter having to do with human activity. This means that we should not expect results too quickly nor should we be disappointed if the first results of efforts at scientific analysis are not absolutely conclusive. As soon as we recognize that business is primarily a matter of human relations, that it has to do with groups and organizations of human beings, we see that scientific analysis of it cannot proceed in exactly the same way as with units of inanimate matter. The reaction of human relations to changed influences, frequently cannot be predicted until the changes occur. Business, in other words, is a social science and, like all social sciences, must deal primarily with contingent rather than exact data; likewise conclusions drawn from scientific analysis must in large measure be contingent rather than exact.

Although we cannot always isolate our factors, control our processes, and otherwise apply scientific method, with results as conclusive as those obtained in laboratories of chemistry, physics, or biology, we need not therefore reject scientific method in favor of a rule-of-thumb. We should, however, be suspicious of too sweeping claims based on any but the most careful and painstaking analysis of facts by persons who are thoroughly trained in the kind of analysis they undertake.

While a scientific approach will help in solving many problems of business detail, the substitution of scientific method for a rule-of-thumb approach will realize its object most completely in the influences exerted upon fundamental long-time policy, influences which cannot bear fruit in a day or a year. The circumstances of our history have retarded the acceptance of a long-time scientific viewpoint in business, but forces now at work are making powerfully for a scientific approach to business management. First among these is a realization that our resources are measured in finite terms. We have begun to take account of what we have, and we are able in a rough way to figure the loss from what we have squandered. The situation is not desperate, but we can see that it may become so. To insure against possible disaster in the future we need to exercise effective economy in turning resources into finished goods, and we need to eliminate waste in the distribution and the consumption of these goods. In private business the need for such economy is reflected in rising prices for raw materials. In its public aspect we have labeled the problem, conservation.

A second force making for a scientific approach to business is found in the beginnings of a social policy to which I have referred. This policy is showing itself in limitations upon the way in which materials and men may be utilized and in a sharper definition of the business man's obligations to employees, to competitors and consumers. As long as resources are to be had for the asking, while cheap labor can be imported and utilized without restraint, and where no questions are asked in marketing the product, there is not the right incentive to do things in a scientific way. As business becomes more and more the subject of legal definition, as the tendency grows of regarding it as a definite service, performed under definite limitations, and for definite social ends, margins will be narrowed and it will become increasingly necessary to do things in the right way.

The scientific approach to business has made great progress during the past decade. Out of the hostile criticism to which so-called big business has been subjected have come several government investigations and court records, in which policies of different concerns have been explained, criticized, and compared. Besides, business men themselves have become less jealous of trade secrets and have shown an increasing inclination to compare results. A good illustration of this tendency is seen in the growth of "open price associations" and in the spirit in which credit men, sales managers' associations, and other business groups exchange information. In the same spirit, business and trade journals have given a large exposition of individual experience and increasing attention to questions of fundamental importance.

More significant still has been the scientific management propaganda. Mr. Brandeis's dramatic exposition of this movement in the railway rate cases in 1911 at once made it a matter of public interest. Later discussion may not have extended acceptance of scientific management, but it has not caused interest in it to flag. The movement has become essentially a cult. Its prophet, the late Frederick Taylor, by ignoring trade-unionism and labor psychology in the exposition of his doctrines, at once drew down upon them the hostility of organized labor; the movement was branded as another speeding-up device. More serious than the antagonism has been the spirit in which some of the scientific management enthusiasts--not all--have met it. They seem to assume that their science is absolute and inexorable, that it eliminates disturbing factors and hence needs no adjustment to adapt it to the difficulties met in its application. This air of omniscient dogmatism, together with the disasters of false prophets, has somewhat compromised the movement and has diminished its direct influence. However, business men have been stirred up. They have become accustomed to using the words "science" and "business" in the same sentence. They are in a receptive attitude for ideas. The indirect influence has been great.

A final, and probably in the long-run the most permanent, influence making for the extension of scientific method in business has been the new viewpoint from which universities have been approaching the task of educating men for business. Prior to 1900, university education for business in the few universities that attempted anything of the sort was confined to such branches of applied economics as money and banking, transportation, corporation finance, commercial geography, with accounting and business law to give it a professional flavor. There were also general courses labeled commercial organization and industrial organization, but these were almost entirely descriptive of the general business fabric of the country, and had but the most remote bearing on the internal problems of organization and management which an individual business man has to face. The assumption was that a man who was looking forward to business would probably do well to secure some information about business, but there was little attempt at definite professional training of the kind given to prospective lawyers, physicians, or engineers.

Within the past few years universities have begun to undertake seriously the development of professional training for business. The result has been that through organized research and through investigations by individual teachers and students, the universities are gathering up the threads of different tendencies toward scientific business and are themselves contributing important scientific results. Out of all this there is emerging a body of principles and of tested practice which constitutes an appropriate subject-matter for a professional course of study, and points the way to still further research.