Chapter 11

The Industrial Outlook of Low-Skilled Labour.

§ 1. The Concentration of Capital.--It must be remembered that we have been concerned with what is only a portion of the great industrial movement of to-day. Perhaps it may serve to make the industrial position of the poor low-skilled workers more distinct if we attempt to set this portion in its true relation to the larger Labour Problem, by giving a brief outline of the size and relation of the main industrial forces of the day.

If we look at the two great industrial factors, Capital and Labour, we see a corresponding change taking place in each. This change signifies a constant endeavour to escape the rigour of competition by a co-operation which grows ever closer towards fusion of interests previously separate.

Look first at Capital. We saw how the application of machinery and mechanical power to productive industries replaced the independent citizen, or small capitalist, who worked with a handful of assistants, by the mill and factory owner with his numerous "hands." The economic use of machinery led to production on a larger scale. But new, complex, and expensive machinery is continually being invented, which, for those who can afford to purchase and use it, represents a fresh economy in production, and enables them both to produce larger quantities of goods more rapidly, and to get rid of them by underselling those of their trade competitors who are working with old-fashioned and less effective machinery. As this process is continually going on, it signifies a constant advantage which the owner of a large business capital has over the owner of a smaller capital. In earlier times, when trade was more localized, and the small manufacturer or merchant had his steady customers, and stood on a slowly and carefully acquired reputation, it was not so easy for a new competitor to take his trade by the offer of some small additional advantage. But the opening up of wider communication by cheap postage, the newspaper, the railway, the telegraph, the general and rapid knowledge of prices, the enormous growth of touting and advertising, have broken up the local and personal character of commerce, and tend to make the whole world one complete and even arena of competition. Thus the fortunate possessor of some commercial advantage, however trifling, which enables him to produce more cheaply or sell more effectively than his fellows, can rapidly acquire their trade, unless they are able to avail themselves of the new machinery, or special skill, or other economy which he possesses. This consideration enables the large capitalist in all businesses where large capital contains these advantages, or the owner of some large natural monopoly, who can most cheaply extract large quantities of raw material, to crush in free competition the smaller businesses. In proportion as business is becoming wider and more cosmopolitan, these natural advantages of large capital over small are able to assert themselves more and more effectively. In certain branches of trade, which have not yet been taken over by elaborate machinery, or where everything depends upon the personal activity and intelligence, and the detailed supervision of a fully interested owner, the small capitalist may still hold his own, as in certain branches of retail trade. But the general movement is in favour of large businesses. Everywhere the big business is swallowing up the smaller, and in its turn is liable to be swallowed by a bigger one. In manufacture, where the cosmopolitan character is strongest, and where machinery plays so large a part, the movement towards vast businesses is most marked; each year makes it more rapid, and more general. But in wholesale and retail distribution, though somewhat slower, the tendency is the same. Even in agriculture, where close personal care and the limitations of a local market temper the larger tendency, the recent annals of Western America and Australia supply startling evidence of the concentrative force of machinery. The meaning of this movement in capital must not be mistaken. It is not merely that among competing businesses, the larger showing themselves the stronger survive, and the smaller, out-competed disappear. This of course often happens. The big screw-manufacturer able to provide some new labour-saving machinery, to advertise more effectively, or even to sell at a loss for a period of time, can drown his weaker competitors and take their trade. The small tradesman can no longer hold his own in the fight with the universal provider, or the co-operative store.

But this destruction of the small business, though an essential factor in the movement, is not perhaps the most important aspect. The industrial superiority of the large business over the small makes for the concentration both of small capitals and of business ability. The monster millionaire, who owns the whole or the bulk of his great business, is after all a very rare specimen. The typical business form of to-day is the joint stock company. This simply means that a number of capitalists, who might otherwise have been competing with one another on a small scale of business, recognizing the advantage of size, agree to mass their capital into one large lump, and to entrust its manipulation to the best business ability they can muster among them, or procure from outside. This process in its simplest form is seen in the amalgamation of existing and competing businesses, notable examples of which have recently occurred in the London publishing trade. But the ordinary Company, whether it grows by the expansion of some large existent business, or, like most railways or other new enterprises, is formed out of money subscribed in order to form a business, represents the same concentrating tendency. These share-owners put their capital together into one concern, in order to reap some advantage which they think they would not reap if they placed the capital in small competing businesses. But though it has been calculated that about one-third of English commerce is now in the hands of joint stock companies, this by no means exhausts the significance of the centralizing force in capital. Almost all large businesses, and many small businesses, are recognized to be conducted largely with borrowed capitals. The owners of these debentures are in fact joint capitalists with the nominal owner of the business. They prefer to lend their capital, because they hope to enjoy a portion of the gain and security which belongs to a large business as compared with a small one. Along with this coming together of small capitals to make a large capital, there is a constant centralization and organization of business ability. It is not uncommon for the owner of a small and therefore failing business to accept a salaried post in the office of some great business firm. So too we find the son of a small tradesman, recognizing the hopelessness of maintaining his father's business, takes his place behind the counter of some monster house.

§ 2. How Competition affects Capital.--Now the force which brings about all these movements is the force of competition. Every increase of knowledge, every improvement of communication, every breakdown of international or local barriers, increases the advantage of the big business, and makes the struggle for existence among small businesses more keen and more hopeless. It is the desire to escape from the heavy and harassing strain of trade competition, which practically drives small businesses to suspend their mutual hostilities, and to combine. It is true that most of the large private businesses or joint stock companies are not formed by this direct process of pacification. But for all that, their _raison d'être_ is found in the desire to escape the friction and waste of competition which would take place if each shareholder set up business separately on his own account. We shall not be surprised that the competition of small businesses has given way before co-operation, when we perceive the force and fierceness of the competition between the larger consolidated masses of capital. With the development of the arts of advertising, touting, adulteration, political jobbery, and speculation, acting over an ever-widening area of competition, the fight between the large joint stock businesses grows always more cruel and complex. Business failures tend to become more frequent and more disastrous. A recent French economist reckons that ten out of every hundred who enter business succeed, fifty vegetate, and forty go into bankruptcy. In America, where internal competition is still keener and speculation more rife, it has been lately calculated that ninety-five per cent, of those who enter business "fail of success." Just as in the growth of political society the private individual has given up the right of private war to the State, with the result that as States grow stronger and better organized, the war between them becomes fiercer and more destructive, so is it with the concentration of capital. The small capitalist, seeking to avoid the strain of personal competition, amalgamates with others, and the competition between these masses of capital waxes every day fiercer. We have no accurate data for measuring the diminution of the number of separate competitors which has attended the growing concentration of capital, but we know that the average magnitude of a successful business is continually increasing. The following figures illustrate the meaning of this movement from the American cotton trade, which is not one of the industries most susceptible to the concentrative pressure. "It will be seen that in 756 large establishments in 1880, in which the aggregate capital invested was five times as great as that in the 801 establishments in 1830, the capital invested per spindle was one-third less, the number of spindles operated by each labourer nearly three times as large, the product per spindle one-fourth greater, the product per dollar invested twice as large, the price of the cotton cloth nearly sixty per cent, less, the consumption _per capita _of the population over one hundred per cent greater, and the wages more than double. What is true of this industry is true of all industries where the concentration of capital has taken place."[38]

It is needless to add that these large works are conducted, not by single owners, but in nearly all cases by the managers of associated capitals. Regarded from the large standpoint of industrial development, all these phenomena denote a change in the sphere of competition. From the competition of private capitals owned by individuals we have passed to the competition of associated capitals. The question now arises, "Will not the same forces, which, in order to avoid the waste and destruction of ever keener competition, compelled the private capitalists to suspension of hostility and to combination, act upon the larger masses of associated capital?" The answer is already working itself clearly out in industrial history. The concentrative adhesive forces are everywhere driving the competing masses of capital to seek safety, and escape waste and destruction, by welding themselves into still larger masses, renouncing the competition with one another in order to compete more successfully with other large bodies. Thus, wherever these forces are in free operation, the number of competing firms is continually growing less; the surviving competitors have crushed or absorbed their weaker rivals, and have grown big by feeding on their carcases.

But the struggle between these few big survivors becomes more fierce than ever. Fitted out with enormous capital, provided with the latest, most complex, and most expensive machinery, producing with a reckless disregard for one another or the wants of the consuming public, advertising on a prodigious scale in order to force new markets, or steal the markets of one another, they are constantly driven to lower their prices in order to effect sales; profits are driven to a minimum; all the business energy at their command is absorbed by the strain of the fight; any unforeseen fluctuations in the market brings on a crisis, ruins the weaker combatants, and causes heavy losses all round. In trades where the concentrative process has proceeded furthest this warfare is naturally fiercest. But as the number of competing units grows smaller, arbitration or union becomes more feasible. Close and successful united action among a large number of scattered competitors of different scales of importance, such as exist during the earlier stage of capitalism, would be impossible. But where the number is small, combination presents itself as possible, and in so much as the competition is fiercer, the direct motive to such combination is stronger. Hence we find that attempts are made to relieve the strain among the largest businesses. The fiercest combatants weary of incessant war and patch up treaties. The weapon of capitalist warfare is the power of under-selling--"cutting prices." The most powerful firms consent to sheathe this weapon, i.e. agree not to undersell one another, but to adopt a common scale of prices. This action, in direct restraint of competition, corresponds to the action of a trades union, and is attained by many trades whose capital is not large or business highly developed. Neither does it imply close union of friendly relations between the combining parties. It is a policy dictated by the barest instinct of self-preservation. We see it regularly applied in certain local trades, especially in the production and distribution of perishable commodities. Our bakers, butchers, dairy-men, are everywhere in a constant state of suspended hostility, each endeavouring indeed to get the largest trade for himself, but abiding generally by a common scale of prices. Wherever the local merchants are not easily able to be interfered with by outsiders, as in the coal-trade, they form a more or less closely compacted ring for the maintenance of common terms, raising and lowering prices by agreement. The possibility of successfully maintaining these compacts depends on the ability to resist outside pressure, the element of monopoly in the trade. When this power is strong, a local ring of competing tradesmen may succeed in maintaining enormous prices. To take a humble example--In many a remote Swiss village, rapidly grown into a fashionable resort, the local washerwomen are able to charge prices twice as high as those paid in London, probably four times as high as the normal price of the neighbourhood.

Grocers or clothiers are not able to combine with the same effect, for the consumer is far less dependent on local distribution for these wares. But wherever such retail combinations are possible they are found. Among large producers and large distributing agencies the same tendency prevails, especially in cases where the market is largely local. Free competition of prices among coal-owners or iron-masters gives way under the pressure of common interests, to a schedule of prices; competing railways come to terms. Even among large businesses which enjoy no local monopoly, there are constant endeavours to maintain a common scale of prices. This condition of loose, irregular, and partial co-operation among competing industrial units is the characteristic condition of trade in such a commercial country as England to-day. Competitors give up the combat _à outrance_, and fight with blunted lances.

§ 3. Syndicates and Trusts.--But it is of course extremely difficult to maintain these loose agreements among merchants and producers engaged in intricate and far-reaching trades. A big opportunity is constantly tempting one of them to undersell; new firms are constantly springing up with new machinery, willing to trade upon the artificially raised prices, by under-selling so as to secure a business; over-production and a glut of goods tempts weaker firms to "cut rates," and this breaks down the compact. A score of different causes interfere with these delicate combinations, and plunge the different firms into the full heat and waste of the conflict. The renewed "free competition" proves once more fatal to the smaller businesses; the waste inflicted on the "leviathans" who survive forms a fresh motive to a closer combination.

These new closer combinations are known by the names of Syndicate and Trust. This marks another stage in the evolution of capital. In the United States, where the growth is most clearly marked, the Standard Oil Trust forms the leading example of a successful Trust. In 1881, this Standard Oil Company having maintained for some ten years tolerably close informal relations with its leading competitors in the Eastern States, and having crushed out the smaller companies, entered into a close arrangement with the remaining competitors, with the view of a practical consolidation of the businesses into one, though the formal identity of the several firms was still maintained. The various companies which entered into this union, comprising nearly all the chief oil-mills, submitted their businesses to valuation, and placed themselves in the hands of a board of trustees, with an absolute power to regulate the quantity of production, and if necessary to close mills, to raise and lower prices, and to work the whole number as a joint concern. Each company gave up its shares to the Trust, receiving notes of acknowledgment for the worth of the shares, and the total profits were to be divided as dividend each half-year. This Trust has continued to exist, and has now a practical monopoly of the oil trade in America, controlling, it is reckoned, more than 90 per cent. of the whole market, and regulating production and prices.

Everywhere this process is at work. Competing firms are in every trade, where their small numbers permit, striving to come to closer terms than formerly, and either secretly or openly joining forces so as to get full control over the production or distribution of some product, in order to manipulate prices for their own profit. From railways and corn-stores down to slate-pencils, coffins, and sticking-plaster, everything is tending to fall under the power of a Trust. Many of these Trusts fail to secure the union of a sufficient proportion of the large competitors, or quarrels spring up among the combining firms, or some new firms enter into competition too strong to be fought or bought over. In these ways a large number of the Trusts have hitherto broken down, and will doubtless continue to break down. In England, this step in capitalist evolution is only beginning to be taken. In glass, paper, salt, coal, and a few other commodities, combinations more permanent than the mere Ring or Corner, and closer than the ordinary masters' unions, have been formed. But Free Trade, which leaves us open to the less calculable and controllable element of foreign competition, and the fact that the earlier stages of concentration of capital are not yet completed here in most trades, have hitherto retarded the growth of the successful Trust in England. Even in America there is no case where the monopoly of a Trust reigns absolute through the whole country, though many of them enjoy a local control of production and prices which is practically unrestricted. Excepting in the case of the Standard Oil Trust, and a few less important bodies which enjoy the control of some local monopoly, such as anthracite coal, the supremacy of the leading Trust or Syndicate is brought in certain places into direct conflict with other more or less independent competing bodies. In other words, the evolution of capital, which tends ever to the establishment of competition between a smaller number of larger masses, has nowhere worked out the logical conclusion which means the condensation of the few large competing bodies into a single mass. This final step, which presents a completely organized trade with the element of competition utterly eliminated under the control of a single body of mere joint-owners of the capital engaged, must be regarded as the goal, the ideal culmination of the concentrative movement of modern capital. It is said that more than one-third of the business in the United States is already controlled by Trusts. But most of them have only in part succeeded in their effort to escape from competition by integrating their personal interests into a single homogeneous mass. Even in cases where they do rule the market untrammelled by the direct interference of any competitors, they are still deterred from a free use of their control over prices by the possibility of competition which any full use of this control might give rise to. For it does not follow that even where a Trust holds an absolute monopoly of the market of a locality, that it will be able to maintain that monopoly were it to raise its prices beyond a certain point. In proportion, however, as experience yields a greater skill in the management of Trusts, and their growing strength enables them to more successfully defy outside attempts at competition, their power to raise prices and increase their rates of profit would rise accordingly.

Regarding, then, the development of the capitalist system from the first establishment of the capitalist-employer as a distinct industrial class, we trace the massing of capital in larger and larger competing forms, the number of which represents a pyramid growing narrower as it ascends towards an ideal apex, represented by the absolute unity or identity of interests of the capital in a given trade. In so far as the interests of different trades may clash, we might carry on this movement further, and trace the gradual agreement, integration, and fusion of the capitals represented in various trades. There is, in fact, an ever-growing understanding and union between the various forms of capital in a country. The recognition of this ultimate identity of interest must be regarded as a constant force making for the unification of the whole capital of a country, in the same way as the common interests of directly competing capitals in the same trade leads to a union for mutual support and ultimate identification.

§ 4. Uses and Abuses of the Trust.--This, however, carries us beyond the immediate industrial outlook. The successful formation of the Trust represents the highest reach of capitalistic evolution. Although the subject is too involved for any lengthy discussion here, a few points bearing on the nature of the Trust deserve attention.

The Trust is clearly seen to be a natural step in the evolution of capital. It belongs to the industrial progress of the day, and must not be condemned as if it were a retrograde or evil thing. It is distinctly an attempt to introduce order into chaos, to save the waste of war, to organize an industry. The Trust-makers often claim that their line of action is both necessary and socially beneficial, and urge the following points--

The low rates of profit, owing to the miscalculation of competitors who establish too many factories and glut the market; the waste of energy in the work of competition; the adulteration of goods induced by the desire to undersell; the enormous royalties which must be paid to a competitor who has secured some new invention--these and other causes necessitate some common action. By the united action of the Trust the following economic advantages are gained--

a. The saving of the labour and the waste of competition.

b. Economy in buying and selling, in discovering and establishing new markets.