The “Vicious Circle”

What form of management should replace the administration of industry by the agents of shareholders? What is most likely to hold it to its main purpose, and to be least at the mercy of predatory interests and functionless supernumeraries, and of the alternations of sullen dissatisfaction and spasmodic revolt which at present distract it? Whatever the system upon which industry is administered, one thing is certain. Its economic processes and results must be public, because only if they are public can it be known whether the service of industry is vigilant, effective and honorable, whether its purpose is being realized and its function carried out. The defense of secrecy in business resembles the defense of adulteration on the ground that it is a legitimate weapon of competition; indeed it has even less justification than that famous doctrine, for the condition of effective competition is publicity, and one motive for secrecy is to prevent it.

Those who conduct industry at the present time and who are most emphatic that, as the Duke of Wellington said of the unreformed House of Commons, they “have never read or heard of any measure up to the present moment which can in any degree satisfy the mind” that the method of conducting it can in any way be improved, are also those apparently who, with some honorable exceptions, are most reluctant that the full facts about it should be known. And it is crucial that they should be known. It is crucial not only because, in the present ignorance of the real economic situation, all industrial disagreements tend inevitably to be battles in the dark, in which “ignorant armies clash by night,” but because, unless there is complete publicity as to profits and costs, it is impossible to form any judgment either of the reasonableness of the prices which are charged or of the claims to remuneration of the different parties engaged in production. For balance sheets, with their opportunities for concealing profits, give no clear light upon the first, and no light at all upon the second. And so, when the facts come out, the public is aghast at revelations which show that industry is conducted with bewildering financial extravagance. If the full facts had been published, as they should have been, quarter by quarter, these revelations would probably not have been made at all, because publicity itself would have been an antiseptic and there would have been nothing sensational to reveal.

The events of the last few years are a lesson which should need no repetition. The Government, surprised at the price charged for making shells at a time when its soldiers were ordered by Headquarters not to fire more than a few rounds per day, whatever the need for retaliation, because there were not more than a few to fire, establishes a costing department to analyze the estimates submitted by manufacturers and to compare them, item by item, with the costs in its own factories. It finds that, through the mere pooling of knowledge, “some of the reductions made in the price of shells and similar munitions,” as the Chartered Accountant employed by the Department tells us, “have been as high as 50% of the original price.” The household consumer grumbles at the price of coal. For once in a way, amid a storm of indignation from influential persons engaged in the industry, the facts are published. And what do they show? That, after 2s. 6d. has been added to the already high price of coal because the poorer mines are alleged not to be paying their way, 21% of the output examined by the Commission was produced at a profit of 1s. to 3s. per ton, 32% at a profit of 3s. to 5s., 13% at a profit of 5s. to 7s., and 14% at a profit of 7s. per ton and over, while the profits of distributors in London alone amount in the aggregate to over $3,200,000, and the cooperative movement, which aims not at profit, but at service, distributes household coal at a cost of from 2s. to 4s. less per ton than is charged by the coal trade!3

“But these are exceptions.” They may be. It is possible that in the industries, in which, as the recent Committee on Trusts has told us, “powerful Combinations or Consolidations of one kind or another are in a position effectively to control output and prices,” not only costs are cut to the bare minimum but profits are inconsiderable. But then why insist on this humiliating tradition of secrecy with regard to them, when everyone who uses their products, and everyone who renders honest service to production, stands to gain by publicity? If industry is to become a profession, whatever its management, the first of its professional rules should be, as Sir John Mann told the Coal Commission, that “all cards should be placed on the table.” If it were the duty of a Public Department to publish quarterly exact returns as to costs of production and profits in all the firms throughout an industry, the gain in mere productive efficiency, which should appeal to our enthusiasts for output, would be considerable; for the organization whose costs were least would become the standard with which all other types of organization would be compared. The gain in morale, which is also, absurd though it may seem, a condition of efficiency, would be incalculable. For industry would be conducted in the light of day. Its costs, necessary or unnecessary, the distribution of the return to it, reasonable or capricious, would be a matter of common knowledge. It would be held to its purpose by the mere impossibility of persuading those who make its products or those who consume them to acquiesce, as they acquiesce now, in expenditure which is meaningless because it has contributed nothing to the service which the industry exists to perform.

The organization of industry as a profession does not involve only the abolition of functionless property, and the maintenance of publicity as the indispensable condition of a standard of professional honor. It implies also that those who perform its work should undertake that its work is performed effectively. It means that they should not merely be held to the service of the public by fear of personal inconvenience or penalties, but that they should treat the discharge of professional responsibilities as an obligation attaching not only to a small elite of intellectuals, managers or “bosses,” who perform the technical work of “business management,” but as implied by the mere entry into the industry and as resting on the corporate consent and initiative of the rank and file of workers. It is precisely, indeed, in the degree to which that obligation is interpreted as attaching to all workers, and not merely to a select class, that the difference between the existing industrial order, collectivism and the organization of industry as a profession resides. The first involves the utilization of human beings for the purpose of private gain; the second their utilization for the purpose of public service; the third the association in the service of the public of their professional pride, solidarity and organization.

The difference in administrative machinery between the second and third might not be considerable. Both involve the drastic limitation or transference to the public of the proprietary rights of the existing owners of industrial capital. Both would necessitate machinery for bringing the opinion of the consumers to bear upon the service supplied them by the industry. The difference consists in the manner in which the obligations of the producer to the public are conceived. He may either be the executant of orders transmitted to him by its agents; or he may, through his organization, himself take a positive part in determining what those orders should be. In the former case he is responsible for his own work, but not for anything else. If he hews his stint of coal, it is no business of his whether the pit is a failure; if he puts in the normal number of rivets, he disclaims all further interest in the price or the seaworthiness of the ship. In the latter his function embraces something more than the performance of the specialized piece of work allotted to him. It includes also a responsibility for the success of the undertaking as a whole. And since responsibility is impossible without power, his position would involve at least so much power as is needed to secure that he can affect in practice the conduct of the industry. It is this collective liability for the maintenance of a certain quality of service which is, indeed, the distinguishing feature of a profession. It is compatible with several different kinds of government, or indeed, when the unit of production is not a group, but an individual, with hardly any government at all. What it does involve is that the individual, merely by entering the profession should have committed himself to certain obligations in respect of its conduct, and that the professional organization, whatever it may be, should have sufficient power to enable it to maintain them.

The demand for the participation of the workers in the control of industry is usually advanced in the name of the producer, as a plea for economic freedom or industrial democracy. “Political freedom,” writes the Final Report of the United States Commission of Industrial Relations, which was presented in 1916, “can exist only where there is industrial freedom.⁠ ⁠… There are now within the body of our Republic industrial communities which are virtually Principalities, oppressive to those dependent upon them for a livelihood and a dreadful menace to the peace and welfare of the nation.” The vanity of Englishmen may soften the shadows and heighten the lights. But the concentration of authority is too deeply rooted in the very essence of Capitalism for differences in the degree of the arbitrariness with which it is exercised to be other than trivial. The control of a large works does, in fact, confer a kind of private jurisdiction in matters concerning the life and livelihood of the workers, which, as the United States’ Commission suggests, may properly be described as “industrial feudalism.” It is not easy to understand how the traditional liberties of Englishmen are compatible with an organization of industry which, except in so far as it has been qualified by law or trade unionism, permits populations almost as large as those of some famous cities of the past to be controlled in their rising up and lying down, in their work, economic opportunities, and social life by the decisions of a Committee of half-a-dozen Directors.

The most conservative thinkers recognize that the present organization of industry is intolerable in the sacrifice of liberty which it entails upon the producer. But each effort which he makes to emancipate himself is met by a protest that if the existing system is incompatible with freedom, it at least secures efficient service, and that efficient service is threatened by movements which aim at placing a greater measure of industrial control in the hands of the workers. The attempt to drive a wedge between the producer and the consumer is obviously the cue of all the interests which are conscious that by themselves they are unable to hold back the flood. It is natural, therefore, that during the last few months they should have concentrated their efforts upon representing that every advance in the demands and in the power of any particular group of workers is a new imposition upon the general body of the public. Eminent persons, who are not obviously producing more than they consume, explain to the working classes that unless they produce more they must consume less. Highly syndicated combinations warn the public against the menace of predatory syndicalism. The owners of mines and minerals, in their new role as protectors of the poor, lament the “selfishness” of the miners, as though nothing but pure philanthropy had hitherto caused profits and royalties to be reluctantly accepted by themselves.

The assumption upon which this body of argument rests is simple. It is that the existing organization of industry is the safeguard of productive efficiency, and that from every attempt to alter it the workers themselves lose more as consumers than they can gain as producers. The world has been drained of its wealth and demands abundance of goods. The workers demand a larger income, greater leisure, and a more secure and dignified status. These two demands, it is argued, are contradictory. For how can the consumer be supplied with cheap goods, if, as a worker, he insists on higher wages and shorter hours? And how can the worker secure these conditions, if as a consumer, he demands cheap goods? So industry, it is thought, moves in a vicious circle of shorter hours and higher wages and less production, which in time must mean longer hours and lower wages; and everyone receives less, because everyone demands more.

The picture is plausible, but it is fallacious. It is fallacious not merely in its crude assumption that a rise in wages necessarily involves an increase in costs, but for another and more fundamental reason. In reality the cause of economic confusion is not that the demands of producer and consumer meet in blunt opposition; for, if they did, their incompatibility, when they were incompatible, would be obvious, and neither could deny his responsibility to the other, however much he might seek to evade it. It is that they do not, but that, as industry is organized today, what the worker foregoes the general body of consumers does not necessarily gain, and what the consumer pays the general body of workers does not necessarily receive. If the circle is vicious, its vice is not that it is closed, but that it is always half open, so that part of production leaks away in consumption which adds nothing to productive energies, and that the producer, because he knows this, does not fully use even the productive energy which he commands.

It is the consciousness of this leak which sets everyone at cross purposes. No conceivable system of industrial organization can secure industrial peace, if by “peace” is meant a complete absence of disagreement. What could be secured would be that disagreements should not flare up into a beacon of class warfare. If every member of a group puts something into a common pool on condition of taking something out, they may still quarrel about the size of the shares, as children quarrel over cake; but if the total is known and the claims admitted, that is all they can quarrel about, and, since they all stand on the same footing, anyone who holds out for more than his fellows must show some good reason why he should get it. But in industry the claims are not all admitted, for those who put nothing in demand to take something out; both the total to be divided and the proportion in which the division takes place are sedulously concealed; and those who preside over the distribution of the pool and control what is paid out of it have a direct interest in securing as large a share as possible for themselves and in allotting as small a share as possible to others. If one contributor takes less, so far from it being evident that the gain will go to someone who has put something in and has as good a right as himself, it may go to someone who has put in nothing and has no right at all. If another claims more, he may secure it, without plundering a fellow-worker, at the expense of a sleeping partner who is believed to plunder both. In practice, since there is no clear principle determining what they ought to take, both take all that they can get.

In such circumstances denunciations of the producer for exploiting the consumer miss the mark. They are inevitably regarded as an economic version of the military device used by armies which advance behind a screen of women and children, and then protest at the brutality of the enemy in shooting noncombatants. They are interpreted as evidence, not that a section of the producers are exploiting the remainder, but that a minority of property-owners, which is in opposition to both, can use its economic power to make efforts directed against those who consume much and produce little rebound on those who consume little and produce much. And the grievance, of which the Press makes so much, that some workers may be taking too large a share compared with others, is masked by the much greater grievance, of which it says nothing whatever, that some idlers take any share at all. The abolition of payments which are made without any corresponding economic service is thus one of the indispensable conditions both of economic efficiency and industrial peace, because their existence prevents different classes of workers from restraining each other, by uniting them all against the common enemy. Either the principle of industry is that of function, in which case slack work is only less immoral than no work at all; or it is that of grab, in which case there is no morality in the matter. But it cannot be both. And it is useless either for property-owners or for Governments to lament the mote in the eye of the trade unions as long as, by insisting on the maintenance of functionless property, they decline to remove the beam in their own.

The truth is that only workers can prevent the abuse of power by workers, because only workers are recognized as possessing any title to have their claims considered. And the first step to preventing the exploitation of the consumer by the producer is simple. It is to turn all men into producers, and thus to remove the temptation for particular groups of workers to force their claims at the expense of the public, by removing the valid excuse that such gains as they may get are taken from those who at present have no right to them, because they are disproportionate to service or obtained for no service at all. Indeed, if work were the only title to payment, the danger of the community being exploited by highly organized groups of producers would largely disappear. For, when no payments were made to non-producers, there would be no debatable ground for which to struggle, and it would become evident that if any one group of producers took more, another must put up with less.

Under such conditions a body of workers who used their strong strategic position to extort extravagant terms for themselves at the expense of their fellow-workers might properly be described as exploiting the community. But at present such a statement is meaningless. It is meaningless because before the community can be exploited the community must exist, and its existence in the sphere of economics is today not a fact but only an aspiration. The procedure by which, whenever any section of workers advance demands which are regarded as inconvenient by their masters, they are denounced as a band of anarchists who are preying on the public may be a convenient weapon in an emergency, but, once it is submitted to analysis, it is logically self-destructive. It has been applied within recent years, to the postmen, to the engineers, to the policemen, to the miners and to the railway men, a population with their dependents, of some eight million persons; and in the case of the last two the whole body of organized labor made common cause with those of whose exorbitant demands it was alleged to be the victim. But when these workers and their sympathizers are deducted, what is “the community” which remains? It is a naive arithmetic which produces a total by subtracting one by one all the items which compose it; and the art which discovers the public interest by eliminating the interests of successive sections of the public smacks of the rhetorician rather than of the statesman.

The truth is that at present it is idle to seek to resist the demands of any group of workers by appeals to “the interests of society,” because today, as long as the economic plane alone is considered, there is not one society but two, which dwell together in uneasy juxtaposition, like Sinbad and the Old Man of the Sea, but which in spirit, in ideals, and in economic interest, are worlds asunder. There is the society of those who live by labor, whatever their craft or profession, and the society of those who live on it. All the latter cannot command the sacrifices or the loyalty which are due to the former, for they have no title which will bear inspection. The instinct to ignore that tragic division instead of ending it is amiable, and sometimes generous. But it is a sentimentality which is like the morbid optimism of the consumptive who dares not admit even to himself the virulence of his disease. As long as the division exists, the general body of workers, while it may suffer from the struggles of any one group within it, nevertheless supports them by its sympathy, because all are interested in the results of the contest carried on by each. Different sections of workers will exercise mutual restraint only when the termination of the struggle leaves them face to face with each other, and not as now, with the common enemy. The ideal of a united society in which no one group uses its power to encroach upon the standards of another is, in short, unattainable, except through the preliminary abolition of functionless property.

Those to whom a leisure class is part of an immutable order without which civilization is inconceivable, dare not admit, even to themselves, that the world is poorer, not richer, because of its existence. So, when, as now it is important that productive energy should be fully used, they stamp and cry, and write to The Times about the necessity for increased production, though all the time they themselves, their way of life and expenditure, and their very existence as a leisure class, are among the causes why production is not increased. In all their economic plans they make one reservation, that, however necessitous the world may be, it shall still support them. But men who work do not make that reservation, nor is there any reason why they should; and appeals to them to produce more wealth because the public needs it usually fall upon deaf ears, even when such appeals are not involved in the ignorance and misapprehensions which often characterize them.

For the workman is not the servant of the consumer, for whose sake greater production is demanded, but of shareholders, whose primary aim is dividends, and to whom all production, however futile or frivolous, so long as it yields dividends, is the same. It is useless to urge that he should produce more wealth for the community, unless at the same time he is assured that it is the community which will benefit in proportion as more wealth is produced. If every unnecessary charge upon coal-getting had been eliminated, it would be reasonable that the miners should set a much needed example by refusing to extort better terms for themselves at the expense of the public. But there is no reason why they should work for lower wages or longer hours as long as those who are today responsible for the management of the industry conduct it with “the extravagance and waste” stigmatized by the most eminent official witness before the Coal Commission, or why the consumer should grumble at the rapacity of the miner as long as he allows himself to be mulcted by swollen profits, the costs of an ineffective organization, and unnecessary payments to superfluous middlemen.

If today the miner or any other workman produces more, he has no guarantee that the result will be lower prices rather than higher dividends and larger royalties, any more than, as a workman, he can determine the quality of the wares which his employer supplies to customers, or the price at which they are sold. Nor, as long as he is directly the servant of a profit-making company, and only indirectly the servant of the community, can any such guarantee be offered him. It can be offered only in so far as he stands in an immediate and direct relation to the public for whom industry is carried on, so that, when all costs have been met, any surplus will pass to it, and not to private individuals. It will be accepted only in so far as the workers in each industry are not merely servants executing orders, but themselves have a collective responsibility for the character of the service, and can use their organizations not merely to protect themselves against exploitation, but to make positive contributions to the administration and development of their industry.