Problems in American Democracy

by Thames Williamson

CHAPTER XII

PROFIT SHARING AND COÍPERATION

A. PROFIT SHARING

110. THE NATURE OF PROFIT SHARING.—The essence of profit sharing is that the workmen in a given enterprise receive, in addition to their regular wages, a share in the profits which would ordinarily go entirely to the entrepreneur. The share going to the employees varies with the establishment, but generally from one quarter to three quarters of the profits are divided among them.

Distribution is by various methods. The workmen may receive their share in cash at the end of the year. Sometimes the money is placed in a provident fund for the workmen as a body; in other cases it is deposited in savings banks to the account of the individual workmen. In still other cases the workman's share is invested in the business for him, the workman thereafter receiving dividends on this invested capital.

In every case, however, the division of profits among the individual laborers is on the basis of the wages received, that is to say, the higher the regular wage received by a workman, the larger will be his share of the profits set aside for distribution. Generally, too, only workmen who are steadily employed are allowed to share in the distribution of profits.

111. LIMITS OF PROFIT SHARING.—Profit sharing was once considered a remedy for many of our industrial troubles, but it is now generally conceded that the plan is decidedly limited in scope. Profit sharing increases the income of the workmen involved, but for this very reason it is often bitterly opposed by the trade unions. The unions fear, of course, that the plan will make the workmen interested chiefly in the employees of their particular establishment, rather than in the workmen in the trade as a whole. The trade unions also maintain that profit sharing is often administered in a patronizing manner, which is offensive to the self-respect of the workmen.

To a large extent, the spread of profit sharing depends upon the development of altruism among employers. But unfortunately altruistic employers are rare, and the majority of entrepreneurs will not adopt the profit-sharing plan unless it promises to result in some distinct advantage to themselves. This attitude explains, in part, the failure of many profit-sharing experiments. Employers have sometimes tried out profit sharing in the hope that it would prevent strikes and other labor troubles. In some cases this expectation has been realized; in many other cases serious labor troubles have continued. This continuance of labor troubles has rendered profit sharing less attractive to certain types of employers.

In certain cases employers have experimented with profit sharing in the hope that it would stimulate efficiency and economy on the part of the workmen. Sometimes the immediate effect of the adoption of the plan has been to make the workmen more efficient and more interested in their tasks, but after the novelty of the scheme has worn off they have generally fallen back into their former pace. In justice to the workmen, it should be noted here that in most enterprises the conditions of the market and the employer's managerial ability have more influence upon profits than have the personal efforts of individual workmen. Where workmen realize this, they tend to lose faith in their ability to influence the share accruing to them under the profit-sharing plan.

A last important reason why profit sharing is limited in scope is that in many hazardous enterprises, such as mining, agriculture, fishing, or building construction, the refusal and inability of the workmen to share in possible losses prevent the adoption of the plan. A mining corporation, for example, may make large profits one year, and lose heavily the second year. Profit sharing is here inadvisable, if not impossible. The distribution among the workmen of a large share of the profits accruing at the end of the first year might so deplete the financial reserves of the entrepreneur that he would be unable to meet the losses of the second year.

B. COÍPERATION

112. RELATION OF PROFIT SHARING TO COÍPERATION.—Profit sharing permits the workmen to secure more than a regular wage from a given enterprise, without, however, giving them any control over the management of the business. Co÷peration goes a step farther, and attempts to dispense with either a number of middlemen or with the managing employer, or with both middlemen and employer. In the case of a profit-sharing scheme in which the share of the profits accruing to the workmen is invested in the business for them, ultimate control of the enterprise may come into the hands of the workmen through profit sharing. In such a case the plant might be conducted co÷peratively. In practically every instance, however, co÷peration does not grow out of profit sharing, but arises independently.

113. ESSENCE OF COÍPERATION.—The essence of co÷peration is that a group of individuals undertake to perform for themselves those functions which are commonly carried on by the business man. Co÷peratives are often workmen, though not necessarily so.

Under the co÷perative plan, all of the profits of the enterprise are divided among the co÷perators; on the other hand, the risks of the business must also be borne by them. Management of the enterprise is conducted partly by officers or committees serving without pay, and partly by paid agents. The general policies of the business are settled by the co÷perators acting as a body.

Co÷peration seeks to exchange the centralized control of the business man for the diffuse control of a group of co÷perators. This arrangement, its advocates hope, will permit wealth and power to be distributed among more and more people, and especially among those classes that possess relatively little property. Let us inquire briefly into the four types of co÷peration.

114. CONSUMERS' COÍPERATION.—Consumers' co÷peration, also known as distributive co÷peration or co÷peration in retail trade, is the most common form of co÷peration. It is also probably the most successful form.

In this form of co÷peration, a number of individuals contribute their savings to a common fund, buy certain desired commodities at wholesale prices, and distribute these among themselves. Generally, the co÷perative store sells to its members at the regular retail price, but at stated intervals throughout the year the profits of the business are distributed among the co÷peratives in proportion to the amount of their individual purchases. Thus the difference between the wholesale and the retail price—minus the expense of conducting the store—goes to the co÷perators, instead of to a store keeper or other middleman.

One of the best examples of consumers' co÷peration is the Rochdale Society of Equitable Pioneers, established in England in 1844. This type of co÷peration has also been remarkably successful in Germany, Belgium, and other continental countries. The idea was taken up in the United States about the middle of the nineteenth century, and at the present time there are in this country about 2000 co÷perative stores, many of them doing a thriving business. These stores are located chiefly in New England, the North Central States, and the West, few being found in the South.

115. COÍPERATION IN CREDIT.—Credit co÷peration may take any one of a number of forms. In one of the best known forms, a group of persons form a credit society by contributing a proportion of their personal savings to a common fund. On the strength of this capital, and of their own individual liability, they borrow more capital. The total amounts thus got together are then loaned to the members of the society at a specified rate of interest. This rate of interest is higher than that at which the group had borrowed money from outside sources; nevertheless, it is lower than the rate members would have to pay if they individually sought loans at a bank. This is the aim of co÷peration in credit: to enable persons of small means to secure loans without paying the high rates which as individuals they would ordinarily have to meet, if, indeed, they as individuals could secure loans under any conditions.

Credit co÷peration has been most successful in Germany, particularly among artisans and small farmers. It has also attained considerable success among the small tradesmen and artisans of Italy. In the United States co÷peration in credit is less highly developed, but recently its influence has been slowly increasing. In many cases it supplies the principle underlying building and loan associations in this country.

116. COÍPERATION IN MARKETING.—The co÷perative principle has also been applied to the marketing of agricultural products. In Denmark, for example, it has been found that farmers can market their dairy products co÷peratively, and thus save for themselves much of the profit that would otherwise go to commission agents and other middlemen. A similar saving has been effected in Holland, Belgium, and, to some extent, in France. Of recent years, co÷peration in marketing has become important in the United States, finding particular favor among the farmers of the Middle and Far West. At the present time there are in this country more than two thousand co÷perative cheese factories, and more than three thousand co÷perative creameries. There are also more than a thousand societies for the co÷perative marketing of fruit, as well as numerous live-stock selling agencies.

117. COÍPERATION IN PRODUCTION.—The three forms of co÷peration which we have been considering seek to eliminate unnecessary middlemen from industry. In producers' co÷peration, on the other hand, the attempt is made to get rid of the entrepreneur, or managing employer. A group of workmen get together, subscribe or borrow the required capital, purchase tools, materials, and plant, and set up as producers. They seek markets for their product, direct the enterprise either as a group or through salaried agents, share the profits among themselves, and accept the risks of the enterprise.

Co÷peration in production has been tried repeatedly in the various countries of Europe, but without success. True producers' co÷perative associations have also met with almost universal failure in the United States, though experiments have been made in a variety of industries, and in nearly every part of the country. Formerly the Minneapolis Co÷pers were a co÷perative group which seemed destined to attain a considerable success in production, but this group has now abandoned the co÷perative principle. The co÷perative marketing of fruit, cheese, and other agricultural products is, of course, not true producers' co÷peration, but rather the co÷perative marketing of commodities produced by individual enterprisers.

118. BACKWARDNESS OF COÍPERATION IN THE UNITED STATES.—In all forms of co÷peration, progress has been much slower in this country than in Europe. There are several reasons for this. For one thing, American workmen move about to a greater extent than do European workmen, whereas co÷peration succeeds best where the co÷perators have a fixed residence and develop a strong sense of group solidarity. The fact that our population is made up of diverse racial types likewise checks the growth of the feeling of solidarity.

An important reason for the backwardness of the co÷perative movement in this country is that American workmen "make, rather than save money," whereas co÷peration requires thrift, and a willingness to practice small economies. Again, the efficiency and progressiveness of our industrial system renders co÷perative ventures less necessary in this country than in some parts of Europe. It is particularly true that retail stores in the United States are more efficient than similar shops in England and on the Continent.

Altogether, the most successful co÷perators in this country are not native-born Americans, but groups of Finns, Russians, Slovaks, and other peoples of immediately foreign derivation. It is among these groups that the thrift and group solidarity demanded by co÷peration are best found.

119. LIMITS OF COÍPERATION.—Consumers' co÷peration, co÷peration in credit, and co÷peration in marketing all seek to improve the capitalistic system by eliminating some of the unnecessary middlemen from our industrial life. In so far as this is true, these forms of co÷peration are desirable developments, and deserve to succeed. Though the movement is limited by the considerations set forth in the preceding section, it is to be hoped that these three forms of co÷peration will in the future show a considerable development in this country.

Producers' co÷peration is a different affair. Rather than attempting to decrease the number of unnecessary middlemen, it attempts to supersede the entrepreneur or managing employer where he is most needed. For this reason producers' co÷peration will probably continue a failure. To run a modern business of any size at all requires a degree of intelligence, imagination, judgment, courage, and administrative ability which is altogether too rare to be found among casual groups of laborers. Varied experience, high ability, the determination to accept the risks of the enterprise, and a consistent singleness of purpose are necessary in modern production. Even though co÷perators are able to secure an amount of capital sufficient to initiate production, they rarely have the requisite ability or experience; too often they object to accepting the risks of the enterprise; practically never can they administer the business with that unity of control which characterizes the most successful business enterprises.

120. BENEFITS OF COÍPERATION.—While no longer considered a far- reaching industrial reform, the co÷perative movement brings with it many benefits. Co÷peration in retail trade, credit, and marketing cuts down the waste between consumer and producer, and thus helps substantially to reduce the cost of living. Co÷peration in production, though it fails to reach its chief objective, has the virtue of demonstrating to groups of workmen that the entrepreneur is of far more value in our industrial life than they might otherwise have realized. Aside from these advantages, co÷peration in any form is an important educative force. It fosters the spirit of solidarity and mutual helpfulness among members of a group or community. It teaches thrift. It trains the co÷perating individuals to exercise foresight and self-control. Altogether the training which it affords is productive of good citizenship.