Social legislation and social activity

by American Academy of Political and Social Science

The successes, moderate though they have been, which have generally attended the introduction and operation of profit-sharing plans in various forms, should encourage further developments and extensions of that system in the broadest manner possible, without, however, introducing or permitting any features that would embarrass the administration or weaken the personnel. As the successful manufacturers of the present generation are largely those who have found ways to utilize the by-products and the power which had theretofore gone to waste, so the successful masters of the future must be those who shall find some means of harmonizing the demands of capital and labor, thus saving and utilizing that large percentage of human energy which is now worse than wasted in the continual contention, passive or active, between the working classes and vested interests. Apart from every other element of advantage, can there be any question as to the increased physical capacity and staying powers of a man when led on in hopeful expectancy rather than when driven on by physical necessity?

It is justly claimed that in many instances the wage-earners would not be benefited by a distribution in cash of a percentage of the profits, that they would fritter it away either foolishly or with lack of discretion. There is nothing to which the average family can adjust itself so easily and with such alacrity as to an increase in income. Could we but save the wastes of carelessness, the losses from strikes and lock-outs, and to these add the enlarged profits resulting from a broader co-operation and greater physical ability to produce, then capitalize and conserve all of these for the benefit of those who in each case have contributed their proportion—either in capital, brains or labor—to the enlarged success of the enterprise, we would have placed within reach better homes, better clothing, better food, better schools, and have taken a step forward which should inspire individuals of both classes with higher ambitions for a larger and better life.

“Prosperity sharing,” strictly speaking, does not go, far enough, because it limits the amount awarded to labor to a small percentage of the real profits. The share must be small because “adversity sharing” does not accompany profit-sharing. In all fairness the share of labor in the margins of the business should be of such proportions that justice to all would make it alike a sharer in losses as well as in gains. By this we do not mean to say, when losses occur, that labor should contribute actual money to make good any portion of the impairment. Such a proposition would be impracticable and impossible. The share of labor in the surplus profits—that is, after the payment of standard wages and a just return to capital for its simple use—should be upon a most liberal basis, and any and all impairments suffered in years of adversity should be made good out of subsequent surplus earnings (in which, except for such impairment, labor would have been a sharer) before wages shall again be entitled to any further dividends.

Amongst the various schemes that have been put into operation in those concerns which have endeavored to make their employees sharers in the profits of the business, the most familiar plan is that of offering to wages a dividend on the total amount thereof, at the same rate of percentage as is paid on the par value of the capital stock. This proposition is unfair, since in most industries the capital stock amounts to several times the total of the annual pay-roll. After the first adjustment upon that basis, the incentive to labor to strive for larger results is almost insignificant, since the share of wages in the subsequent increased earnings would, where the capital is equal to say four times the annual pay-roll, amount to only one-fifth of the increase in net earnings, the other four-fifths thereof going to capital.

Other institutions have established a custom of presenting to their employees annually a sum of money equal to a certain percentage of their salaries. But this extra income soon becomes as much a matter of wages as the weekly or monthly pay-roll, and little real good is accomplished—the employee is still working for fixed wages. There is something in the make-up of a man that cannot be wholly satisfied, no matter how secure it may be, with a definite agreement that he shall receive a certain fixed sum of money for a given amount of work, however liberal the compensation may be. There is a positive satisfaction in having a pecuniary interest in an enterprise where the financial return is not definitely restricted and known in advance, even though there may be as an accompaniment some danger of a loss.

Any attempt to satisfy the craving of labor for justice will fail if handicapped by paternalism. A man must be acknowledged a man. His sense of independence and self-respect must be strengthened and not crushed.

Furthermore, a man is not satisfied to have even a part of his just earnings expended for him. Company kindergartens, company libraries, company churches are doubtless very estimable in their way and are doing much good. They are a step in the right direction and most valuable in the practical demonstration which they offer that it pays capital to improve the conditions and surroundings in which the operatives live. But those who are to enjoy these institutions should not be allowed to feel that they are under any obligations to the owners thereof. Rather they should be given to understand that a certain definite percentage of the net earnings of the enterprise would be expended for the public good—not as a benefaction, but as a just due—giving to the operatives, as far as possible, the administration and management of such company institutions.

Some manufacturers believe that if their employees can be induced to purchase homes adjacent to the mills the labor problem has been solved. From the manufacturer’s point of view the plan is attractive. An employee who puts the hard-earned savings of years into a small dwelling—generally situated in a community wholly dependent upon the local mill of his employer—doubtless ties himself up very effectually to the enterprise, but whether he is attached by his loyalty to and affection for the concern, or is held by the self-welded fetters of a money investment is an open question.

The actual value of an investment in any business is based primarily upon the security—the consideration of the rate of interest being secondary to the safety of the investment. This is recognized by the great exchanges where all manner of stocks and bonds are bought and sold. These compel the frequent publication of the earnings and general business of those corporations that desire to have listed any of their issues of securities. No one can say with truth that public knowledge of the affairs of any such corporation has imperiled the proper operation and legitimate success of the enterprise. On the contrary, experience has proven the wisdom of such a course from every standpoint—the public is better protected in its investments of capital and such corporations are given a standing in the financial world not accorded to those who keep their affairs secret and guarded from the public view. We are compelled to infer that the negative action on the part of these latter concerns is prompted by one of two reasons: either they are striving to secure a higher credit rating than that to which their actual condition would entitle them, or, more probably, that they fear their percentage of net profits is larger than public sentiment would regard with favor. It would seem in either case that the interested public is morally entitled to frequent and intelligible information regarding all corporations which owe their very existence to the public consent.

What is true of corporations is true of individual partnerships as well. To let the interested public have knowledge of the true state of affairs would doubtless be very distasteful to all classes of masters. And yet it is not difficult to imagine that conditions still less agreeable may confront the masters if the demands for justice to wage-earners are ignored. Would not the publication of figures covering the assets, liabilities and earnings (or losses) place all business upon a firmer foundation and exert a helpful influence on the adjustment of profits between capital, brains, skill and labor? Is the withholding of truth an established virtue and the publication of truth a dangerous experiment? And finally if the introduction of profit-sharing into a business necessitates the publication of the earnings of the business, would it not be fair to ask the few masters to make that concession to the interests of the many workers?