Social legislation and social activity

by American Academy of Political and Social Science

Business organizations are composed of two classes—those who own and control and those who operate and produce; or rather those who contribute their money and those who contribute their lives. We are not aware of any moral law that denies that the man who makes his contribution of flesh and blood in work be it in stoking a fire, running an engine, operating a type-writer, selling goods or driving a truck—is justly entitled to as full a knowledge of the pecuniary result of his labor as the man who merely loans capital to the operation.

The following principles may be set down as sufficiently well established to be used as a basis for working out plans for the reform of prevailing relations of labor and capital:

(a) That whenever there is sufficient confidence on the part of the employees a direct or an indirect dividend to labor is a good investment for capital.

(b) That with an actual dividend-earning interest in the business every participant would be prompted to individual efforts: 1st. Towards accomplishing more work in a given length of time. 2d. In the saving of waste. 3d. In seeking and suggesting improvements in the manufacture and in the conduct of the business looking to the advancement of the general welfare. 4th. In that it would naturally become the self-imposed duty of every employee to challenge a co-worker for laziness or upon the commission or omission of any act through which a loss to the business would be the likely result; and, therefore,

(c) That capital in business is best secured when every employee is pecuniarily benefited through the enlarged success of the enterprise.

It is a false theory that capital shall not accumulate, or that the return upon it shall be restricted within definite limits. There must be allowed to capital the opportunity for enlarging returns in the development of new enterprises—a chance to earn more by risking more. Otherwise there will be no incentive for its broader operations and its usefulness will be restricted. That capital is accumulated in the hands of the comparatively few is not, generally speaking, an accident, but rather that fact is a strong indication that those who control it are the men best qualified to hold it intact and make it most productive.

Besides the elements of capital and labor, the matter of brains or business sagacity must be recognized as an indispensable factor in business and must be reckoned with. The peculiar ability that a certain small percentage of men possess to conduct modern business ventures at a profit is of great value, is always in urgent demand and must be well paid for. Like everything else it will naturally seek for itself the best market and will generally go to the highest bidder. There can be little doubt that the neglect to recognize and properly care for this element as essential to success has been largely the direct cause of the many failures of purely co-operative ventures. Brains must be paid for. Sagacity must have its reward.

Amongst the many obstacles which confront any effort to arrive at some fair basis for the introduction of profit-sharing institutions, probably the most prominent is the difficulty of establishing a satisfactory system for calculating and treating the profits and losses of the business so as to avoid the element of suspicion on the part of the employees as to the fairness of the bookkeeping employed in arriving at the basis for the division to them provided for in the agreement. Many honest efforts of employers to introduce plans for a distribution amongst the employees of a percentage of the net profits of the business have been defeated solely by reason of the inability of the management to overcome the distrust on the part of the wage-earners in the bookkeeping, it being a simple enough matter so to treat the accounts of profits, losses, depreciation of plant and receivables, that the percentage actually due the employees under the agreement may be cut down or entirely obliterated at will. The plan of having a direct representative of the employees (of the watch-dog order) in the management is neither desirable nor logical. There may be individual and isolated cases of perfect faith and trust on the part of labor towards capital, but as a business proposition in the present stage of our moral development there must be something more tangible than the mere verbal assurances of the owners, endorsed by an accounting under their direction.

It is with the aim of presenting a plan for meeting in a measure this difficulty, and at the same time outlining a scheme which should operate to the mutual advantage of both capital and labor without compromising the security of vested interests, but rather strengthening it, that the suggestions herein contained are submitted—the basic principle being that the encouragement of righteous ambition with a well-grounded hope for future prosperity must surely develop the best there is in the wage-earner with benefit both to himself and to capital as the inevitable result.

In considering the proportion of the net profits which should be paid out in cash dividends to capital for its use, it may (at least for the sake of presenting this argument) be counted fair to assume that in the average legitimate enterprise the withdrawal of say 60 per centum of the actual net earnings would be the limit of safe business policy and that the remainder of such earnings should be kept in the business for the purpose of extending the enterprise and the more securely protecting the investment.