Industrial America: Its Way of Work and Thought
IN presenting twelve articles on as many large American corporations, each a leader in its field, the Atlantic felt that it was contributing substantially to economic recovery and to the return of confidence in the basic industries of the country. Manifestly it would not be enough to feed those in distress because of urban unemployment and to subsidize farm operations in the interest of higher prices. These aids could not be other than temporary palliatives unless, and until, industrial activity came to the rescue by relieving unemployment and increasing urban power to purchase farm products at fair price levels. A larger public understanding of corporation policies and practices would hasten these movements toward equilibrium.
On the way to this better understanding, definite questions presented themselves. What steps had industry taken to improve its processes? How far was industry fortifying itself in public esteem by lowering prices? What steps had it taken to cushion the shock of the depression for its employees? How well were its pension and insurance and savings plans working for employee benefits? How were large employers reacting to the new legislation aimed at control of wage relations and the standardization of prices? What promise could industrial research hold out for future boons through lower prices, new and better goods? In short, what is the way of work and thought of the huge fabricating and distributing groups which have become most important factors in our economic scene?
The picture might have been presented by any one of several methods. A survey might have been attempted in general terms, but that would have lacked definiteness, a fault common to most literary interpretations of industry, which itself stands and grows by being entirely definite. Consequently it was decided to take twelve outstanding leaders in what may be broadly termed the fabricating field of industry and, with the assistance of their staffs, to present a more authoritative view of their operations and policies than would have been possible without their assistance. Also, in order to round out the picture, it seemed best to concentrate attention in each case on one major aspect of corporate activity, a treatment necessary in view of the circumscribed length of the articles.
Some of these companies are widely owned by hundreds of thousands of stockholders; others are owned by small groups, chiefly managers and descendants of founders. Some have a high degree of centralization, others of decentralization. But, amid all their differences, certain likenesses appear. All conduct scientific research on a scale which the public little appreciates. Amid the hurly-burly of competition, each is trying to organize its activities for the long pull as well as for present profits. Each is concerned with the equities and ethics of business. Actually every great corporation, though legally a bloodless and soulless fiction, is a complex group of personalities carrying on intricate daily business under tremendous responsibilities, trying to widen its markets by giving consumers more and more for their dollars, and striving to perpetuate itself by forward plans and policies. All realize that they rise or fall, survive or perish, by performing necessary services in a way and at a price to deserve public good will, since it is to the public that they must look for capital, sales, and profits.
For economy in manufacturing and distribution over a vast territory, the modem, large-scale corporation is unbeatable. Its profits accrue from small margins on multitudinous transactions; its services are the result of minute division of labor, operating tools and systems which create ever-increasing value and service with least labor. The discipline of such corporations, and the morale flowing from that discipline, are frequently notable. They are large because the market is large, the nation broad and populous, its communications and transportation system effective. To ask if big business is too big is the equivalent of asking if the United States is too large, too well knit together, too well organized.
And yet this question, and scores of others more sternly phrased, are always being shouted at big business. Big business has been under fire in this country ever since the first stagecoach companies were organized. The chorus of criticism dies down a little during flush times, to rise again during bad times. When the public grows distressed and depressed, it hearkens to politicians who appeal to its black mood by hitting at conspicuous examples of commercial success. In these disputatious intervals it is not enough for a corporation to demonstrate that it has reduced the price of necessary goods and services far below levels ruling when business units were small, or that in employment and wages it is more just and fair than is usual in present-day small business. As an individual, a man may give his approval to big business, preferring employment by a large company to that in a small enterprise, lending a large company his money at a cheaper rate than he will lend it to an individual or a small business. Usually, too, he will find sound economic reasons for trading with large enterprises rather than with small ones. But, as psychologists who have explored the crowd spirit know full well, these individual judgments do not always carry over into the political field, and so we periodically find ourselves talking and legislating as if small businesses possessed some mystical advantages over bigness.
Now it may very well be that smallness does possess certain business advantages, but when these appear they are of a practical nature and not susceptible of accomplishment by legislative design. Businesses, like empires, may grow too fast and too large, develop bureaucratic tendencies, become inflexible and unwieldy, generate dry rot from within, neglect the morale of their personnel, and so decline. Mere size is no guarantee of future solvency, no complete insurance against disaster. The test, however, should be pragmatic rather than dictatorial, economic rather than political, arising out of events rather than out of laws or edicts. To paraphrase Aristotle, big business is good if it works and only good if it works; and a nation which keeps the lists of competition open, so that big business is always under pressure to retain its markets, need not fear that any commercial group will grow far beyond the limits set by its power to produce services.
All of us can see that the scope of effective economic coöperation is broadening. The individual operator is almost a thing of the past except in agriculture and small retail trade; the partnership, once dominant, has almost disappeared; and corporations have grown tremendously in scope and responsibilities until it is now impossible to discuss American industry intelligently without reference to the corporate form of organization. It is idle to expect the progression to stop here. The cartel trend is growing, and even nations committed to private enterprise at home are coming to direct foreign trade with increasing strictness, though perhaps not to any lasting benefit for their peoples. At the long last, something like complete regimentation may descend even upon America. Rut for the present, and in my opinion for generations to come, it seems that our native desire for individual advancement and our genius for voluntary cooperation will combine to keep the state from becoming more than a regulatory body in economic affairs. Whatever may be the case elsewhere, our skill in conducting private business is matched only by our lack of skill in conducting public business. And whenever our government tries a new adventure in commerce its method is to set up a government corporation as if there were magic in the name, whereas, obviously, the essence of the corporation is private enterprise to gain public favor.
Of course, advocates of more and more regulations are forever maintaining that industry creates problems which the sovereign state must undertake to solve lest the people perish. There is something to be said for that contention; by making the results of inventions and scientific processes available in increasing tempo and quantity, industry does tend to keep social life from settling into entirely safe and secure patterns. Unquestionably industry presents more boons and opportunities to an alert and able minority than to the more inert and commonplace majority, though the latter shares materially, none the less, on the consuming end by getting more for its money. But industry’s rôle in unsettling social life is certainly no greater than the part played therein by its chief critic, government. Nothing quite equals war as a breeder of public ills and sorrows; yet foreign affairs and war are both government monopolies. Attempts to make industry the scapegoat for all our recent distresses fall rather flat when one recalls the part played by the Great War in increasing public debts and taxes, inflating values, and unsettling the people. The difference is that industry has to pay for its own blunders and those of government as well. A tour of American industry forces the conclusion that life would be measurably improved if city streets were as clean as factories, if international gatherings were as peaceful as trade conventions, if public electorates were as sensible as stockholder electorates, if governments were as efficient and inexpensive as business administrations.
I have been observing the evolution of American business for nearly thirty years, now inside, now outside, yet always alive to the fact that its importance in the social scheme far outran the business man’s view of his job at any given moment. But progressively, through these years, business has been gaining on its critics who were wont to cite against it undue concern for present profits, callousness toward labor, and blindness in social relations. There has been a vital change in all these directions. In my youth the typical large employer held a tsarist attitude toward his help, fought bitterly against his competitors, and feared only his bankers. Rough and ready, he had risen from the ranks by sheer driving power, and in general, though with conspicuous exceptions, he proved the truth of the poet’s warning to labor to beware the boss who came up in shirt sleeves. Such as he was, he was equal to his times, but his times were rough and reckless. That type has passed, as business has become progressively more scientific, better-mannered, more firmly based.
To-day business is led, not by bluff captains of industry, but by educated men accustomed to looking on all sides of the complex problems presented to them. They do not underestimate their responsibilities to stockholders, but on the other hand they realize equally other responsibilities. They accept the fact that their employees have a stake in their enterprises; they meet their men when and as occasion demands, not as enemies, but as coöperators. With full and liquid treasuries they can get working capital on easy terms from the stock-buying public; if they borrow from banks for temporary movements they ‘hire’ the money as scientifically as an experienced family man rents a house; the banker influence in industry grows less and less. Industrial thought turns more and more toward two goals, neither of which is directly connected with prices or goods. The first is the internal organization of the business so that all the human beings in it will work harmoniously together, each developing his or her highest powers; the second is cultivating public good will at every point in the manufacturing and distributing process, from the acquisition of raw material to assuring its satisfactory use by customers. Ever more important in this process becomes advertising, with its twin, publicity. In all their aspects, corporations daily grow more public-minded, more scientific-minded, more personnelminded.
This trend may be readily followed by reference to corporate leadership. The beginnings of any big business are usually to be traced back to some outstanding personality of the entrepreneur type. Such men had the tremendous personal force necessary to marshal capital and labor toward new objectives, or to extend the boundaries of their businesses faster and farther than their competitors. Except along the main line of their experience, the old-time leaders might be a little vague; the master manufacturer might be weak in salesmanship, and the master salesman weak in operations, the master promoter weak in finance. But the times were with them, their courage was undaunted, and they pulled by main strength through crises which undid many of their competitors.
Then, here and there in industry, bankers began to appear in positions of industrial authority, as they had hitherto appeared in railroad affairs. In the main theirs were rescue missions, and rarely lasted after financial stress ended. Next, as corporate relationships grew in complexity through mergers and as the public aspect seemed more important, lawyers came into industrial leadership, a most significant turn. The lawyer is essentially a public man, with definite responsibilities to the administration of justice and schooled in the arts of compromise. His arrival on the industrial scene could mean only that some of the heats and uncertainties of business had been eliminated. Such was, indeed, the case. Financing the problems of goods production had become secondary. Competent technical and engineering assistants could assure a steady stream of standardized and ever-improving merchandise, while impersonal capital could be secured through stock and bond markets, as long as reasonable dividends held and good prospects continued. No longer was it necessary for a corporation head to run to bankers for relief or to pay too much attention to the whims of individual stockholders; in fact, the roster of stockholders changed from day to day as shares were bought and sold. Diversity of ownership brought release, not from the responsibilities for sound management and adequate returns, but from personal influences and clique actions.
The result was that a lawyer president, often himself only a relatively small stockholder, could continue to follow his natural bent to a very considerable degree in corporate administration. His decisions were logical, considered utterances rather than snap judgments based upon personal experience or the enthusiasm of the moment. He could see that leadership held those elements of trusteeship to which he had been accustomed. Three responsibilities to three groups rested on him — a primary responsibility to the ever-changing group of stockholders whose property he was administering; a second responsibility to the employees, management and labor, without whose loyal and intelligent coöperation the properties could produce little of value; and third, to the market which absorbed his company’s products and poured back into its treasury the wherewithal to maintain and enlarge the properties, to pay wages and dividends.
Customer interest could be rewarded by reduced prices and improved services. Consider how thoroughly this has been done in the fields most susceptible to mass production and improved use. Better automobiles can be bought for twenty-five cents a pound than could be bought for two dollars a pound twenty years ago. Ten cents will buy a better electric lamp than a dollar would buy in the early stages of the electric industry. Many synthetic and refined compounds, once almost as costly as precious stones, can be bought to-day for less than the expense of digging inferior natural compounds from the ground. In a very real sense, these reductions in prices and improvements in quality are consumers’ dividends derived from increasing industrial efficiency. However, in reducing prices the industrialist must step warily, weighing the prospects of increased use against costs, and considering the possibility of decreasing costs through increasing production.
Raising wages also contains elements of uncertainty. Under the ordinary conditions of land ownership in America, any sudden rise in wages for a large body of localized employees is almost certain to bring in its train a rise in rents and in the prices of necessary goods, as increased store rents become reflected in merchants’ costs. The result is that a considerable proportion of any payroll increase eventually becomes diverted to landlords. This explains, I think, many aspects of those corporate activities which are frequently criticized as paternalistic, including housing projects, welfare work, mutual insurance, aid to savings, and other forms of off-the-payroll remuneration.
It would be simpler, by far, for a corporation to disburse the cost of these aids in cash, but in that case the prospect of real betterment to employees would be lessened. Here must be considered also the inexperience of employees in conserving and investing funds, the stake of their wives and children in the pay envelope, and the community interest, which is often best served by the corporation’s providing facilities for recreation, education, and medical care which could hardly be maintained on a strictly individualist basis. This is especially true in small cities and towns where the industry involved is the major, or perhaps the sole, economic prop of the community. In general, it is hardly feasible for any corporation to pay wages greatly in excess of the going rate for the community for the same kind of work, since marked disturbance in the economic balance of any section usually brings compensating reactions in the cost of living.
By no means were all of these offthe-payroll boons to labor delivered by lawyers come to industrial authority. Some of them actually were, however, and these penetrated by example sufficiently far to make the lawyer contribution significant. Also, and this is important, the lawyers were able to make both their own moves and those of others articulate and understandable to wide audiences eager for light on social and industrial relations. It may be said that the legal influence introduced the idea of justice, the habit of compromise, and the institutional idea into American industry. Lawyer chiefs were more open than their more practical predecessors had been to the waves of opinion which were blowing through the world of affairs. Hence they absorbed and applied to their groups, with appropriate reservations, many of the social ideals propounded by men of larger vision but less experience. To some extent they founded, and to a greater extent they codified and reënforced, the precedents taken over by the next group of industrial leaders to appear on the scene.
For new times, new men. Whenever, for one reason or another, any one aspect of industry becomes outstandingly important, men skilled in that aspect of business will rise to authority. We have seen how the master manufacturer and the master promoter gave way, in some important industries, to banker leaders in financial pinches, and to lawyer leaders following mergers which created involved contractual relations calling for judicial poise in harmonizing a corporation’s internal affairs and skill in presenting its case to the public. Then in the twenties, when technical advances based on scientific research had gained fresh recognition as a result of the World War and when the nation appeared to have accepted corporate prosperity as part and parcel of its own well-being, technical men rose swiftly to leadership. It is significant that two thirds of the heads of the businesses presented in this series have had scientific and technical training in universities or colleges. They advanced to power in an era which set high value on competent operating men, when volume production was in demand, when there seemed no limit to benefits of increasing productivity per manhour through every possible laborsaving device, division of labor, and specialization of talent. Trained men of this effective type buried the world in goods till it could scarcely breathe; but are they to be blamed because the distributional facilities of society are so primitive that it could not manage itself under plenty? I do not think so. Society will have to catch up with its engineers and scientists, for the latter are certain to keep traveling toward their destined and worthy goal — the satisfaction of human wants with the least effort.
In stressing this change of emphasis, let no easy inference be made that corporate interest in employee relations and public good will declined under enhanced technical efficiency. Rather, the former became in a sense standard practice, to be handled by subordinate staffs of experts instead of by the head of the company, improvising as he felt his way gingerly along. In the meantime, underbrush had been cleared away, objectives visualized, policies clarified, procedure organized. Advertising, publicity, public relations, employee representation, rose to new heights from firm bases. What had been somewhat of a personal adventure, perhaps even a hobby, of the boss became the orderly business of a group. Industry overlooked no avenue for presenting to public consideration, not only its goods and services, but also its thought patterns and policies.
As one travels America acquainting himself with industries of various kinds and backgrounds, he grows aware of the influences of materials and environments on all the groupings of man, including the most efficient of those groupings, the corporation. There are subtle differences in the business atmosphere of New York, Pittsburgh, Toledo, Chicago, Omaha. There are vital, impressive differences in tempo between an industrial corporation which calmly and methodically draws from the earth a natural resource, and processes and delivers an utterly necessary commodity which mankind will accept without reference to style, — such as oil or steel, — and another corporation functioning under the inexorable lash of fashion. The first proceeds deliberately, almost majestically, on its way; the second is characteristically harried and hurried, torn between desire to be first in the field with an innovation and an equally strong desire to test every phase of the novelty before it risks presentation. Age, too, conditions a corporation; you will find new corporations still wrestling internally over matters which older ones have reduced to effective routine.
Corporations reflect the personalities of their founders and the circumstances of their founding; with them certain ways of thinking and doing have been reduced to habit, backed by the weight of tradition. In one, the route to the top may be won only through long service, while another searches for new blood when it determines on a change. One board of directors may be small and composed of men who have spent their lives in the business and have risen from the ranks, while another board may be three or four times as large and include members drawn from other activities. A large board is apt to be a ratifying rather than a directing body, vital direction coming from an executive committee of the board. At one corporate address, directors will be found in session at a regular hour on nearly every business day; at another, they will gather only at stated intervals, and then somewhat formally and ceremoniously. In general, however, directors are doing more directing in American corporations than they did of old, although management still gets a rather free hand, as is entirely natural in a youthful society and in fields of action where speed counts.
The stockholder, in corporations whose shares are widely scattered, receives rather comprehensive printed reports, but, unless his holdings are large, must be content with little personal attention. The American way is to pay the stockholder well, to treat him honestly and gently, but to keep him in his place, so that he has neither the desire nor the extended opportunity to interfere with operations and policies. This is the inevitable result of dividing ownership among many thousands of persons, and beyond question is one of the factors contributing to corporate energies in the United States. When not abused, — and the companies represented in this series have been careful not to abuse it, — this attitude, with general acceptance of it, makes directly for stability in corporate affairs and gives scope for long-range planning. If stockholder voting were as emotional a process as the electoral process in politics, corporate planning would be as unlikely to succeed as government planning. Within limits, the divorcement of capital from managerial responsibility seems to possess more advantages than disadvantages. A busy public wants dividends rather than responsibilities, and if a corporate management is thoroughly trusted it is frequently able to go to rather extraordinary lengths in using company funds for employee and community purposes without arousing stockholder protest, and even with hearty stockholder approval. So impersonal has finance grown that to-day it makes little difference who owns a corporation and a great deal of difference who operates it. A proved management to-day has less trouble on the capital end than it has on the labor end, a complete reversal of the situation existing thirty or forty years ago. In our restless, dynamic manner we Americans have solved certain equations in economics; we have mastered scarcity both as to goods and as to capital needed for goods production; but steady distribution of goods, and security through maintained purchasing power for farmers and wage earners, are still beyond us.
In The Iron Man in Industry, published in 1921, I drew a rough comparison between the dukedom in the mediæval world and the great corporation in the present. Subsequent evolution of the corporation has strengthened the analogy. Both operate, though not always comfortably, under the sovereign. The one largely directed the minutiæ of social life in the past, the other does so in the present. Like the dukedom, the corporation has become the chief financial support of the state, not only through the taxes it pays directly, but also through the taxable income it distributes as dividends and its payrolls, which are the true economic base of the taxable incomes of local landlords and traders. In the Middle Ages he who lived under a just and able duke was lucky; so to-day he is lucky who lives under a just and able corporation. Under such discipline — and there be few among us who do not need discipline — the average man reaches perhaps his highest effectiveness. One must never expect a perfect coördination in human affairs; and in a world where family and college discords are not unknown it is idle to expect complete harmony in corporate relations. But under the corporate form of organization have evolved the most effective ways and means yet discovered to bring large numbers of persons together in wealth production.
Government cannot match corporate industry in either celerity or elasticity of effort. Armies under fear of death, nerved by crisis, and inspired by an outstanding personality, may cooperate more efficiently for a short pull, but armies do not pay their way. Instead, they draw for support on the savings of the past and the earnings of the future. At the other extreme of government action stands a government bureau, its members secure against dismissal and without hope of early recognition and reward, slogging along dutifully year after year on routine tasks. But a bureaucracy does not pay its way, either. The sinews for both war and government come from the wealth makers, those who work with mind and hand, using the aids of capital and science. The latter reach their most fruitful union in modern industry, corporately organized, but finding more and more room inside its legal mould for the group satisfactions and loyalties which flourish in the fertile soil of industrial competence.