The New Zealand Railways Magazine, Volume 1, Issue 4 (August 24, 1926)
Among The Books. — “The Secret Of High Wages”
Broad ideas are hated by narrow ideas, that is, in fact, the struggle of Progress.
What is the secret of the amazing industrial progress and prosperity which is rapidly changing the whole face of American civilisation to-day—a progress and prosperity without parallel in the history of the world? Is it attributable to the richness of America's natural resources, to the self-sufficiency of the nation, to the specially favourable position she occupied during the Great War, to an innate perspicacity of her people, or to the scientific organisation and management of her industries? Two most able young British engineers Mr. Bertram Austin, M.B.E., M.A., and Mr. Francis Lloyd, M.A., M.I.E.E., recently made it their business to investigate this problem on the spot; and the results of their very thorough study of this modern phenomenon are embodied in a highly interesting little work, published in February last, which bears the title, “The Secret of High Wages.”
It is a thought-provoking and deeply significant work and a careful reading impels one to accept the conviction of the authors that it is more to the marvellous organisation of American industries than to any other factor that we must ascribe this prodigious development of a nation. The principles of industrial management which have wrought this miracle of progress in American industry and assured to the workers a standard of comfort and opportunities for cultural development unknown to workers in any age in any other part of the world, are set down by these observant Britons as follows:—
(a) The success of an enterprise is, in a large measure, dependent upon a strict adherence to the policy of promotion of staff by merit and ability only.
(b) It is more advantageous to increase total profits by reducing prices to the consumer, at the same time maintaining or improving quality, with a consequent increase in the volume of sales than by attempting to maintain or raise prices.
(c) Rapidity of turnover makes for comparatively small requirements of both funded and working capital, i.e., the capital required for shop space (including equipment) and the finance of work in progress.
(d) The productive capacity per capita of labour can be increased without limit depending upon the progress made in time and trouble-saving appliances.
(e) It is better that labour should be rewarded by wages bearing some relation to output rather than by a fixed wage, the amount of the wages earned by any one man being in no way limited. Contrary to the general belief in Europe, high wages do not necessarily mean a high level of prices. It is to the advantage of the community that the policy of industrial management should be directed towards raising wages and reducing prices.
(f) A free exchange of ideas between competing firms should be advocated.
(g) Elimination of waste is an essential factor in the attainment of national prosperity.
(h) It is important that every possible attention be paid to the welfare of employees.
(i) Research and experimental work are of prime importance to progress.
Readers of the Statement on Staff Control and Education by the Right Hon. the Minister of Railways and of the special articles dealing with the re-organisation of the service in the first issue of the Magazine, will have noted that some of these fundamental principles of management have already been adopted in our own system and that further development in this direction will follow. It will be no less interesting than important therefore to follow the authors of this arresting volume in their analysis of these principles in operation in page 33 the great industrial establishments of America and to appraise the individual and national significance of these broad ideas of progress.
There were many, no doubt, who read with trepidation the words of the Minister in the Statement referred to, that “merit would be the sole consideration” in determining the future occupancy of the higher positions in the service; others again would read those words with enthusiastic approval. What, in essence, does this principle mean? It means the recognition of the sovereignty of the individual's right to self-determination. This is a fundamental condition of progress in every department of life, and the denial of this right to the individual is the price we pay for the enormous waste and inefficiency which disgraces industry and retards advance. We must guarantee to the individual the right to, and the means for, the highest expression of his personality and then the words, discipline, economy, efficiency, harmony, co-operation and progress will become, in very truth, the driving forces of industry.
The Americans recognised this psychological fact long ago; they “have never believed” as the authors of this book tell us “that executive ability is invariably inherited.” They characterise the segregation of the executive staff and workmen as a relic of the “bad old days.” Such an artificial division still exists in British industry, much to the nation's disadvantage. To quote again:—
As the tendency nowadays is to utilise machinery to replace manual work and for the worker to use his brains more and more in the controlling of machines, it is clear that there is no longer any justification for a dividing line and it should be possible for a workman of the lowest grade, providing he shows sufficient ability, to be promoted without hindrance as opportunity occurs to the highest positions in the firm. Since the members of the staff fully realise that promotion can only come as a result of ability and efficient functioning, there is less manoeuvring and intrigue to gain or retain good positions, thereby reducing internal strife and waste of time.
All this is highly interesting in the light of the policy of the Right. Hon. the Minister of Railways for improving the efficiency of the Department along the same lines. Another significant fact noted by these keen observers is that the majority of the responsible positions in America are held by comparatively young men. It is a well known fact that nine men out of ten become sluggish, hesitant, and reluctant in age and are unfitted to deal with the pressing problems of the day. As the authors say:—
In many organisations in Great Britain the spirit of capable men is often broken by the failure of the management to put the right man in the right place. It is also sadly the case that capable men thus treated, who lack the necessary fighting spirit, only too often resign themselves to the circumstances, gradually losing their initiative and efficiency. American executives have no compunction in relieving their organisations of inefficients.
This promotion by merit and ability alone, is, as the authors point cut, equivalent to payment by results, and express the policy that the reward of labour should bear some relation to output. On this question as on the question of the productive capacity per capita of labour they have some important things to say and we can follow them further with interest as well as profit.
The ideal of the American industrialist is to keep in the closest touch with the rapid march of invention and to adopt the very latest methods and machines in all their manifold applications. Machines are so varied, reliable, and accurate to-day that “it is very clearly recognised in America that no limit can be set to the output which can be attained by one man.”
The argument so frequently raised that the adoption of labour-saving devices makes for unemployment is thoroughly examined, and the reader is provided with two striking illustrations which expose its hollowness. These may be quoted as follows:—
Let us first assume an extreme case and suppose that in a certain works each man is allowed to do as little work as he likes at the standard hourly rate of wages. An order for a locomotive is booked for delivery in six months, it having been page 34 agreed between the customer and the manufacturer that the amount of the contract price shall be determined by the total cost of wages plus 100 per cent. to cover overhead charges; all other materials used in the manufacture are to be paid for at cost. Let us assume that the cost of a similar locomotive made in these works, before the management allowed the men to do as little work as they liked, amounted to £6,000 which was a competitive price, the price being made up as to £2,000 wages, £2,000 materials and £2,000 overhead charges and profits. If each man takes eight hours to do that which he is capable of doing in one hour, it follows that eight times the usual number of men will be taken on in order to complete the work within the contract time. The wages alone, in this case, will therefore amount to £16,000. From this it is quite clear that the possibility of finding a purchaser for any more locomotives at such a prodigious price is remote. If this policy is allowed to continue, the works will receive no more orders, must close down and throw all its men out of employment.
The authors conclude from this that any policy which has for its purpose the reduction of output is suicidal. They continue:—
Now let us see what would happen if the same locomotive works adopted a policy of increasing each man's output with the aid of time and trouble-saving appliances and with the full co-operation of the workers. We shall suppose that each man is provided with an incentive to increase his output and actually accomplishes 50 per cent. more work in a given time…… Let us say that the incentive takes the form of a 50 per cent. increase in wages. It is true that, if the locomotive is still to take six months to complete, it will only be necessary for the management to take on about two-thirds of the number of workers they would normally have required. The wages cost will still amount to £2,000, but since now the number of men, machines, and shop space are reduced to roughly one-third, the total overhead charges will only amount to £1,330 and, assuming the cost of material to be the same, the total cost of the locomotive will be reduced from £6,000 to £5,330. As this price is ten per cent. below the competitive level, the company will have no difficulty in filling its shops with locomotives and so will have to employ men to the maximum of its capacity at the increased rate of wages.
As an illustration of the tremendous gains resulting from such a system they show from official reports that from September 1924 to October, 1925, the employment in the manufacturing industries of America increased by 6.4 per cent., but the wages bill in the same manufacturing industries during the same period increased by 12.6 per cent. The production in the manufacturing industries for the same period increased by 24.8 per cent. That this highly satisfactory condition of industry has been brought about by the application of intelligent management methods and the co-operation of the workers which such methods inspire, is plainly evident from the pages of this book. As the wealth of a country and the prosperity of its people is so largely the measure of their productivity, the authors are earnestly insistent that no artificial limits whatever should be set to be output or to the earnings of any one man. They observe:—
So far we have seen how the application of this principle is of advantage to the community. Turning to the employer it is fairly obvious that if his men are paid a wage bearing some relation to their output together with a clear understanding that no limit will ever be placed on the actual weekly earnings of any individual an incentive to work is provided of no mean importance. The need for supervision will be reduced while the men will be encouraged to use their ability in the direction of devising more efficient shop methods and eliminating waste.
In America it is found that, where applied, this system solves not only the problems of industrial efficiency, but perhaps the even greater problem of industrial peace.
From the men's point of view they are happier at their work because they are in a position to increase their earnings in accordance with the aptitude they possess. It is found that workmen in America are happy and contented and are not rushed in their work against their will.
The recognition of the personality of the worker in American industries and the provision of incentives for the utilisation of his intelligence in the fabrication of devices for lessening the manual tasks of life, has built up the wealth of the country beyond calculation, and secured to millions of its workers a standard of living and conditions of employment which are the highest in the world. Mr. Bertram Austin and Mr. Francis Lloyd have done a mighty service in publishing this little book, which is indeed a revelation as to what can be done for industry by enlisting the fullest aid of science in its service.
The man who has no inner life is the slave of his surroundings, as the barometer is the obedient servant of the air at rest, and the weathercock of the humble servant of the air in motion.