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The Spike: or, Victoria University College Review, June 1924

The Problem of Industry

The Problem of Industry

Life is a series of practical problems. These problems arise through the operation of laws. A review of man's history show? that the orthodox have seldom contributed to the solution of these problems. They have been content to analyse and to state the position as it actually exists. Even in the most practical of realms—the economic—this is true. The orthodox economists have contributed relatively little to the solution of our great economic problems. When a working day of long hours was the vogue, economists could be found to justify this as the necessary outcome of "economic" law, and the same is true of the employment of women and children, the evil conditions of employment, and similar matters. In general, reform has come from without the ranks of orthodoxy.

To-day one of the social problems—perhaps the greatest—is the relation of Capital and Labour. Many suggestions have been offered for ending the conflict, and various forms of co-partnership and profit-sharing have been attempted by enterprising business men of wide views. The economists have discussed, condemned, approved, or suspended judgment on these proposals.

In New Zealand a very interesting experiment has been made by Mr. Valder, of Hamilton, and in his pamphlet Mr.de la Mare—one of the first students of this College—aims at showing what are the fundamental principles which govern the relations of Capital and Labour, wherein some notable schemes have fallen short, and page 54 why Mr. Valder's methods seem more in conformity with the principles laid down.

The master idea of the pamphlet is that the future depends on the application of the principles of justice to our industrial life. The principles that ought to rule are:—
(1)That men must be treated as men and not as machines. "That which uses the product of the past to produce more wealth for the future is man using a thing. Capital is merely one of the tools of trade."
(2)That a man's "reward should be in a broad sense based on service, after due recognition of his status as an individual in the community scheme in which all men are units."

Mr. de la Mare's summary of his treatment of the principles is to be found in these words:—

In the first place, we must cease to regard the man who gives service as a machine, a thing, or a commodity. We must recognise this in considering the respective rewards given to "man" and "thing." In the second place reward for "thing" must, after recognition of "man" be based on real values, and the market value gives a foundation which is easily understood and clearly rational. Finally, beside each man in the world of labour to-day stands the spectre of poverty. Accident or misfortune, causes over which he has no control, may leave him, with his dependents, stranded in a community to which he has paid all his debts. Insurance against unemployment for himself and his fellows is a demand which, it is thought, cannot be resisted on grounds either of expediency or justice.

Then follows an outline of the following schemes that have been tried:—(a) The Lever Plan; (b) Leitch's Industrial Democracy; (c) the Scheme of Rowntree and Co.; (d) the Scheme of Austin Hopkinson.

Mr. de la Mare shows that, while all of these schemes have features of strength, there are some aspects in which they fail to conform to the fundamental principles laid down; they fail to place responsibilities of management on labour, they make an unreal distinction between brain-workers and hand-workers, or they depend merely on the goodwill of the organiser. Mr. Valder aims at avoiding these errors.

(1)He distinguishes between Capital and Labour. Those who supply capital are money-lenders, those who give personal service in using capital constitute labour.
(2)He pays the owners of capital the market rate for the use of capital, together with an insurance or risk-rate.
(3)He distributes the profits to all labour on the basis of the service rendered. This is determined by the wages or salary received.
(4)He allows the owners of capital to elect half of the directors and labour to elect the other half.
(5)He achieves the end aimed at in (3) and (4) by issuing

"Labour Shares" to all those who give services.

A Bill to embody his principle in our Companies Act will be before the coming session of Parliament.

"When this Bill becomes law," says Mr. de la Mare. 'Labour' will acquire a status hitherto unknown. A Company will be able to issue 'Labour Shares' which have no capital value and are not transferable, shares nevertheless, which confer upon the holder, by virtue of service, a proportion of the total net profits (including an equity in the yearly reserve) and a proportion of the total voting power. It is a very curious thing that an employer like Mr. Valder, who wishes to make a courageous and vital experiment in company organisation should be virtually precluded page 55 by statute from so doing. That the experiment would be an intelligent one is not open to dispute. There is no compulsion about the Bill. It merely opens a little wider the doors of freedom."

Mr. Valder states his own case thus:—

The scheme I wish to adopt is to limit the reward for capital, insure it against loss, and then pay the surplus to the human element in proportion to the service rendered by every individual employed in the business. This is a reversal of the present practice under which owners of Capital are the residuary legatees, but it is one of those reversals which will stand a great deal of close examination at the bar of common sense. If the argument is true in regard to profits, its validity is not less well-founded in regard to control. Considering all the limitations of the human element and other factors which may be used against Labour control, I am of the opinion that voting-power may well be distributed evenly between Capital and Labour shareholders.

We live in a period of transition. We cannot live by the past; we must look forward, not backward. If the Bill becomes law it will be interesting to see whether the great body of entrepeneurs are willing to divest themselves of the great power the present system rather unfairly gives them. Much will depend on the measure of prosperity achieved by those industries in which the new method is adopted. If Labour rises to its responsibilities and opportunities it may soon be borne in upon the entrepeneurs that the road to success lies along the way of the new method. They will be compelled to fall into line if they wish to compete with businesses that have the dynamic force of real co-operation. If the Bill passes we shall see some interesting experiments; we may even make history again in New Zealand.