Again, it must be distinctly recognized account of the first and most successful that the principle must be applied in differ- experiment by M. Leclaire, who is justly ent ways according to circumstances—the regarded as the father of profit-sharing in kind of industry, the class of workers, the the strict sense of the term. Professor nature of the markets, and the like. Jevons in a paper on “ Industrial Partner

Lastly, the full bearing upon the general ships" (1870), and W. T. Thornton in wages question cannot be seen if the at. his work“ On Labor" (1870), did much tention is confined simply to the details of to make the principle and the most strik. one or two experiments, especially when ing examples of its application familiar to they have been conducted in a foreign English readers, and the subject has found country.

a place in all the best text-books since the At the same time, however, in these work of Mill. _Quite recently two impordays when the air is teeming with all kinds tant works on Profit-Sharing have appeared of socialistic theories, it is certainly de- -one by Mr. Sedley Taylor (1884), and sirable to study actual living examples of the other, by an American, Mr. N. P. success, and also to account for any prom. Gilman (1889). In both of these books inent cases of failure. For such an appeal the case is presented with great impartial. to experience the literature of profit-shar. ity, and with a full sense of the difficulties ing now affords ample materials. The and dangers as well as of the direct and decision of the Society founded in Paris indirect benefits of the system. in 1878 for “the practical study of the There are, indeed, few economic provarious systems under which workmen posals of a practical kind which bave been participate in profits' is a good illustration so long, and so persistently and with such of the need which, even in France, the authority presented to the public, and yet country par excellence of ideas, industrial it must be confessed that hitherto, in this reformers feel that they have of the aid of country especially, profit-sharing has rehard facts. This Society, in order to ceived much more attention from the thepreserve the absolutely practical character oretical economist than from the practical of its studies determined to admit to mem. Compared with the great mass of bership none but persons actually engaged industry conducted on the ordinary system in manufacture or commerce. An annual of payment by wages, either by piece-work Bulletin in quarterly numbers gives some or time, the amount of profit-sharing in two hundred pages of information collect- the specific sense of the term (according to ed by the members on the progress of the which in addition to the wages usually participatory movement.

current for the same work the laborers reIt is, however, to Germany that one ceive a share in the surplus profits) is naturally turns for a complete compilation practically infinitesimal. The latest reof facts and theories with ancient and turns compiled by Mr. Bushill, * Coventry, modern instances. Professor Böhmert show that there are less than thirty firms has written an elaborate work, t in the first in the kingdom which bave adopted the part of which he gives the theoretical and plan, and the number of laborers employed historical side of the question, wbile a is only about 10,000. The numbers are special part is devoted to an examination from one point of view considerable, but of more than one hundred actual cases compared with the millions of ordinary taken from nearly every country in Eu- wage-earners, they are insignificant-esrope, as well as from England and America. pecially when we remember that many

Nor has the subject failed to attract the celebrated economists and social reformers attention of English economists. J. S. in the last forty years have not only given Mill, in the chapter in his “Political the plan their cordial approval but a wide Economy'' on the Probable Future of the publicity. Laboring Classes (bk. iv. c. 7), gave an It will naturally occur to most readers

who know anything of trade that if profit** Profit-Sharing between Capital and La.

sharing really possessed the merits claimed bor,' p. 45, by Mr. Sedley Taylor, a work to for it as a method of business, and not which, throughout this article, I am much in. merely as a philanthropic scheme, it would debted.

+" Die Gewinnbetheilung.” Leipzig, 1878. Translated into French and brought up to * Quoted by Mr. Schloss, Fortnightly Revier, date. Paris. 1888,

Oct. 1889.



have been much more generally adopted. entertained both by masters and men, of It is notorious how in these days of ex- the natural economic relations of labor to cessive competition every new idea, tried capital, and of wages to profits. The by one firm with any success, at once finds greatest industrial success achieved by la imitation-e.g., artistic advertising. The

The bor in this century, judged by the ordinary first thing, then, that those who advocate standards of numbers, funds, and results, profit-sharing on its merits must do, is to is undoubtedly trade unionism. explain why it has hitherto obtained so ation, boards of conciliation, sliding-scales, little practical recognition, especially and other methods of social reform have among the English-speaking nations, which obtained a certain amount of practical suphave taken the lead in most great indus- port from labor, but, directly and inditrial changes ; and an inquiry into the na- rectly, trade unionism has done more for ture and results of profit-sharing may ad- the welfare of the working-classes than all vantageously follow the same lines. these other methods put together. Trade

One reason, undoubtedly, why the sys- unionism has, in fact, been so successful tem has not even been tried at all general. that it has now reached the point of de. ly lies in the fact, that even in our day the velopment at which the danger to be economic value of various so-called moral feared, on the analogy of corresponding forces is altogether under-estimated. The forms in industrial history, is the danger self-interest of employers and of parents of excessive power. But the outcome of ought to have made the long series of trade unionism is at the best an armed Factory Acts unnecessary. It ought to peace—the unions may be, and are to a have been evident to master manufacturers large extent, benefit societies, but essenthat excessive hours of work, bad air, and tially they are great fighting organizations. other notorious evils, not only caused a If there is a rise in prices an advance of degradation of labor, but that labor so de- wages is demanded, and if there is a fall graded was inefficient.

Parents ought to a reduction is resisted. The natural result have seen that it would pay them better in is that both in the minds of masters and the long run to have their children prop- men there seems to be an irreconcilable erly educated and brought up in a healthy opposition between profits and wages, and manner, even if they regarded thern mere- it is generally believed that the one can ly as sources of revenue. But it is more rise only at the expense of the other. than doubtful if either sanitation or edu- This is one crucial difficulty which profitcation would have been promoted, even to sharing as a practical scheme must overthe interest of those most directly con- come before it can hope to be widely cerned, by reliance simply upon that in. adopted. terest. In spite of example and precept,

The nature and force of this difficulty the economic value of moral forces, except can only be appreciated when the characof the most obvious kinds-e.g., trust- teristic features of profit-sharing are fully worthiness in a manager—is rarely recog- realized. In the typical case the workmen nized. The chief reason why productive are to receive the ordinary rates of wages co-operation is a comparative failure is current in the neighborhood, and these that the value of business capacity is under- rates are in general fixed at the maximum rated, and efficiency is sacrificed to nomi. possible according to the state of trade by nal cheapness in management. It may be the action of strong trade unions. Yet, allowed, then, that on analogy with cor- under the proposed scheme, the master is responding business methods, profit-shar- to set aside only a fixed percentage for ing may be perfectly sound and practicable bimself by way of interest on capital, proin spite of the fact that it has made so vision for wear and tear and the like, and little headway. Any one can see at once anything earned beyond this rate is to be the value of a new mechanical process ; divided in certain proportions between the but an improvement in the mechanism of employer and the employed. It certainly human motive power is not so easily un- looks, at first sight, as if the master was derstood.

compelled to pay the market rate of wages, Another cause of the slow progress of but to receive something less thau the the movement, also of a general character, market rate of profits. And this supposiand therefore more liable to be over- tion is strengthened when it is observed looked, is the popular conception, usually that the laborers are never to be called



upon to share in exceptional losses, and fact is worth a ton of theory," and unthat at the outside in bad years they can fortunately in this case the facts with only fail to receive the exceptional bonus which he is most familiar seem to be obtained in good years. Surely masters against the system, at any rate on the surmay naturally argue that if they are to face. The failure of the experiment made meet the losses of a depression they must be by Messrs. Briggs is even more widely able to draw upon the gains of an inflation. known than the success of the Maison Le.

There is only one possible answer to this claire, and the English attempt which next objection, and this is the answer wbich to this bas attracted most attention---that was given by M. Leclaire, and which is made by Messrs. Fox, Head and Co.the kernel of the whole matter. Under the was also abandoned after eight years' trial. stimulus of profit-sharing the workers must These two examples have had so much increate the additional profits which they are fluence in practically dissuading employers to receive. If they do not increase the from making the experiment for themefficiency of their labor or make economies selves that, even in an argument of a genby avoiding waste of materials, or by eral kind, they demand a certain amount taking greater care of tools and machinery, of attention. As regards the Whitwood if, in a word, they do not for the same Colliery of Messrs. Briggs, very full in. wages in some way or other either in- forination is given by Mr. Sedley Taylor crease the out-put or diminish the cost of in a memorandum * offered to him for production, then profit-sharing is simply a publication by two of the original partners. gain to the workers at the expense of the It will be seen from this document that masters.

the Messrs. Briggs themselves do not conOn the other hand, if the system works sider the abandonment of the system in well, it is plainly possible for wages and their own case a decisive test of its upfitprofits to rise simultaneously. That the ness for this country, for they state exsystem can be made to work well, the ex. plicitly at the conclusion of the


that perience of the Maison Leclaire, now ex: nothing that has occurred seems to show tending over nearly half a century, furnishes that the system inaugurated at Whitwood at once a striking and most interesting may not eventually be generally and sucproof.' The story has been often told, cessfully adopted, and lead to a more inand Mr. Gilman deserves praise for having timate union of interests and a more coronce more imparted freshness to the sub- dial feeling between capitalists and their ject,“ by tracing the development of the workmen. In response to a request by Maison Leclaire in close connection with Mr. Sedley Taylor for further information, the circumstances of its founder's life.” Mr. Archibald Briggs stated that down to Nor is this the only example of success. 1872, about seven years, the bonus paid to In an industrial census of the whole world the workmen was really earned by extra 150 is certainly a very small number of care and economy, and that the outside firms to quote as evidence of the accept- shareholders also reaped a benefit, but in ance of the principle ;. but when it is the two years of great inflation which folfound that this number includes various lowed, the bonus paid to workmen was kinds of business, and that the proportion more than was earned by the extra effi. of failures is much below the average, and ciency of labor, and thus from a business in most cases due to extraneous causes, the point of view the shareholders were not so appeal to experience has more weight than well off as they would have been without appears at first sight. For an inductive the system of profit-sharing. He also said proof, however, the reader must turn to that in his opinion no isolated concern the volumes already quoted ; it is plainly could reap the full benefits of the plan, impossible to compress such a proof with- and that the greatest advantages could in the limits of an article.

only be secured by its being generally To return to the examination of the adopted, and altering the whole tone of the causes why, especially in the United King- relations between employer and employed, dom, the progress of profit-sharing has and doing away with the antagonistic not been greater, another reason is at once combinations of one class against the other. suggested by the appeal just made to experience. The English practical man is

*“ Profit-Sharing between Capital and Laonly too fond of saying that “ an ounce of bor,'' p. 117.

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per cent.

To the present writer, after a careful exertion or economy, but mainly to the examination of the evidence, the main accidental rise in prices. As a consequence, cause of the failure of the Whitwood ex- just as labor looked for the market rate of periment seems to lie in the fact that from wages, capital looked for the market rate beginning to end the principal object of profits, and it was announced that the aimed at was to provide a substitute for minimum interest reserved to capital bethe influence of the trade unions, and not fore any participation of surplus was alsimply to increase the efficiency of the lowed would be raised from ten to fifteen whole concern with the view of creating a

Even after this rise, the outside divisible bonus. The chief reason given shareholders gruinbled,

because they by Messrs. Briggs for the original adop- thought their profits were lower than they tion of the scheme was, that during a pe- ought to have been. riod of ten years four strikes had occurred, The position was one of great difficulty, lasting in the aggregate seventy-eight and when the plan was first adopted no weeks, and it was supposed that if the one had ever dreamed of such an abnormal workmen were allowed to become indus- rise in prices. Both Mr. Sedley Taylor trial partners they would have no further and Mr. Gilman maintain that the rise of interest in strikes. While every one must profits (reserved) from ten to fifteen per approve


method which diminishes cent. was unjustified and contrary to the the number and severity of strikes, and essence of the scheme. Of course, if it equally of every advance toward a better had been foreseen that such a rise was understanding of their mutual interests by possible, a provision should have been inmasters and men, it seems fallacious to serted in the original agreement, and in this argue that, as matters stand, it is not for way a certain amount of friction would have the interest of those workmen who join been avoided. As matters stood, however, an industrial partnership to give any sup- there appears to be no reason why, as Mr. port to the action of trade unions. For Briggs points out, when wages had risen it must he remembered that the essence of fifty per cent. (without the bonus) the inthe system as a method of business to terest on capital should also not receive an pay a minimum interest on capital and increment (apart from the bonus), espealso the market rate of wages before there cially as no one could tell how long the can be any bonus to divide.

boom” would last, though there But it is easy to see that the bonus paid little doubt that very

years would folto labor must always be small compared low on the natural over-production of the with the market rate of wages, and, ac- fat years. But although there was some cordingly, that it is for the economic in- friction over the division of the unexpected terest of the workmen to look first to the surplus, and neither the shareholders nor best mode of increasing the ordinary rate the men were satisfied, this was not the of wages, which in the concrete means the principal cause of the abandonment of the action of trade unions. The men in the system. It was not a dispute over the Whitwood Collieries were fully alive to bonus" but over the ordinary rate of this elementary fact, and the immediate wages and the conditions of work which cause of the breakdown of this industrial really led to the disruption. The men partnership was an attempt to keep the wished to support the irade unions, and men from attending a meeting of unionists. the shareholders practically threatened to At the same time, while the men naturally fine them heavily if they did. considered that the bonus, large as it was The failure of the profit-sharing system during the years of inflation, was not large adopted by Messrs. Fox, Head and Co., enough to make them independent of their in their ironworks at Middlesborough, may unions, the shareholders, apart from the also be largely ascribed to the hostility actual managers, naturally thought the shown toward the trade unions. It was bonus was to a great extent taken from definitely stipulated that no employés were profits, and not from additional earnings ; to belong to trade unions ; and in return and on the matter of fact, there can be the employers agreed not to join any assolittle doubt that in the two years of very ciation of employers. But, as Mr. Gilhigh prices the opinion of Mr. A. Briggs, man's criticism* 'shows very plainly, the already quoted, was correct, and that the bonus paid to labor was not due to extra


* “Profit-Sharing,” p. 274.


but many

workmen must have found in the eight between masters and men, and the only years' experiment that Messrs. Fox, Head way to obtain various social advantages. and Co. were asking much more than they On the other hand, in considering the gave. In the first place, ten per cent. in- causes of the slow progress of the system terest with six per cent. for renewals and practically, some weight must be given to depreciation of the works and plant, and the fact that the purely business principle one-and-a-half per cent. for bad debts,

cent. for bad debts, has been overshadowed in the public mind constituted a large reserve from profits, with these secondary influences. There is and the highest bonus earned by labor in no reason why the least charitable and least the best year seems to have been four per philanthropic of masters should not adopt cent. The firm also secured for itself im- some forın of extra payment for extra remunity from strikes, and it decided for it. sults, some simple form of profit-sharing, self any question of wages and prices, any more than that he shonld adopt piecewhile the workmen had to cut themselves work instead of time

wages ; off from the unions which not only tried masters are inclined to think that their to obtain a maximuin wage, but also care- workmen out of their own wages can make fally looked after the general conditions of savings and invest them, and also provide Jabor. Trade unions, however, have done themselves with decent recreation and, if too good service for too long a time to be they choose, education. Accordingly, alabandoned for such a small bribe as a though those inore elaborate schemes of bonus on wages. Thus, an examination profit-sharing which set aside so much for of the two most celebrated cases of failure social purposes, pensions, insurance against tends to prove that the failure was due to accidents and the like, and which allow, if an insufficient recognition of actual indus- they do not compel, the savings of the trial conditions and an exaggerated idea of workmen to be invested in the shares of the magnitude of the real changes intro- the concern-although such schemes are duced by profit-sharing.

much more attractive to social reformers Both industrial partnership’ and and seem to offer much greater advantages,

profit-sharing” are apt to suggest a much still they tend to alarm the average man of closer identity of interests than is really business and to make him think that profitinvolved in this method of business, and sharing is in reality a form of charity-at it may be questioned whether it would not his expense. And even from the point of be better to adopt some such simple name view of the workmen it may be doubted bonus system.

The term “ part- whether it is always prudent to rely upon nership" is certainly misleading, for neither their particular business for old age, proin the conduct of the business nor in re- vision for sickness and children, and so sponsibility for losses are the workmen forth, rather than on benefit and insurance

partners;"' and even as regards profits societies ; and they might often prefer to they have no share in the interest, have any bonus they could earn placed enwhich is reserved, nor in the " wages of tirely at their own disposal. Thus, the management," nor in the "reward for risk” indirect social advantages which have just—the three elements into which gross ly received such high praise in a few celeprofits are generally analyzed. What the brated cases-e.g., Leclaire and"Godin-workinen really share is the increased may really have prevented the spread of earnings due to a better use of capital by the system in a more elementary form. labor.

Those who could not or would not imitate Every one will admit that a system of these great philanthropists on the social profit-sharing as usually understood offers side have thought that they need not look favorable opportunities for the improvement at the question at all. of the relations between masters and men ; Again, many employers who take a great but it would be a great mistake, both in interest in their workmen, and are ready theory and fact, to suppose that a "sbare and anxious to promote their welfare in in the profits,” or a bonus on wages, as it many ways, still object most strongly to is more properly called, is the only possi- giving them any voice even indirectly in ble foundation of a cordial understanding the management, and they think that if

* In the neighboring collieries the Whitwood profit-sharing were introduced their indescheme was commonly spoken of as Briggs' pendence would be sacrificed. This ob. bonus."

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