Philip Dru: Administrator/What Co-Partnership Can Do

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What Co-Partnership Can Do
By Earl Grey

(Governor-General of Canada, 1904-11.)

One of the ablest champions of Co-partnership as a solution of the industrial problem is Earl Grey.

Below are some remarkable passages from his presidential address to the Labor Co-partnership Association.

The problem before us is how to organize our industry on lines the fairness of which will be generally admitted. Fairplay is the keynote of our British character, and I am satisfied, if employers and employed are properly approached, that wherever a feeling of mutual sympathetic regard exists between them they will both be prepared to consider fairly and to meet fully each other’s requirements. This is the belief on which we build our hopes of the future greatness of this country. Remove this belief and the outlook is one of blackest gloom.

Now what is the cause of the wide feeling of labor unrest? At the same time, while the average standard of living, as a result of better education, has been considerably raised and the retail prices of food have risen 9.3 per cent. since 1900, wages in that period have only risen 3 per cent. Consequently the manual workers find themselves in straitened, pinched, and most distressing circumstances. Their difficulties have naturally given birth to a general belief, or at any rate added strength to it, that they are not receiving their fair share of the wealth their labor has helped so largely to create. Now, whether this belief is justified or not, there can be no doubt of its existence.

Labor and Capital in Opposing Camps.

The great fact with which we are confronted in the industries of to-day is that labor and capital are organized not in one but in opposing camps, with the object not so much of promoting the common well-being of all connected with industry as of securing whatever advantage can be obtained in the prosecution of their common industry for themselves. The members of each camp consequently regard each other with distrust and suspicion. The capitalist is inclined to give the minimum that is necessary to secure the labor which he requires, and the worker in return considers that all that should be required from him is the minimum of labor which will save him from dismissal.

Then not only have we to consider the limiting effect on the efficiency of industry caused by the fact that capital and labor are ranged not in one but in opposing camps, but we have also to consider the effect on the attitude of the men towards the management caused by the growing tendency of the small business to be swallowed up by the large combine. In such cases the old feeling of mutual affection, confidence, and esteem, which in the past bound together employer and employed, has been destroyed, and it must be obvious that unless we can adopt methods which will restore in a new, and perhaps in a more satisfactory manner, the old spirit the efficiency of industry and the prosperity of the nation will both suffer.

If you alter one part of any bit of machinery you must readjust all the other parts in order to secure smooth working, and if by substituting big businesses for small businesses you destroy the old intimate connection which formerly existed between masters and men, it would appear to be necessary, if you wish to maintain the old friendly relations between employer and employed, that you should establish your business on lines which will automatically create a feeling of loyalty on the part of all concerned to the industry with which they are connected.

How is that to be done? By co-partnership.

Now, what is the ideal of co-partnership?

Ideal co-partnership is a system under which worker and consumer shall share with capitalists in the profits of industry.

The Surplus Profits Go to Capital.

Under our present system the whole of the surplus profits go to capital, and it is the object of capital to give the worker the least wage for which he will consent to work, and to charge the consumer the highest price which he can be persuaded to give; conversely it is the object of labor to give as little as possible for the wage received.

Now, that is a system which cannot possibly satisfy the requirements of a civilized and well-organized society. What we want is a system which will safeguard the consumer, and also provide the worker with a natural, self-compelling inducement to help the industry with which he is connected. That system is provided by co-partnership. Co-partnership insists that the workers have a right to participate in the net profits that may remain after capital has received its fixed reward. In a co-partnership business, just as the reward of labor is fixed by the trade union rate of wages, so the reward of capital is fixed by the amount which it is necessary for the industry to give. That amount will vary corresponding with the security of the risk attending the industry in question. If the industry is a safe one, it will be able to obtain the capital required by giving a small interest; if the industry is a risky one, it will be necessary to offer capital better terms.

Then, if there should be surplus profits available for division after labor has received its fixed reward--viz., trade union rate of wages--and after capital has received its fixed reward--viz., the rate of interest agreed upon as the fair remuneration of capital; I say if, after these two initial charges have been met, there should still be left surplus profits to distribute, that instead of their going exclusively to capital they should be distributed between labor and capital on some principle of equity.

The way in which the principle of co-partnership can be supplied to industrial enterprise admits of infinite variety. In some cases the surplus profits are divided between wages, interest, and custom, in some cases between wages and custom without any share going to interest, and on some cases between wages and interest.

As an example of a co-partnership industry which divides all surplus profits that may remain after 5 per cent. has been paid on capital between custom and labor, one pound of purchase counting for as much in the division as one pound of wage, let me refer to the well-known Hebden Bridge Fustian Works. I commend to all interested in co-partnership questions a close study of this industry. Started by working men in 1870, it has built up on lines of permanent success a flourishing business, and is making sufficient profits to enable it to divide 9d. in the pound on trade union rate of wages and the same amount on purchases. The steady progress of this manufacturing industry over a period of forty-two years; the recognition by trade unionist management of the right of capital to receive an annual dividend of 5 per cent., and the resolute way in which they have written down the capital of £44,300 invested in land, buildings and machinery to £14,800, notwithstanding that a less conservative policy would have increased the sum available for bonus to wages, all go to show how practicable are co-partnership principles when they are applied by all concerned to productive enterprise in the right spirit.

A Brilliant Example.

I should also like to refer to Mr. Thompson’s woolen mills of Huddersfield, established in 1886, as another brilliant example of successful co-partnership. It is frequently stated that in an industry where men are paid by piecework or share in the profits there is a tendency for the men to over-exert themselves. Well, in the Thompson Huddersfield mills there is no piecework, no overtime, only the weekly wage; no driving is allowed. The hours of labor are limited to forty-eight per week. The workers are given a whole week’s holiday in August, and in addition they enjoy the benefits of a non-contributory sick and accident fund, and of a 24s. per week pension fund. In these mills cloth is made from wool and wool only, not an ounce of shoddy. Here again the surplus profits, after the fixed reward of capital--viz., interest at the rate of 5 per cent. per annum--has been paid, are divided between labor and custom; and here again the capital sunk in the mills has been written down from £8,655 to £1,680. Unprofitable machinery is scrap-heaped. The mill has only the best, most up-to-date machinery, and all connected with the works, shareholders and workers, live together like a happy family.

As an illustration of a co-partnership industry which divides its surplus profits between wages, interest, and custom, I might point to the gas companies which are being administered on the Livesey principle, which is now so well known. Since co-partnership principles were applied to the South Metropolitan Gas Works in 1899 over £500,000 has been paid, as their share of the profits, to the credit of the workers, who also own over £400,000 of the company’s stock. The fact that over £50,000,000 of capital is invested in gas companies administered on co-partnership principles, which divide surplus profits between consumers, shareholders, and wage-earners, encourages us to hope that we may look forward with confidence to the adoption of co-partnership principles by other industries.

As an illustration of a co-partnership industry which divides its surplus profits between labor and capital alone, let me refer to the Walsall Padlock Society, one of the 114 workmen productive societies which may be regarded as so many different schools of co-partnership under exclusive trade unionist management. In this society the rate of interest on share capital has been fixed at 7-1/2 per cent., and should there be any surplus profit after trade union rate of wages and the fixed reward of capital, 7-1/2 per cent., have been paid, it is divided between labor and capital in proportion to the value of their respective services, and the measure of the value is the price the Walsall Padlock Society pays for the use of capital and labor respectively. £1 of interest counts for as much in the division of the profits as £1 of wage, and vice versa. This principle of division, invented by the Frenchman Godin, of Guise, has always seemed to me to be absolutely fair and to be capable of being easily applied to many industries.

Now in these cases I have quoted, and I could refer to many others, a unity of interest is established between labor and capital, with the result that there is a general atmosphere of peace and of mutual brotherhood and goodwill.

Capital receives the advantage of greater security. Labor is secured the highest rate of wage the industry can afford.

Willing and Unwilling Service.

Now, what does the substitution of such conditions for the conditions generally prevailing to-day in England mean for our country? Who shall estimate the difference between the value of willing and unwilling service? The Board of Trade will tell you that a man paid by piecework is generally from 30 to 50 per cent. more effective than a man paid by time.

If the co-partnership principle, which is better than piecework, because it tends to produce identity of interest between capital and labor were to increase the efficiency of time-paid workers from 30 to 50 per cent., just think of the result; and yet the fact that co-partnership might add from 30 to 50 per cent. to the efficiency of the worker is urged by many trade unionists as a reason against co-partnership. They seem to fear that the result of making men co-partners will be to cause them to give 25 per cent. better labor and to receive only 50 per cent. more wage. No system can be right which is based on the assumption that self-interest calls for a man to give his worst instead of his best. When I compare Canada with England I am struck by the fact, that, whereas Canada’s greatest undeveloped asset is her natural resources, England’s greatest undeveloped asset is man himself. How to get each man to do his best is the problem before England to-day. It is because co-partnership harnesses to industry not only the muscle but the heart and the intelligence of the worker that we are justified in regarding it with reverence and enthusiasm as the principle of the future.