Popular Science Monthly/Volume 48/January 1896/Both Sides of Profit Sharing

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THERE seems to be no immediate prospect of ending the contest between capital and labor. No matter how strikes or lockouts are settled, they leave a bad feeling behind them that will be shown as soon as another opportunity offers. Mutual distrust and jealousy mark the-situation to-day as they have marked it for many years past. The capitalist votes one way, and the employees vote another, so that they may not oblige him. In every dealing between the two sides the opposition is carried so far that a good understanding seems more remote than ever. Nor does there appear any hope for improvement till each party is ready to make concessions.

The old system of apprenticeship drew more closely the bonds of common interest between the employer and the employee, and with benefit to both. It was comparatively easy for apprentices to become employers. But labor-saving machinery has made the workman an attendant upon the machine, and it has destroyed that sympathy between him and his employer which was the strength of the apprentice system. The blame for this rests upon neither side exclusively. The system may have been too slow to satisfy modern conditions, but the departure of it has made the situation worse. No longer do workmen, as a rule, educate themselves in schools of technology and by the reading of books. There is no inducement for doing better things while the doctrine holds that one man's work is as good as another's, and while labor organizations restrict the number of youth who shall learn trades, thereby keeping all on the same level and giving none an incentive to rise.

The establishment of boards of arbitration will not meet the present difficulties. Those who adopt the idea, on the strength of declarations made by both sides, of a desire for a reasonable settlement of disputes should reflect that the same definition is not given to the words "reasonable" and "equitable" by either the labor unions or the employers. Each side has its own definition, and until that is known everything is uncertain. Neither side would consent to have a course dictated by any form of official authority, because everybody knows his own business best. No rational man can believe that any large business can be conducted upon lines laid down by outsiders. Much less can he believe that workmen can be forced to respect the decision of an official board when they do not cordially accept that decision.

The fatal defect in treating the labor problem thus far has been the stress laid upon the change of method, when the needful thing is a change of spirit in both parties to the controversy. The friction has a moral cause that is common to both, and it will continue as long as mere gain is held to be the measure of success. It can not be stopped by any mechanical contrivance of system or method. But when success and use are made synonymous, the friction will yield, because the moral and sympathetic forces have begun to work upon a higher plane. This idea was well expressed about fifty years ago in Boston, when the Rev. Dr. Channing delivered a course of lectures on The Elevation of the Working Classes. In one of them he said: "There is but one elevation for a laborer and for all other men. There are not different kinds of dignity for different orders of men, but one and the same for all. The only elevation of a human being consists in the exercise, growth, and energy of the higher principles and powers of his soul. A bird may be shot upward to the skies by a foreign power; but it rises, in the true sense of the word, only when it spreads its own wings and soars by its own living power. So a man may be thrust upward into a conspicuous place by outward accidents, but he rises only in so far as he exerts himself and expands his best faculties; and he ascends by a free effort to a nobler region of thought and action. Such is the elevation I desire for the laborer, and I desire no other."

There seems to be but one practicable method of reaching this elevation, and even that method is practicable only within certain limits. Profit-sharing or wage-sharing maybe that method, if the respective shares due to employer and employee can be adjusted equitably. The method has been tried with success in several branches of productive industry.

In 1844 the Paris and Orleans Railway Company adopted the principle. Between 1844 and 1882 about twelve million dollars were distributed as profit dividends among the employees, while the wages paid to them were equal to those paid by roads that gave their employees no share in the profits; and, at the same time, the dividends to the stockholders were as large as they would have been had there been no profit-sharing. Students of political economy are familiar with the Ateliers Socialistes of Paris, Many of the smaller enterprises in the same city have also applied the system of profit-sharing with remarkable success, one of the most conspicuous being the Atelier de Broderies of M. Nayrolles. In this establishment the system is carried out among a personnel composed exclusively of women, and with astonishing results both with the quality of the work and the increased wages of the workers.

A notable scheme, recently tried in England, is that of the South Metropolitan Gas Company of London, as a sequence to the successful campaign of the dock laborers. The company proposes to pay an annual bonus, based upon a sliding scale and regulated by the price paid for gas by the public. At the present price the bonus would amount to five per cent on the wages of the twelve months ending on the 30th of June. In addition, to give the system a start, and in order that the workmen shall derive a substantial benefit at once, the bonuses are to be calculated for three years back. The men who have been in the regular employ of the company for the past three years will thus have sums varying from twenty-five to thirty dollars placed to their credit at once. It is stated that if all the workmen take advantage of this offer it will cost the company fully sixty thousand dollars a year, all of which is a clear gain to the men over and above their regular rate of pay. Another late example comes from a factory of wood pulp in Norway, where nearly sixty men are employed. The gross profit of the first year amounted to about seventy thousand dollars, from which three thousand dollars was taken out for interest on the capital, and fifteen thousand dollars for working expenses. The remainder has been distributed to the men, giving them about one hundred and fifty dollars each. Nearly all of them have used the money in making payments on houses for themselves, thus leading to contentment and industry.

Within the past four years a prominent firm of clothiers in New York city has declared dividends of three and five per cent on the wages of its employees; and a leading merchant of Philadelphia divided $109,439 and $104,345 among his employees in two successive years. After several experiments in other lines, a publishing house in Chicago adopted profit-sharing about fifteen years ago. The house has increased its capital stock more than once; and many of its men, who were ordinary workmen under the old system, now own their homes and are worth from five thousand to fifty thousand dollars each. In another establishment, also in Chicago, those who had been in the employ of the company for one year or more were informed that if the amount of their sales for six months should exceed the total for the same period of time in the previous year, they would be allowed a commission on the excess. The commission averaged two and a half per cent. The employees at once increased their efforts to sell; and when the first distribution was made, last July, it was found that several of the girls had drawn nearly one hundred dollars as their share of the profits for six months.

The Bodwell Granite Quarry, in Maine, adopted the profit-sharing system in the year 1885. As a result, the output of the works has increased, and the employees are sober, contented, and industrious. The arrangement is this: Ten per cent of the profits is laid aside every year. The remaining profits are divided equally between the employer, the men, and a contingent fund. When the latter reaches more than one per cent of the loss in any one year, the surplus of the fund is divided equally between the employers and the men. It is not probable that there could be losses larger than the contingent fund, unless the business were very poorly managed, or unless a financial crisis came over the whole country.

The largest manufacturer of felt shoes in the United States, after experiment with several forms of profit-sharing, has recently formulated rules and regulations for the just distribution of the net earnings among his employees. There are to be three classes for this distribution: first, pension; second, life insurance; third, endowment. The share of the net earnings to be set aside every year shall be calculated upon the positive results of the records of the actual work done by the employees. Against this distribution account the amounts paid for life insurance, under the provisions of the insurance law, and the amount necessary to maintain the pension fund are to be considered fixed charges. As soon as the workman is made a partner in the business, so that a loss to his employer is a loss to him, it will make him more careful of his time. He will see that his fellow-workman performs his duty, and that there is no waste by any one. Such an arrangement is profitable to the employer in the end, because every man in his employ will have some incentive to work. The employer thus guarantees extra pay to the employed.

But can any one guarantee to the employer that every year will be a profitable one? And if there are losses, who shall make them up? Shall the employers make them up by themselves, or shall the men, having once been taken into a partnership upon the profits, still continue that partnership by making up their share of the losses? There are many employed men who are the owners, or the partial owners, of their homes. They would gladly enter into an arrangement for the division of the profits, but they would hesitate to mortgage their homes as security for their proportion of the losses in a bad year. Other employees could offer no security whatever in such a case; therefore, the losses must come upon the employers in the end. It is this fact, more than any other, that hurts the prospects of profit-sharing. Such an arrangement can not be in the nature of a true partnership, because, as noted above, there is a partnership so far as the gains are concerned, but the partnership ceases when there are losses. Hence, as at present tried, the system of profit-sharing is really a gratuity on the part of the employers, most of them having taken the ground that they must average their good years with their poor years in order to keep their men employed uniformly.

The machinery of profit-sharing is not complete without some provision for a contingent fund to tide the employer over his bad years; and even then it is a question whether the profits should not be disposed of on a basis of piecework instead of time. In a bad year the capitalist should accept a smaller percentage on his investment; and the workman, a smaller compensation for his labor. It may be hard for the employer to send his children to cheaper schools, but it is no harder than it is for the employee to go without butter and other necessaries of life.

Even with the instances of profit-sharing that have been tried there has been little gain in bringing about a true sympathy between the employers and their men. Without such sympathy, it is impossible for capital and labor properly to understand each other, or to work in harmony. A careful study of the instances in which profit-sharing has been a success shows that the employers who have succeeded were the small employers of a generation ago, before the advent of the great corporations. There could be no greater enemy to the cause of the workingmen than the prevailing idea of to-day to combine everything in the shape of trusts. Edward Bellamy and other writers carry more' truth in their predictions than will be admitted by those who have made no study of the facts. Some day there may be a revulsion of feeling against such combinations that may lead to the more simple and direct methods of employment in practice two generations ago, when strikes were almost unknown. The present tendency toward trusts is wholly away from any form of profit-sharing, and this is one of the worst signs of the times.

We are led irresistibly to the conclusion that neither profit-sharing nor any other device will improve the present situation, so long as there is a lack of sympathy in either side toward the other. The employers and the holders of great wealth should regard themselves not as mere irresponsible giants of finance, but as sacredly responsible to society for the large interests that have been intrusted to them. The too frequent want of such a broad idea of his functions has led the public to believe that the capitalist is a man who absorbs all the toil of the laboring man, leaving to the latter a very uncertain subsistence. Nor does the capitalist have credit for the fact that, without him, labor would not be so productive, and for the further fact that his share is taken from a product that was created largely through his direction, his enterprise, and his resources. It makes a vast difference whether an army has a skillful general at the head, or only an ordinary leader.

On the other hand, the employee should remember that, as things are now constituted, there is no employment without the use of capital. He must not consider the capitalist as his enemy, but rather as his friend. Nor should he close his organizations against all who do not work with their hands. His own day of labor measures eight or ten hours. There are other laborers in the field to whom a day's work means from twelve to sixteen hours. They are none the less laborers because they work with their heads, and it is a narrow definition of the "workingman" that rules them out.

When De Tocqueville studied the institutions of the United States, in 1835, he gave a broad view of labor as he wrote, "Every honest occupation in the United States is honorable." The same view must be taken by both the capitalist and the workingman before true sympathy between them can be assured. Until that day comes, neither profit-sharing nor any other form of effort will be able to bridge the chasm.