on two unsound buttresses: (1) the fault of government in granting monopoly powers to them, followed by failure in simple police duty to prevent unfair practices; (2) the economic fallacy that centralization resulting in a large measure of price control, in elimination of intermediate profits and in reducing common elements of expense, is certain to widen the margin between costs and prices?

Although no statute or decision forbids largeness, there is an economic limit to combination in the nature of the industry itself. It has been pointed out that low-priced products of big bulk have a much more limited market than those having high value in small bulk. A foundry casting combination of country-wide extent, would find it difficult to compete with local concerns because of the extra cost of a selling force, overhead charges, and small selling territory, conditions which a low-priced product could not stand. On the other hand, a combination of machine industries might vastly gain in efficiency in which the best of devices and inventions in each subsidiary could be availed of, in which one shop organization could be brought to compete with others, and in which standardization of working conditions, safety measures, and social insurance could be applied to equal advantage.

In the anti-trust hearings of 1914, W. L. Saunders concluded on this aspect: "Generally

speaking, big business is vulnerable to the attacks of a small competitor. Where its product can be made on the duplicate part system or by machinery, it must reach out for large markets and be satisfied with a small percentage on its turn-over or it will fail. In order to get this large turn-over made, so necessary to its business, this big concern reached out for foreign markets. Here is where we have one of the strongest arguments for bigness in business." This applies especially to staple as distinguished from specialty manufacturing, in the latter of which the independent industry, with ample capital and good selling agencies, usually takes care of itself.

Time is the surest test of the worth of these combinations to the nation's economic life. The attitude of doubt as to their efficiency has become more general with the rise of the sciences of cost-accounting and of efficiency engineering. William C. Redfield, Secretary of Commerce, probably voiced the growing conviction of many, in his report of 1913, when he asserted:

"It is doubtful whether there does not come a point of maximum efficiency at minimum cost, beyond which an increase of product means an increase of cost per unit of that product. It is significant that some of the great trusts have ceased to exist; that others pay but moderate dividends, if any, on their securities, and that side by side with the most mighty and supposedly

the most efficient of them have grown up independent organizations quite as successful and perhaps earning even more on their capital than their powerful competitors."

The rather frequent changes in the headship of some of the largest trusts within the first ten years of their experience affords ample proof of the limitations under which big business has been conducted. Probably the testimony of Charles R. Flint of New York, whose direct contact with the forming of combinations entitles him to speak, may best be cited at this point:

"In my judgment, one of the dangers to the success of industrials is that parties, without being intellectual giants, are liable to attempt to centralize too much. Taking men as they are, I think that in businesses where high-class ability is required at many places, and where the business is not of such a character that its conduct can be reduced to rules and where its success depends on local ability and local judgment, and where the efficiency of the selling department is involved with long-time personal relations, such a business may be very dangerous to suddenly centralize. It is far wiser, I think, in a case of that kind, to sustain the independence and individuality of the separate concerns. In that way you have the advantage of the organizations that have created those concerns and by an adjustment of compensation based somewhat upon the earnings of those individual

concerns, you sustain the individual interest that is essential to success. At the same time your central organization has the advantages of comparative accounting and comparative administration, and is able to hold the separate concerns to a strict accountability, or, by appealing to their pride, to promote a healthy spirit of rivalry."*

5. Labor Relations With Large Industries

The industrial combinations come to their social estate through their relations with labor. Labor, under the trust régime, furnishes one of the most complicated phases of the subject. The main criticism of organized labor against such companies as the United States Steel Corporation, which in 1913 employed an average of 229,000 persons and paid $207,206,000 in wages, is due to the company's open-shop policy. In none of the steel corporation's 800 plants is labor unionized or recognized as such. In this case the annual average wage in the past ten years increased from $720 a year per man to $905, or 25 per cent. In the same period the average gross receipts per ton of product decreased over $7.50 for steel sold. The finished steel product per man in the manufacturing properties advanced from sixty to seventy-five tons, or 25 per cent, showing that the rate of

*The United States Industrial Commission, Vol. XIII, 84.

increase in average wages was equal to the rate of increase in manufactured product.

Apparently, wage advances absorbed a large part of the increase in output. Presumably this increment in wages was reflected partly at least in improvement in productive processes by increase in labor efficiency.

One of the main motives in the combination of industries, for which there is ample testimony of official records, was the necessity of some more comprehensive form of organization to deal with the country-wide activities of organized labor. The progress of collective bargaining between 1890 and 1900 made it clear to many employers that the labor unions were in much better position to enforce their demands than the isolated employer was to meet or resist them. The trust movement simply restored a balance by enabling the combined organization to stand on an equality in negotiating contracts with the collective sellers of labor. For this outcome unionism is as much responsible as industrial combination.

Among the leaders in the formation of the trust organization there was no lack of sympapathy with labor as a class. Many of the employers had themselves developed from the ranks of the employee. And while the exemployee when he becomes an employer sometimes turns out to be a tyrant and a brute in his attitude towards subordinates, it is more

« ForrigeFortsett »