§ 11. Difficulties in profit-sharing. Many have found it hard to credit the evidence of this comparative failure of a plan that looks so attractive in spirit and for which so much was hoped. Yet objections come from the side both of the workman and of the employer. The workman lacks the knowledge of the business and is suspicious of the book keeping. If at the end of the year the books show no profits, the workman loses confidence, considers the plan to be mere deception, and rejects it. The working of the plan remains in the employer's hands, and the work man really is not a partner in the business. Moreover, the plan puts a limitation upon the workman's freedom to compete for better wages by changing his place of work. It is indispensable to make length of service in some degree a condition to the sharing of profits. Workmen, coming and going, cannot be allowed to share; the percentage given to the others increases with length of employment. Whenever men are thus practically subject to a fine (equal to the amount of shared profits) if they accept a better position, there is danger of a covert lowering of wages. The plan tends to break up the trade-unions, which is one of the reasons that the employers like it and is the main reason that organized labor opposes it.
The employer, on his part, objects to the interference with his management, the troublesome inspection of the books, and the constant complaints of the workmen. He dislikes to have the profits known; if they are large, the advertisement of success invites competition ; if they are small, publicity may injure credit and depress the value of the enterprise. In view of all these difficulties, it is not surprising that, while the plan often starts promisingly, it usually fails after a short trial. Business methods are severely subject to the principle of the survival of the fittest. Through competition and the survival of the firms that adopt improvements, better methods must eventually supplant poorer ones. If a method fails to spread when it has been tried for seventy-five years and all are free to adopt it, the strong probability is that it has serious defects inherent in it.
§ 12. Defective theory of profit-sharing. It is usually better to make wages depend on the worker's efficiency rather than on the profits of the whole business. The strongest motive to efficiency is present when reward is connected im mediately and directly with effort, not with some result only slightly under the worker's control. Any change in the amount of profits is only partially and indirectly related to increased effort of the worker. The "profits" may be nothing, though all the manual workers may be exerting themselves to the utmost. The wage bill is but one of the group of costs. Profits are the net result of many influences, and chief among these is the skill in planning and conducting the business. This function of management is either performed by the same person who is carrying the financial risk, or by some salaried employee selected by him. It is this management function
the reward of which should, in theory, be made to vary with the amount of profits ; and in fact such an arrangement (managerial profit-sharing, so to speak) is undoubtedly in operation in thousands of cases, but is not included in the usual conception of profit-sharing. Many salaried managers are in receipt of a share of profits and are gradually acquiring an interest in partnerships or a larger share of ownership in the enterprises for which they work. But ordinary profit-sharing is not in accord with the general trend toward the centraliza tion of responsibility in the hands of competent managers, in suring to the worker a definite amount in advance, as high as conditions make possible. The system of premiums, or bonus payments, for output, where it can be safeguarded against abuses, gives in most cases better results and is rapidly spreading. It is sounder in conception and works better in practice as a method of remuneration for most of the workers.
Likewise the pretty general participation in ownership of stock by the employees of a corporation may exert an in fluence distinctly steadying upon labor conditions in the in dustry, and may increase the personal interest of the workers in the efficiency of the factory operations. It may, in the plan of partial payments, help to develop a spirit of thrift in the employees, a result beneficial alike to them, to the corporation, and to the civic community in which they live. But this is not truly profit-sharing; and wage-earners gener ally should be encouraged to invest in government and cor poration bonds of a conservative sort rather than in the common stock of a manufacturing corporation.
§ 13. Purpose of producers' cooperation. Since the early part of the nineteenth century many well-wishers of humanity have cherished high hopes that the whole wage system might gradually be replaced by the plan of producers' cooperation among workingmen. Producers' cooperation is the union of workers in a self-employing group, performing for themselves the enterpriser's function. The workers hope to get what seems to them to be a needless drain of profits into the pockets of the employer and unnecessarily high salaries to managers. To do this they must perform the enterpriser's function as to investment and risk. Collectively or through their represen tatives, they must undertake to furnish capital and manage ment as well as hand-work. The capital may be supplied either by the members, individually or collectively, or may be borrowed from outsiders, who are thus merely passive in vestors. Usually the return to capital invested by members is limited to 5 or 6 per cent, so that this part of the capital likewise is treated as a passive investment, and all the real variable profits are distributed to the members as wages. The hope has been, as in profit-sharing, to increase the amount of profits through the stimulus the plan might give to the workers and by saving in friction, disputes, and strikes.