RATIONALIZATION OF INDUSTRY. This term would appear to have come first into common use in Germany in the post-war years of inflation and economic derangement to denote the type of organization and leadership under which, it was in some quarters contended, German industries must more than ever be arrayed in order to stand firm against threatening dissolution. As post-armistice depression settled upon the great industries of other countries the same idea was thrust to the fore and the term "rationalization" crept into the terminology of in dustrial re-organization.
In the report of the World Economic Conference of 1927 rationalization is taken to mean "the methods of technique and organization designed to secure the minimum waste of either effort or material." It includes the scientific organization of labour, standardization of both material and products, simplification of processes, and improvements in the system of transport and marketing. The conference considered that one of the principal means of increasing output, improving conditions of labour, and reducing costs of production, was to be found in "rational organization of production and distribution," the judicious and constant application of which was "calculated to secure (I) to the community greater stability and a higher standard in the conditions of life, (2) to the consumer lower prices and goods more carefully adapted to general requirements, (3) to the various classes of producers higher and steadier remu neration to be equitably distributed among them." If this were all that rationalization implied and entailed nothing would remain but to recognise a new name for a familiar and ex cellent thing and to continue with redoubled effort the good work that has been going forward for decades past along these salutary lines. But something more revolutionary is involved.
Broadly conceived, rationalization is the bringing of the whole of an industry under intelligent direc tion and administration. It implies a conception of industrial organization and control radically different from that which pre vailed in the last century, under which it was regarded as normal that the output, prices, and evolution of an industry should be at the mercy of demand interacting with supply through the machinery of competition between the independent firms of which the industry was comprised. (See COMPETITION.) It implies the
conception of an industry as an organic body, with each separate establishment a corporate part of the whole, no longer expending energy in internecine conflict, but working together to a common policy and programme laid down by a directorate in whom abso lute authority over the industry as a whole has been reposed. Regarded aggressively, it implies an industry presenting a united front to the handlers, carriers and users of its goods. Regarded constructively it implies the organization of an industry as a corporate whole in such manner as to eliminate "friction, waste and slip," to bring the technique and machinery of all establish ments to the level of the best; and, most of all, to order the capacity, output, selling activities, and prices of the industry as a whole in accordance with what are deemed to be the present and future needs of the market and the highest interests of the industry itself in the industrial, social and political complex in which it has its being.
The bringing together of the disparate units of an industry into such an organization can be effected in three main ways; by the voluntary association of independent firms for policy purposes (see ASSOCIATIONS, INDUSTRIAL) by the centralised control of quasi-independent firms under some form of holding company ; and by outright amalgamation. Ob viously such thorough-going organization and administration as is indicated above cannot be made effective unless the whole, or a predominant part of the whole, industry is ranged under the cen tralised direction. The organization, in other words, must have a more or less complete monopoly, and one of the major social and political problems that "rationalization" brings in its train is the curbing of the power of monopoly should that power be used to the detriment of consumers and of the public generally.