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1. An analysis of the elements of competition, with the specific purpose of disclosing exactly what elements are good and what are bad. And especially the effects of secrecy in turning competition into war.
2. The effects of labor and factory laws in this country.
PROGRAM FOR FIFTH YEAR
1. Business forecasting.
Here is the bogey which most critics of economic planning now fear, but after four years of action and study there should not be much left to be afraid of. In any case it is no proof that prices could not to some extent be regulated simply because in the past prices have been tinkered with, with evil effects. Moreover, any regulation of prices wh was exercised without the specific idea of making the most money possible for those who exercised the regulation would be quite a different matter from most of the price controls we have known in the past. And it is a fair presumption that selling below cost or below reason is not so very much better than selling above a reasonable price. It is probable that price regulation with the view of holding up prices would only be indulged in during part of the recession phase of the business cycle, not even over the whole recession phase.
3. Proposals for government oversight of power production. 4. Measures proposed as a result of agricultural study.
It would obviously now be premature to attempt to set down projects for study in the fifth year. If any were needed from which to take a choice there would be no great difficulty in filling pages.
In a very broad generalization, this program puts into effect two main purposes: First, by getting the necessary knowledge and action to relate our economic society to our political society-openly and organically, not surreptitiously and guiltily; and second, to furnish to the individual factors in the business world more and better organized knowledge of present and past situations. This second objective purposes to improve for the business world its “memory”, which Mr. Wiggin, in his testimony before the Senate committee, said the business world did not possess and never would,
In the light of this specific program and its generalization it will be pertinent to quote Mr. Lorwin's report of the purposes for which the German Economic Council was established:
1. To complete the structure of democracy by adequate representation of its economic factors.
2. To get for the Government broad and expert advice.
3. To work out an integration through national action which could take account of the many economic differences in different parts of the Nation.
4. To organize and legalize lobbying.
In accounting for the reputed lack of success of the German Council, Mr. Lorwin lays it first to the jealousy of Parliament; second, to the representative character of the council, and particularly to its size, which ran over 350; third, to the peculiarly difficult situation of Europe during the years of its establishment; and fourth, to the ebb of the spirit of democracy in Europe and the rise of the practice of dictatorship.
Yet, in spite of the general allegation of nonsuccess, Mr. Lorwin feels there have been very real successes to record to the credit of European councilsthrough their influence on legislation, which has been real if not very well known through their general educational influence; and finally through the fact that they have brought together, almost for the first time, great and conflicting economic factors, and developed the beginning of a better mutual understanding and tolerance among them.
Now in view of such a 5-year plan for planning, what would be the appropriate type of organization to carry it on? The essential specifications of the job are, first, the ability to decide what preliminary information is needed;
second, the ability to see that that information is gathered and digested; third, and most important, to determine upon definite constructive measures which should so influence the behavior of the country, that the objectives sought will be gained ; and, fourth, to have influence and ability enough to get the measures put into effect. This job has then what we usually call the essentials of executive action, and so must be carried on by a relatively small group, probably five or seven men, certainly no more than nine. In itself. it can not hope to be representative; as a matter of fact there should be upon it no representation of interests. While it would be well to have among its members a range of knowledge, it would be important to avoid intense specialization of knowledge. Not one in a hundred of their proposals for action will fall within the field of any one specialty; most of them will cover, in one way or another, practically all fields. Hence, the ideal group would be. let us say, seven men, each of whom had had the bulk of his experience in a somewhat different field from the others, but each with a range of knowledge and imag. ination enough to put his specialty in its place.
Most of the proposals for an economic council agree upon this relatively small body, but many add to it a large representative council, or congress of business; but both European experience and common sense seem to indicate that this is hardly the way to get a proper background for the smaller planning board. They should be expected, rather, to invite and inspire regional organizations; organizations of whole trades which would include trade associations, representatives of the unorganized members, representatives of their customers, and labor; and organizations with whom could be discussed State and municipal problems as they came up. In addition to these there are already in existence hundreds of organizations with which they would be expected to keep in touch through consultation and reports. They should, in fact, from the very beginning be expected to use to the greatest practicable extent the existing services, associations, and instruments for research, for mutual education and understanding, and for effective action. It is very likely that from the beginning some special provision should be made for relationships between this body and the Federal Trade Commission.
Obviously, it is upon the character of the personnel of a group of 5, 7, or 9 men which the whole success of the undertaking will rest. They must clearly be full-time men; no part of this task is such that one can give the casual attention to it which part-time service invites. They must, therefore, be most carefully selected before being appointed. Who can do this? Suggestions have been made of considerable variety but most men have finally decided that the only possible means of selection is through the appointive power of the President of the United States. Yet this is no ordinary appointive job, and the President should be specifically expected to make the widest possible preliminary reference to the people of the country and to the business organizations of the country. They should be invited to partake as much as possible, by sending in names of men, not to represent them, but of men who can represent the country.
It might be well that the President should choose one only at first, and together with him choose the second, with them a third. They must obviously be men of broad knowledge of keen regard for public good, without strong prejudices in favor of any part of the public, men of professional attitude and standards, of thorough training in scientific methods, realistic, independent, and, hence, men who may be expected to exert effective public influence. Probably the richest field in which to look for such is among professional men who have had close connection with business, and in that new and growing field of business professionalism ; economists like Stewart; engineer-business men like Flanders; analytical accountants like Ernst; highly trained trade association managers like Compton; a working political scientist like Merriam; and so on.
Such a group, given power to get essential information and equipped with a relatively small permanent staff but given financial power enough to establish special ad hoc staffs as needed, and to call upon and perhaps to assist financially some of the established research organizations, should be able to make a strong beginning. They would be men with sense enough to realize that there will be no way for them to gain public confidenc except by earning it. Previous standing can only give them a good start, and they will, therefore, have to plan their planning program so that those measures for whose success wide public confidence is almost solely essential, would be necessarily postponed until this confidence has been earned. They would be men of constructive temper rather than studious; the student they can hire or get help from in the earlier stages; they, themselves, must know how to use the fruits of study, by turning it into cogent and powerful proposal for action.
STATEMENT OF WALLACE B. DONHAM, DEAN OF THE HARVARD GRADUATE SCHOOL
OF BUSINESS ADMINISTRTION
The problem which we face is the restoration of equilibrium in our Nation. This involves a study of the conditions surrounding great social groups like the farmer, the unemployed, etc., and efforts to restore the equilibrium of these groups and in so doing to restore the equilibrium of the Nation. The only acticable method of handling such a problem as the farm problem is the method of trial and error, because no one can with assurance say that any particular scheme will work. Any corporation facing such a problem would approach it by trial and error, with perfect willingness to revise any plan or to give up any part of the plan which turned out to be unsuccessful. The only way a nation can effectively try experiments is by large concentration of power either in the executive or in the executive with the backing of a small committee which has power. This applies to most of the problems of equilibrium. For this reason I advocate large power in a highly concentrated group-in the President either with his customary administrative assitsants or with the support of a small committee including in its membership representatives of Congress, of our university social scientists, and of men of affairs. Such a committee, if constituted, should represent very diversified points of view even within the groups which I have mentioned above.
Any plan for stabilizing a particular social group will secure its effectiveness largely because it is carried into effect simultaneously with other plans to stabilize other social groups. These plans must be related together. There are a few points which I would emphasize.
First. Most important of all we should keep control of our own problems in our own hands. If in this time of wild fluctuations we make international trade adjustments by treaties or agreements with other nations which fix many elements in the situation, we may easily lose this control to such extent that solution of our domestic problems becomes impossible. Reciprocal trade arrangements should always be made with this difficulty in mind. Treaties are hard to change. I am convinced that our great problems of stability can only be solved by trial and error and that to solve them we must keep control of our policies.
Second. We should seek by experiment a method of handling the farm problem so that prices of farm products now exported will be divided, the home prices being above the international price level. The international price level is beyond our control.
I am not at the present moment interested in limitation of output of export crops because industry is not able to absorb men. The sociological objections to limiting output when industry cannot absorb men are very great and limitation of output can wait until we have stabilized the industrial group. At the present time limitation of output of particular commodities seems to me the very way to cause distress in other commodities.
Third. Similarly we need specific treatment of particular farm products which are not exported so that their production and prices are properly related to the rest of the community.
In some way or other the farmers must be restored to their old relative price relationships or there is no prosperity in this country. We have some 40 million people directly and indirectly dependent on farming. Under present conditions they on the average need most of their income for either taxes or interest and in detail a large part of them are bankrupt. The increased debt and tax burden resulting from lower price levels has to be relieved if this group is to get back to a position of stability. The proposed debt relief will help. If a program doing these things can be put through it will restore the farmers as buyers.
Fourth. The Government should seek to bring about a labor shortage instead of an unemployment crisis as rapidly as possible. Curing the farm problem would do much but this will not put all our labor in industry back to work.
I believe that we should as a permanent policy regulate hours of labor so that the work goes around at all times. That is, we should regulate them to an elastic index of employment. It is a blot on our intelligence that today we have no proper labor statistics in this country. Any first step, therefore, would have to be arbitrary. Moreover, we have allowed the business situation to sag to such a point that actually making the present work go around would
give each laborer too little employment. Some arbitrary point should be selected for experimental purposes but without any idea that such a point was fixed for good.
My belief is that we should adopt temporarily the American Federation of Labor program of regulating by Federal law hours of labor of the individual (not the factory) to 6 hours a day, 5 days in the week. The bill should provide in itself for a more elastic method, modifying those hours when conditions justify. It is all guesswork, but my own guess is that with the present state of technological development we are unlikely to find more work in industry than 6 hours a day, 5 days a week. The limiting factor under such a plan would be man power and not machinery. This is, I think, essential and the only basis I see for keeping employment in step with technological progress.
Fifth. Because we have allowed busines to sag so far, the introduction of new purchasing power will probably be necessary before the rest of the emplos. ment difficulties can be solved and before buiness can be prosperous. Some of this new purchasing power will come from the restoration of confidence. I fear that not enough will come in this way, and that it will not be widely enough distributed so that our men can be kept busy. I think in addition we need
(a) Government works selected not with reference to their self-liquidating character but with reference to putting the maximum number of people at work both on the jobs and in providing new materials for the jobs.
(b) I am much interested in M. C. Rorty's plan for giving bonuses for private and public construction.
(c) Credit expansion probably iutile now, would, I believe, help greatly if hours of labor were limited as suggested above.
(d) If a program such as I have suggeted does not, in fact, complete the deired result and put men back at work to a sufficient extent, I think the Gor ernment should keep on the job of stimulating purchasing and employment until the machine is started again.
I am afraid of methods for introducing new purchasing power not accumpanied by farm relief and limitation of hours of labor. This depression is too serious to rely on artificially created purchasing power alone.
Sixth. The missing link in the above program is that it contains no explicit way of accomplishing high wages without which a mass production civilization cannot maintain itself. The mass of people must be able to buy to support mass production. Wages have sagged during this depression, and there is a lot of entirely proper opposition by particular concerns to increasing wages The only way to get wages up is by general social forces.
We have the recent experience that the war created a labor shortage and brought about rapid and, in general, I think, not excessive increase in wages. We should use that experience and run our affairs indefinitely on the basis of a labor shortage. That is, if we determine hours with reference to an elastic index, they should be so determined that employers are competing slightly for labor. This is necessary to bring employment to the group over 50 years of age and to men who are not quite as good as others. It would also enable manufacturers to raise wages. Steady social pressure for higher wages is, I think, the only correlative which can offset the steady advance in technology and management.
Seventh. This thesis involves a theory of the function of government. The last 3 years has been a period when individual initiative and energy and ability were powerless. In a society like ours when this condition arises there is no possible way out except through government action. Stability in the nature of a moving equilibrium is essential to progress. It is, I think, clear that the Government's primary job is to preserve the economic framewuri from fluctuations so violent that they exceed proper margins of safety and practically make it impossible for the individual to function. In other woris the Government alone can free the individual. The things I have ouilined are designed as continuous attacks on the instability of social groups until such social groups reach not a static condition but a reasonable equilibrium which releases individual powers.
I do not believe this depression is one which can be handled on the theory of preserving what we have until time has a chance to cure it. I think i needs political leadership directed in such lines as I have mentioned. There may well be better specific measures than those outlined, but I am confident the general philosophy of the approach is sound.
Eighth. I am convinced that the solution of our problem must be found primarily at home and not by following any will-o'-the-wisp of internationalism which assumes the ability to get decisions out of the nations of the world or gives up the control essential to planning for stability at the one point where we have the power to exercise controls, namely, at and within this Nation's borders.
This whole thesis I have elaborated in an address I made at the Wharton Alumni Institute, Philadelphia, on March 23, 1933. It is now being published as a supplement to the April number of the Harvard Business Review. I attach this address as well as Mr. Rorty's plan as the exhibits to this statement.
STATEMENT OF ERNEST G. DRAPER, PRESIDENT AMERICAN ASSOCIATION FOR LABOR
LEGISLATION, NEW YORK CITY
It would be presumptuous for me to speak with authority upon such a vast subject as the causes and cures for this depression. However, there is one phase of the depression which deeply interests me and upon which I have devoted a great deal of thought. It is the problem of unemployment. I hope that I may be given the privilege of discussing this problem briefly and suggesting possible ways whereby the volume of unemployment might be lessened by various legislative remedies.
I. A Nation-wide system of public employment offices, impartially and adequately serving both workers and employers, is one of the most needed steps in the direction of a permanent program of unemployment prevention. By assisting workers to find jobs and employers to find workers such a system will reduce to a minimum the time men and machinery stand needlessly idle. It will also make available information that will help employers to plan production more wisely and guide young workers in their choice of their trades. I am strongly convinced that the plan outlined in the bill introduced by Senator Wagner to provide for an integrated system of national, State, and local employment offices with financial encouragement and cooperative supervision by the Federal Government offers the most promising contribution yet proposed for developing a really adequate permanent public employment service.
II. The Government can also play a significant role in employment and business stabilization by intelligently planning its public works program so as to be prepared to throw the weight of public construction into the scales when most needed to maintain the Nation's economic balance. The Federal Government has made a beginning by the enactment of the Stabilization Act of 1931. If that act is administered with skill and foresight, the Government should be in a better position to act effectively when the next business depression arrives. There is, of course, need for legislation in the States to provide a basis for similar action by State and local governments. The Federal Government can encourage such State action by demonstrating in a practical way the advantages of advance planning.
III. Twelve years ago, at a legislative committee hearing in Wisconsin, it was my opportunity to speak as an employer in favor of compulsory unemployment compensation. The burden of my testimony before the committee was that the enactment of such legislation would focus the attention of employers upon methods to combat irregular employment and so diminish unemployment; and that diminished unemployment would mean stabilized industry, more even production, and freer opportunities to increase business profits.
I am today more than ever convinced of the soundness of that business judgment. Even if there were no examples to guide us, it is a matter of common sense that when placed under the sobering influence of having to pay part of the direct cost of unemployment, management will be much more careful to develop advance plans to stabilize employment; that managers generally will then do what only a few have done in the past. Think about and prepare for unemployment in good times as well as in bad. If there ever was a reasonable doubt of the need for this kind of permanent inducement, surely it has been dispelled by the collapse of our planless prosperity and the social degradation of our present plight.
But we need no longer resort to common sense alone in judging the merits of unemployment reserves as a business policy. The experience of American