PROFIT SHARING

retween ro910 and 1925 numerous schemes of profit sharing were initiated in the indus- trialised countries of the world. but the whole of these experi- ments touched no more than an insignificant proportion of the industrial and commercial concerns of the time, if we except the compulsory profit-sharing scheme introduced into the coal- mining industry of great britain by the terms of settlement of the great dispute of 1921. that scheme has in practice shown the almost inevitable failure of any system imposed by an outside authority upon an unwilling industry. for there is no reason to think that its effect has been other than to increase suspicion between employers and employed, to subsidise incompctence at the expense of competence, and to prevent the development of the industry in regard to technical equipment by decreasing the fund available for capital expenditure. : practical difficulties —the latter consequence of profit shar- ing is, indeed, a diffculty which is almost insuperable in any instance in which the wage-earners’ share in the profits is cal- culated upon a scale so generous as to produce an appreciable increase of their material prosperity and to promote good feeling between capital and labour. for, if the worker’s share is so large as to reduce seriously the profits of the individual concern, it is clear that the latter will be less able to compete in the market owing to the decreased amount available for the technical im- provement and expansion of the business. in one successful example well known to the present writer, the owner of the busi- ness is reduced almost to penury owing to the fact that his share amounting to thousands of pounds annually, is barely sufficient to provide the fresh capital required year by year for natural and healthy expansion of the business. morcover, the limita- tion of his profit would render it difficult for him to offer a specu- lative attraction to fresh capital from outside. in this capital difficulty is probably to be found the reason why the advocates of profit sharing are almost invariably advocates also of co-partnership. a natural development of profit sharing has been the offering of inducements to employees to invest their profits in the shares of the undertaking in which they work. but it would appear that there are very grave objections to this latter system. for from the employees’ point of view it is mani- festly unwise for any person, who is dependent mainly upon a weekly wage, to invest his savings in the same concern, or even in the same industry, as that from which he draws his wage. if he does so the failure of his income from the one source is only too likely to coincide with a failure of his income from the other. clearly the smali investor should place his savings in the safest possible securities. by doing so he helps industry no less than if he were to risk their loss by direct investment in industry. if he chooses government stocks, his choice tends to reduce in- terest rates upon such securities, thus diverting capital into in- dustry and simultaneously lightening the tax burden upon it. a further objection to co-partnership is to be found in the fact that it almost invariably gives rise to a demand for demo- cratic control of the capital resources of the business in which it is practised—that is to say, for a method of control whereby voting power is based upon counting of heads and 1s not con- ferred, as in the joint-stock company system, in proportion to the amount of capital contributed by each individual voter. ‘the complete failure of experiments in guild socialism in great britain is proof of the dangers of such a system of control and its tendency to cause a fatal dissipation of capital resources in attempts to maintain a high standard of living in periods of trade depression. proftt sharing lubour banking —certain developments in the united states would seem to hold out more substantial hopes than does co-partnership of rapid progress toward the economic utopia, where every worker is a capitalist and (as a necessary conse- quence) every capitalist ts a worker. the establishment of trade-union banks in america during the period under review is a matter of the highest interest to all who in other countries are endeavouring to increase the economic liberty of the wage- earners. if it is borne in mind that trade unionism was, in its origin, a movement with the object of giving the employed in relation to his employer a degree of liberty which the possession of capital alone can afford, it is not surprising that the great prosperity of the american worker should have led him to take steps still further to secure his position by using trade-union capital in banking. the development would seem to be a natural one, though in other countries it will probably take a somewhat different form, to which reference will be made later. the chief danger would seem to lie in the control of large amounts of money being placed in the hands of inexperienced persons. but if serious incompetence or dishonesty is not encountered in the early stages of the expansion of labour banking, there seems to be good reason to hope for a very great and beneficent growth of the system in the future, accompanied by a most valuable economic education of the workers concerned. in great britain, however, it may well be that the difficulty in regard to capital should be dealt with by extension of the existing banking system rather than in direct control of credit by trade-union banks on the american plan. if a part of the in- creased carnings of labour, arising from profit sharing, can be attracted into the banks in the form of deposits, those institu- tions will be in a position to make correspondingly increased advances to industry and thus to provide for larger turnover without an increase in the subscribed capital of the concerns in question. by this means the savings of the small investor would be guarded from the danger of his inexperience, and would be kept available for withdrawal at comparatively short notice without capital depreciation—two conditions which are essential if the habit of investment is to spread rapidly among the manual workers. at present the floating credit available for industry is mainly provided by the undrawn balances of the dividends of the renticy paid half-yearly into the banks. the additional resources placed in the hands of the latter by the creation of a numerous class of persons, mainly dependent upon a weekly wage but hav- ing also smaller or larger amounts on deposit, would tend to reduce the price of credit and to that extent to add to the real value of wages. an essential condition of material prosperity is political stability; and political stability under a democratic constitution is only assured when the majority of the people is composed of capitalists. profit sharing would appear to be the first step toward that condition of affairs, though experience has shown that many men will neglect to make any provision for the future, even when a profit-sharing scheme in being gives them twice the normal wage rate over a considerable period. but the duty of the employer would seem to demand that he should at least make it possible for his workers to become capitalists, while preventing them from placing the control of their capital at the mercy of a popular vote. so far as the prosperity of industry is concerned, it is of small importance who owns capital. the im- portant matter is the question of who controls it. general principles.-—the following principles, based on ex- perience, are considered essential to the successful working of any scheme applied to a business which is not (like a gas under- taking) of the nature of a monopoly:— (1) the motive for the introduction of a given scheme has a pro- found influence on its success or failure. if the intention of the employer is simply to ifcrease his profit, failure is to be expected, since the scheme is in that case no more than one of collective piece- work, to which the term ‘ profit sharing ’’ cannot properly be applied. but if the employer initiates a scheme mainly with the intention of adding to the material prosperity of the employed, with- out aiming at direct benefit to himself, success may be anticipated. progressive par’ty—prohibition (2) it follows that a high degree of mutual confidence must already exist between employer and employed before a profit-sharing scheme can be introduced with a fair prospect of success. (3) the scheme must be drawn up in such a way as to insure that, in time of trade prosperity, the addition to basic wages shal! be sub- stantial. the profit bonus should be paid, in part at least, at fre- quent intervals rather than annually or half-yearly. (4) the employer must be prepared to meet instantly demands from the workers for improved machinery and organisation, and must give to them as much information as possible regarding the position of the business from month to month. (a. ho.)