This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
Labor organizations strive to secure higher wages and better conditions of employment for workingmen than they would otherwise obtain, and thus to increase their share of the product of industry. But both by private employers and by economists other plans have been considered for securing to the laborer a more favorable relation to the product of his labor. Some of these plans call for discussion at this point.
1. Piece-work Wages. The system of paying labor by the unit of productor piece-work wagesis a modification of the usual system of time wages, where the laborer is paid a fixed sum for each unit of time worked. The system of piece wages can only have a fair trial in industries which allow considerable division of labor among occupations that are of a routine nature. Thus compositors in a printing-office may be paid by the thousand type set. Payment by the piece, where possible, has certain evident advantages both for laborer and employer, and has met with very general favor or acceptance among trade-unions. But in some industries abuses of the system have been so many and so flagrant as to arouse active opposition. It has at times been used by unscrupulous employers to break down regulations and even laws limiting the hours of work, and more frequently still to bring about a reduction of wages. Thus, after the workers have attained a high rate of speed by straining every nerve and muscle to earn high wages, the price per piece is reduced in such a way that the workmen can earn by their increased exertion little if any more than they were earning before the piece-work system was introduced.
2.The Sliding Scale. The system known as the " sliding scale," by which wages are made to depend upon the price of the product, has been adopted quite generally among iron and steel workers and coal miners in the United States and England. In recent years complaints have been made that employers under this system do not always truthfully declare the price of product, and other difficulties have appeared which cannot well be explained here.
3.Profit-sharing.Under a system of profit-sharing the workmen in any factory, or at least a part of them, are allowed to share in the profits of the concern. A stated wage is paid, and then, at regular intervals, a part of the profits of the business is divided among the employees. There are many differences of detail which do not concern us here. Advocates of the system point out that it (a) promotes economical use of materials and machinery by employees, (b) generally increases their zeal and efficiency, and hence results in (c) a larger total product and a (d) larger revenue for the wage-receivers. Its weakness is that it is not expedient to make the workmen bear the losses as well as participate in the gains, while the system without such a provision is likely to come to grief. Profit-sharing has sometimes been extended to include capital-sharing; that is, part ownership of the capital by the workmen, with some participation in the management.
4. Cooperation. If industry, as ordinarily organized in our great mercantile and manufacturing establishments, may be likened to a form of despotism, an establishment in which workmen participate in capital ownership and management, under the chief control of one who is recognized as an industrial superior, may in the same way be likened to a constitutional monarchy. And finally, as opposed both to industrial despotism and to industrial monarchy, we have the third form, industrial democracy. Industrial democracy means self-rule, self-control, self-direction, by the workmen in their efforts to gain a livelihood. This is achieved in pure cooperation. Cooperation may have either of two forms, coercive or voluntary. Coercive cooperation, which is socialism, will be discussed in a separate chapter. Here we are concerned only with the voluntary form, which is the one that is always meant when the word " cooperation " stands alone.
Under this system the workmen combine their own capital, purchase their own plant, and manage their own industrial affairs, in their own way, at their own risk, sharing profit or loss as the case may be. At least this is the method of productive cooperation. Distributive coop-eration, on the other hand, is a system of cooperation in wholesale or retail trading. Distribution is here used not in the sense in which it is ordinarily used in eccnomics, but in the sense in which we speak of the merchant's business as distributive.
Distributive cooperation is only an imperfect form of cooperation. Consumers of finished goods combine to purchase what they need, and thus save middlemen's profits. They form a regular stock company, subscribe for shares, employ a manager and clerks, who often do not even share in profits, and start a business. Profits are sometimes divided only on the shares, but the approved way is to pay a moderate interest on the capital and then divide profits among stockholders and customers. In such cases the customers share in proportion to their purchases, the division being made at stated intervals.
In England and Scotland distributive cooperation has met with very great success. Productive cooperation, on the other hand, has disappointed the expectations of its earlier advocates. France seems to have had better success than England in productive cooperation. In the United States some instances of success are recorded, and many more undertakings of the sort have been partly successful. One good example of successful pure productive cooperation is that of the three cooperative barrel manufacturing companies in Minneapolis, which together have an annual output of nearly two million barrels. In Eng-land and Scotland Wholesale Societies have been formed for distributive cooperation, thus furnishing at the same time a steady market for some important productive co-operative concerns which they have organized.
The Strength and Weakness of Cooperation.Pure co÷p-eration (1) prevents strikes by completely identifying the interests of labor and capital. It (2) stimulates energy and (3) promotes economy and thrift, since self-interest, which usually animates only the employer, here animates all the co÷perators. No slighting of work can be tolerated and, eye service vanishing, (4) much labor of supervision is saved. Best of all, there is (5) constant education of the co÷perators in discipline and business detail.
On the other hand, to speak of the weaknesses of the system, (1) divided counsels often render the movements of such a business clumsy and slow. Action cannot be so quick and decisive as when one man acts on his own responsibility. (2) It has been hard for workmen to recognize the necessity of securing expert talent for the work of supervision and organization. Failure has often been due (3) to moral defects on the part of the workmen. (4) Finally, where success has attended the first steps of such a movement, the very prosperity has sometimes produced dissension and disintegration.