THE I.P.A.INSTITUTE OF PUBLIC

289 Hinders Lane,

IEVIEUJAFFAIRS — VICTORIA

Melbourne — Victoria

Vol 1 AUGUST, 1947 No. 3

CONTENTS

Joint Consultation 1Profits: and the Profit

Motive 11

Wages, Profits and Divi-dends 17

Full Employment 20

Hours and Output 26Statements to the Press 31

COUNCIL OF THE INSTITUTEG. J. COLES, C.B.E. (Chairman).SIR W. MASSY-GREENE, K.C.M.G.CAPT. C. A M •ERHAM, M.C.G. H. GRIIVPWADE.H. R. HARPER,W. A. INCE.F. E. LAMPE, M.B.E.H. G DARLINGL. J. McCONNAN.C. N. McKAY.W. E. McPHERSON.W. I. POTTER.HERBERT TAYLOR.HON. A. G. WARNER, M.L.C.

EDITORIAL COMMITTEEG. H. GRIMWADE, M.A.

B.Sc. Melb.), Chairman.F. E. LAMPE, M.B.E.C. D. KEMP, B.Com. (Economic Ad-- viser to the Council). .G. R. MOUNTAIN, M.A.CAPT. A. C. LEECH (Secretary).

(All rights reserved.)

loinl

T SULTATION

IHE establishment of voluntary machinery forregular consultation between employers and

employees on industrial policy is one of the mostpromising of all the means proposed for achievingindustrial understanding.

The history of industrial relations is largely thestory of the struggle of labour for an increasingshare of the proceeds of industry. This strugglehas been directed toward three main objectives—higher and more stable wages, reduced hours ofwork, and cleaner, healthier and more congenialworking conditions. But today the centre oflabour's interest is shifting. While the goal• ofmaterial improvement is still prominent in thelabour programme it has been joined by other as-pirations, spiritual and psychological in nature:

One of the most serious accusations to be levelledagainst the modern industrial process is that itfails to satisfy the deeper instincts of the worker,his desire for self-expression and a measure ofindependence, his need of a task in life that makesfull use of his latent talents and gives• him a statusof personal security, dignity and responsibility.With the broadening 'of popular knowledgethrough adult and technical education and throughthe agencies• of the press, radio and cinema, , and as

(Cantab),

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1 0;111CONSULTATION (continued)

industrial processes have become more intensely specialised,this feeling of dissatisfaction and frustration has grown. Itundoubtedly underlies a great deal of present-day industrialunrest, even though the immediate surface causes of disputesare still those concerned with questions of wages, hours andphysical conditions of employment. In a series of articles onindustrial peace that aroused immense interest in the UnitedStates, a noted student of industrial and social problems, PeterDrucker, reduces the causes of discontent in modern industryto four main categories. One of these is the psychologicalirritation and frustration set up by certain types of assemblywork in the large mass-production plant.

PSYCHOLOGICAL STRESS

It should be noted that this psychological stress is peculiarto modern industry. The old-time craftsman could rarelyhave felt it. Politically he may have been much inferior instatus to the present-day unskilled factory worker, but he wasat least the master of his own daily task. He planned, executedand disposed of the product of his labour. His work called onall his skill, ingenuity and imagination and the final finishedarticle was in most respects the result of his own individualefforts in which he was able to take a personal pride and satis-faction. While modern industry has made possible a vastlyimproved material standard of life and increased leisure: forthe mass of the people, it has greatly narrowed the compassand variety of work itself and has condemned increasing num-bers of workers to a severe, hampering 'and sometimes soul-destroying specialisation in their everyday tasks. This is paint-ing the picture in strong colours, but not too strong. Unlessmodern large-scale production can reconcile its necessarilyspecialised and disciplined processes with the legitimate humanaspirations .of the industrial worker for a broader, more digni-fied and self-satisfying way of life, there is little prospect of.achieving a solid basis of industrial contentment and peace.

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THE WORK OF G. S. WALPOLE

The problem has nowhere been better stated than by a man-aging director of a well-established engineering firm in GreatBritain, the late G. S. Walpole:—

"The man who, in his domestic relationships, takes pridein being the 'master of his own house'; the younger manwho, at home or at his club, is the centre of 'family orfriendly admiration; and the girl who is the very apple ofher mother's or her sweetheart's eye, cannot readily adjustthemselves to an impersonal industrial relationship in whichthey become merely numbers on a time card, cogs in theindustrial machine. And they bitterly resent being requiredto do so What will be sought, as industrygradually settles down to a post-war footing, is a relation-ship which satisfies the deepest --rooted of all human desires—recognition of the dignity of man as MAN: a rela-tionship in which he can feel that he is, in a fundamentalsense, a full partner in industry and not for so many hoursevery day the servant of an employer."

The solution proposed by Walpole in his book "Manage-ment and Men," which has come to be recognised as a standardwork on the subject, is that of joint consultation. Basica llyit envisages taking the worker, through representatives whichhe himself elects, into the full counsels and confidence of theemployer and management responsible for the directionof the enterprise by which he is employed. Themachinery for the accomplishment of this objective isthat of permanent standing committees with definedfunctions, which meet frequently and regularly, and onwhich sit representatives of employers and management

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CONSULTATION

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on the one hand and of labour on the other.. The committeeswould consider and settle grievances, enlist the workers' interestand assistance in promoting industrial efficiency, provide themeans by which the workers could be made fully aware ofthe plans and policies of management and the opportunityfor discussion and criticism of those plans, and in effect wouldembrace. all industrial questions bearing directly or indirectlyon the welfare of the worker. In Walpole's conception com-mittees would be established at the factory level to deal withmatter's appertaining to the operation of the factory, at theindustrial level to consider problems primarily of concern tothe whole industry and at the national level for the discussionof national industrial and economic policy..

BASIC PRINCIPLE OF JOINT CONSULTATION

The basic principle underlying the conception of joint con-sultation is that both employer and employee have a commoninterest in the success of the business enterprise in which they,are engaged and in the prosperity of industry as a whole. The.employee is therefore entitled 'to be informed of all industrialplans and to make his contribution toward their improve-ment and ultimate success. He is not just a hired hand to beput on and off at the whim of the employer or as economiccircumstances may dictate, but a responsible partner with areal stake in industrial progress.

Joint consultation in industry is, of course, nothing new.There is already, and in the nature of things must be, a con-siderable amount of discussion between employers and the rep-resentatives of employees—particularly trade union officials—on a wide .variety of industrial problems. What is new isthe conception of joint consultation as an organised integralpart of the industrial machine to extend over the entire fieldof industry, to cover not merely a limited range but the wholeambit of industrial problems, with the employee recognisedas equally concerned with employers and management—andparticipating with employers and management—in their solu-tion.

Pyge Four

EFFECT OF THE TWO WORLD WARS

The two world wars-1914-18 and 1939-45—gave riseto a great increase iri the practice of joint consultation, mainlyat the factory level. But in each case the enthusiasm wasshort-lived, and, with the return of peace, there was a ten-dency to revert to pre-war conditions.

At the end of the first world war Workshop Committeesand Works Councils were active over a large section of Britishindustry. A similar development -took place in the UnitedStates. But in the twenty years between the first and secondworld wars many of these committees disappeared. However,in the 1939-45 war there was a considerable flowering ofJoint Production Committees in. Great Britain and of Labour-Management Committees with similar functions in the UnitedStates. Some thousands of Joint Production Committees,covering a large proportion of industrial workers were estab7lished in Great Britain, while in the U.S.A. it has been esti-mated that 'in 1943 there were 1919 Labour-ManagementCommittees representing over 4,000,000 workers. Thesecommittees met with varying degrees of success. There weremany failures, but by and large the consensus of informedopinion is 'that they made an important . contribution to themaintenance of good relations during the war and the goalof all-out war production. All reports indicate that since theend of the war many of the committees have ceased to exist.

It is noteworthy that in Australia in neither of the two warswas there any comparable movement toward joint consultationat the factory level. What development did occur in thiscountry was no more than a ripple on the surface of industrialrelations. This was largely due to three circumstances—theindifference of organised employers, the apathy and in some

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cases antagonism of trade unionism toward the idea, and theoverriding fact of the dominance in Australian industrial rela-tions of compulsory arbitration. The effect of the secondworld war was in general not to develop means of voluntaryconsultation but to extend the scope and authority of themachinery of compulsory arbitration.

THE WHITLEY COMMITTEE

Perhaps the outstanding development in the whole historyof joint consultation is to be found in the work of the WhitleyCommittee which was appointed by the British Governmentin 1916 to examine methods for securing a permanent im-provement in industrial relations. The Whitley proposalsincluded a system of Joint Industrial Councils on an industry-wide basis, and also of Works Committees in individual fac-tories. The work of the Whitley Committee has left anenduring mark on the structure of industrial relations in GreatBritain. The Committee stated "that a permanent improve-ment in the relations between employers and employed must,be founded on something other than a cash basis. What iswanted is that the work people should have a greater oppor-tunity of participating in the discussion about, and adjust-ment of, those parts of industry by which they are most af-fected."

The closely-knit and comprehensive system of consultationproposed by the Whitley Committee did not eventuate.Nevertheless, there was an impressive development in the useof Joint Industrial Councils constituted on the lines of theCommittee's recommendations. Between 1918 and 1921, 73Joint Industrial Councils were established and today a con-siderable sector of the negotiating machinery in Great Britainon wages and conditions is based on Joint Industrial Councils,

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which, however, vary widely in their nature and scope ofauthority. The Joint Industrial Councils comprise a large andimportant part of the system of collective. bargaining whichforms the normal process for the settlement of wages and con-ditions of employment in British industry.*

DEVELOPMENTS IN AUSTRALIA

While the British system of joint consultation may from theBritish point of view seem haphazard, defective, incompleteand falling a long way short of the comprehensive systemvisualised by the Whitley Committee, and in latter days byG: S. Walpole, through Australian eyes it appears an impres-sive and considerable structure. For in this country we havebarely scratched the surface of this most vital field of indus-trial relations.

At the factory level there are a few examples—but theycould almost be counted on the fingers of both hands—ofworks councils or production committees with a comprehen-sive range of activity. There are, of course, a vast number ofcommittees touching on different aspects of the factory lifeof the worker such as canteen committees, safety committees,social and welfare committees. Although some of these maycontain within themselves the seeds of true joint consulta

*In the light of Australian practice and its emphasis on the principle of the"rule of law" in industrial relations, it is of interest to read the comments on theBritish method of collective bargaining in the • Industrial Relations Handbookpublished by the British Ministry of Labour and National Service.

"The whole of this collective system rests upon the principle of mutualconsent, and the value of the agreements and the machinery for settlingdisputes has depended upon the loyal acceptance by the constituent members .

• on both sides of the decisions reached. This acceptance is purely voluntarydepending solely on the sense of moral obligation. Loyal acceptance has infact been the rule in all the trades concerned. Although the question hasbeen raised from time to time of the adequacy of these methods, the viewhas always been taken that it was not desirable to adopt some alternativebased upon principles other. than that of mutual 'consent or to introduceany system of penalties for non-observance of agreements. Certain stepshave, however, been taken in the interests of the community to encouragejoint voluntary machinery and to • assist where necessary in , the settlementof disputes."

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loinl. CONSULTATION continued).

tion, generally they are far too_ restricted in scope to be dig-nified by that designation. There is practically no joint con-sultation. in Australia at the industry-wide level. True, thereis in Victoria and' Tasmania, a system. of 'wages boards com-posed of representatives of employers and employees and cover-ing different industries. But these boards are created understatute, their scope is generally confined to questions of wagesand working conditions, their determinations are legally bind-ing on the parties concerned, and follow to a large extent thoseof the Commonwealth Arbitration Court. They are in nosense joint consultative bodies in the true meaning of thatterm: At the national level an attempt was made during thewar to establish a joint national industrial relations advisorycouncil, but after two or three meetings the council becameunworkable and was abandoned.

REASONS FOR LACK OF INTEREST IN AUSTRALIA

Why has there' been so little development in Australia inindustrial joint consultation compared with Great-Britain andother countries? In the first place employers by and largehave shown little enthusiasm for tile subject. In fact duringthe war the more less half-hearted effort to follow the Britishexample in setting up joint production committees . wasopposed by some of the representative bodies and did not getVery far. The feeling among Australian employers, ap-parently, has been that management is the sole prerogativeof management and that it is under no obligation to discusswith , the workers the reasons behind its actions. There is . afear that committees set up for this purpose might be used toundermine the authority of management and establish union orworker control of industry. On the other hand the tradeunion movement itself has so far shown no' 'great enthusiasm

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for consultative committees. Its lack of interest apparentlysprings from the fear that committees of this kind might tres-pass

• on the territory of unionism and might work to under-

mine and weaken its authority.This explanation is not, however, sufficient to account fully

for the small interest in joint consultation in this country.To some extent we would expect these reasons to be operativein other countries such as Great Britain -where joint consulta-tion has progressed much further than Australia. The over-riding reason behind the small development of joint consulta-tion in Australia is probably to be found in the dominatingposition of arbitration and of the principle of the "rule oflaw" in industry. The need for joint negotiating machineryhas not been felt so acutely as in other countries where legalregulation of industrial relations is not so prominent. Thesupremacy of compulsory arbitration is, however, both causeand effect of the failure to develop voluntary machinery.There are good grounds for believing that in the minds of thefounders of the system', and of judges of the courts, it wasnever intended that arbitration should be used or developed insuch a way as to overshadow voluntary methods. For in-stance, in a notable judgment in the Metal Trades Case in1929, Judge Beeby made this statement:—

"In 1926 . 1 was impressed with the lack of co-operationexisting between employers and employees, and urged thatsome effort should be made to form councils of consultationrepresentative of employers and their workmen, with a viewto arriving at some method of adjusting industrial differ-ences by voluntary methods. My efforts in this direction,however, have not met with much success. . . . Even at thisstage I urge upon the parties the necessity of establishinga Joint. National Council, with district committees in eachState, to consider the broad issues in which there is mutualinterest, and to attempt to arrive at agreements similar tothose which now operate in Great Britain."

LIMITATIONS OF JOINT CONSULTATION

Whether joint consultation even in its most theoreticallyperfect form would cure completely the psychological malaiseof modern industry is highly doubtful. For one thing the

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1function of consultative bodies must in the main be advisoryrather than executive in nature. Industry could not operateefficiently unless management retains the 'final authority todetermine policy and to make decisions.. But in spite of itslimitations joint consultation remains one of the most pro-mising of all developments in industrial relations, and of allthe means proposed for achieving industrial understandingand co-operation.

A POLICY

Australia has done comparatively little in this field and itis high, time that industrial circles awoke to its possibilities.This does not mean that an attempt should be made forthwithto establish' a complete and unified system of joint consulta-tion throughout Australian industry. Such an attempt wouldbe doomed to failure. Joint consultation is something inwhich we must learn to walk before we run. Nevertheless,a beginning should be made. A few Australian companieshave established true factory Works Councils with satisfactoryresults, and there is no reason why a large number of otherindustrial concerns should not follow their example. In factevery industry might examine itself to see whether its internalconditions are such that an experiment in joint consultationat the plant level might be embarked upon with prospects ofsuccess. In addition a new effort might well be made to setup a , National Industrial Relations Council of employer andemployee representatives to explore matters of common con-cern to both parties to industry. Such a body might examinethe practicability of building gradually an industry-wide sys-tem of consultation along the lines envisaged by the late JudgeBeeby in 1929. One thing is certain—there is no hope ofestablishing good-feeling and trust . unless Australian industrylearns to place less reliance on legal regulation of industrialrelations and more on voluntary methods. It is here thatjoint consultation has a contribution of unique value to maketo the Australian industrial scene.

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PROFITS . .and the Profit Motive

•

IN recent years a tremendous barrage of criticism has been hurled against the

profit-motive. This criticism, a large partof which is the product of emotion ratherthan reason, has had the inevitable effectof increasing public suspicion and dis-favour of profit-seeking and ' of danger-ously weakening the fortifications of en-terprise in all its forms—private, publicand personal. The results of 'this are tobe seen in the facts of the post-war situa-tion—in the fact that public companies onthe average have to be content with littlemore than half the "real" profit* they en-joyed before the war, in the disinclinationof the worker to work overtime because theextra earnings after taxation are regardedas hardly sufficient to compensate for theextra effort, in the reluctance of manyprofessional men to undertake more thana limited volume of work, and in the grow-ing practice among younger men to seekin their careers security rather, than riskand adventure.'

There are few subjects about whichthere is greater misconception than profitand the profit-motive. There is probablyno subject in .which ignorance can dogreater economic and industrial harm andon which unprejudiced and uncloudedthinking is, therefore, more necessary.

Distinction Between Profits and theProfit-Motive.

In the first place in a great number ofminds the profit-motive and business pro-fits, particularly the profits of public com-

*Profit in terms of the goods and services it willpurchase.

panies, seem to be regarded as identical.In fact, business profits are one aspectonly, and a comparatively minor aspect,of the profit-motive. Except for a verysmall' minority, all men—and not merelythose who live by business profits and nomatter whether they dwell in Australia,the United States or Soviet Russia—areactuated to a greater or lesser degree bythe profit-motive. All' men, with few ex-ceptions, work for personal gain, and allmen, with few exceptions, desire to in-crease the rewards they receive for thework they perform. This applies as muchto the unskilled labourer as to the. topbusiness executive, as much to the tram-conductor as to the head of the tramwaysboard, to the chef as to the cafe pro-prietor. In fact—and there is irony inthis—there is probably no organisationmore strongly founded on, and inspiredby, the profit-motive than the trade unionmovement itself. At least the profit-motive is just as powerfully at work in theranks of trade unionism as in those ofemployer organisations.

Profit-Motive Not Immoral.

Nor is this to be condemned on moral.grounds. That a man should strive to in-crease his income in order to provide him-self with the means of a fuller materialand cultural existence, is altogethernatural and wholly to be 'commended. Infact this' urge to improvement hasbeen the driving force behind a great dealof the material and technological progress

. of mankind. There are ,of course somepeople, but' their numbers are compara-

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PROFITS— and the Profit Motive (continued)

tively small, who seek money and riches fortheir own sake or for ignoble ends—forthe satisfaction of gross material pleas-ures, for the sheer joy of flaunting theirriches in the face of the less fortunate, orfor personal aggrandisement and thepower money gives them over their fellowmen. But for every human being of thiskind, there are probably a thousand whodesire money for nobler purposes—for thesecurity and comfort of their wives and.children, the , improvement and beautifica-tion of their domestic surroundings, theopportunities it provides for better educa-tion, for the realisation of philanthropicand social ideals.

The profit-motive, the desire for per-sonal gain and material betterment, is oneof the elemental instincts of man. Keptwithin .reasonable 'bounds it is not im-moral, it is not against the interests ofsociety, and it will continue to be active.no matter what the form of the politicaland economic organisation. In a societyin which all industry was owned and runby the State, there would still be wage-earners desirous of increasing their wages,managers and executives of raising theirsalaries, and engineers and musicians, andyes, even politicians, of obtaining greaterrewards. The problem of securingeconomic and social justice does not con-sist in the elimination of the profit-motive—an aim which, being opposed to the fun-damental nature of man, is entirely im-practicable—but in distributing the pro-duct of human effort on a just basis in'proportion to hard work, skill, enterprise,risk and social need and significance. "

The profit-motive is not, however, theonly motive animating men in their eco-nomic pursuits. There are at least two

others. One is the desire to give service ;another is the desire for power. Both arepresent,. in greater or lesser degree, inmost men and both like the profit-motivecan be—but need not necessarily be—apowerful influence for social and economicimprovement.

The Motive of Service.The motive of service is not the ex-

clusive possession of a few saints. It iswidely spread throughout the community.When a crisis such as a major war hitsa nation, the motive of service becomesparamount, and hundreds of thousands ofpeople can be found who are ready to sac-rifice their own personal interests andeven their lives for the good of the State.There is, in fact, present in most peoplea great latent capacity for selfless service.This capacity is not necessarily destroyedor submerged by the profit-motive. Thetwo motives are not mutually exclusive.The urge to achieve a more comfortablelivelihood -and fuller life for oneself isnot necessarily incompatable with thewish that other people should also havethe opportunity and means of a betterexistence. The business leader in his am-bition to build a great business enterpriseis not seldom motivated 'by the ideal ofservice at least as much as by the pursuitof profit. Nor is the wage-earner clamour-ing for higher wages necessarily 'withouta sincere desire, and often a greatcapacity, to serve his fellow men. A manis not black or white according to whetherhe happens to be a director of a big busi-ness or a dustman, a capitalist or a social-ist. The idea that employers as a class

,are self-seekers, untouched by any: finerideals than that of personal profit, andthat wage-earners as a class are selfless,

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disinterested idealists untainted with thedesire for personal gain, is utterly false,.but it seems to exert a tremendous influ-ence over present-day economic and po-litical policy. The proportion of bad togood wage-earners is probably identicalwith the proportion of bad to good em-ployers. The sooner we begin to think ofmen as individuals instead of men in themass, the sooner we will commence to findreal solutions for economic and social prob-lems.

The •Power Motive.In impelling men on to greater efforts

and achievement the attraction of poweris possibly just as important as the lureof profits. And, like the profit-motive,the power-motive is not good or bad initself. It becomes bad when the desirefor power is so powerful that it submergesall. other motives, and when power itselfis applied to evil or ignoble purposes.There are few men who have attained tothe topmost flights in industry that havenot engrained deeply in them the love ofpower. But it is also true that the suc-cessful union leader at the head of a unionwhose membership may run to tens ofthousands desires power and enjoys itsexercise equally as much as the managingdirector "of a business with capital re-sources amounting to millions of pounds.The real test of the value of power iswhether it is wisely exercised.

Mixture of Motives.The human being is a strange and com-

plex mixture of many, and often contrast-ing, 'motives and instincts. In one manone motive will predominate, in other menit will be insignificant. These threemotives, the desire for profit, the desirefor power, the desire to serve, are present,and will remain present, in varying de-grees in practically all men, no matter to

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what section of the community they be-long, no matter what the political form ofthe society in which they live and havetheir being.

Business Profits.In the minds of most people the profit-

motive is identified with the profits earnedby' business, particularly the profits ofthe larger public companies to which agreat deal of publicity is given in the dailypress. As we have seen, this idea is fal-lacious. It leads those who see no pur-pose in, or justification for, business pro-fits to a sweeping condemnation of theprofit-motive as such. One might as wellpass sentence of guilt on man himself.

Business profits are one aspect only ofthe profit-motive.

Functions of Business Profits.What useful functions do these profits

perform '!I. Incentive to Achievement: First of

all they provide an incentive to achieve-ment. They encourage men to create andbuild, to show enterprise, to produce newand better products, improve methods ofproduction, raise efficiency and reducecosts, expand markets, provide better ser-vice, invest and risk capital in new formsof production. This incentive function ofprofits is, however, probably less strong inthe large public company than in the smallprivate company, partnership, or one-manbusiness. In the smaller business the con-nection between effort and enterprise onthe one side and reward on the other ismuch more direct than in the large con-cern. Very often the driving force be-hind an ambitious programme of expan-sion undertaken by a large public com-pany springs from one or two top execu-tives who do not stand to benefit finan-cially in anything like the degree to which

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PROFITS— and the Profit Motive (continued)

their efforts would seem to entitle them.In the development activities of the largeorganisation, the motives of power, ofnational service, the sheer joy of adven-ture and satisfaction in achievement playa large part.

2. Test of Efficiency: This, however,should not be taken to mean that profitperforms no function of value in such con-cerns. In these, as in smaller businesses,profit is a test of efficiency. The mostefficient business, the one that providesthe highest quality products at the lowestcost is in general the one that makes themost profit. This, of course, is not uni-versally true. In a monopolistic business,or in an industry in which the firms havebanded together to fix unfair minimumprices and eliminate competition, profit.need not be, and very often is not, any in-dication of outstanding efficiency. Never-theless, the business which makes thehighest profits is not infrequently the onethat gives the best service to the com-munity. This is a fact very often over-looked.

3. Index of Demand. Thirdly, profit,actual and prospective, is one of the meansby which the business man is informed ofthe changing desires and tastes of theconsumer. When profits in a particularindustry rise, other things being equal,it is often a broad indication that the pub-lic is prepared to consume more of thethings that the industry produces. Whenprofits decline, the business man knowsthat he must tread warily, and possiblyreduce his production of the things onwhich losses are being incurred.

4. Attract Savings: Fourthly, profitsare the .means of attracting savings 'intoindustry—high profits are the means ofenticing capital into new, risky, but oftensocially beneficial forms of production.Profits provide the fund out of which in-terest on their investment is paid to those

prepared to place their savings at the dis-posal of industry in the hope of obtaininga reward. It is these savings which makepossible the expansion of capital equip-ment and the improvement of industrialefficiency. Experience confirms, andmodern economic theory accepts, the pro-position that the standard of life of apeople depends very largely on the extentand quality of its productive capital equip-ment. The average level of profits shouldtherefore be sufficient to ensure an ade-quate flow of savings into industry. It isno accident that the high-profit economyof the United States is also the one withthe greatest amount of physical capital perhead of the population, and the one able topay the highest real wages to its workers.If we are to achieve a higher level ofwages, there must be more capital. Highprofits and high real wages are not, as iscommonly supposed, mutually exclusive.They are in fact two sides of the samecoin—the coin of national prosperity.This is a truth that needs 'to be well ab-sorbed by both capital and labour, as wellas by governments.

5. Providing. Reserves for Capital De-velopment: The development of the capi-tal resources of industry is financed notsolely by the savings of tens of thousandsof shareholders. A very substantial partis financed directly out of business profititself. This is the fifth function of profit.All the profits earned by industry, are notpaid away as dividends to shareholders.A big proportion, in the larger public com-panies amounting on average to some-thing like 15%, is retained in the busi-ness, and much of this is used for the pur-chase of additional plant and equipment.It is as much in the interest of the com-munity as in that of business that this

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should be done, for it provides a direct andsimple method of financing the countlesssmall improvements and additions to pro-cesses and equipment that are for obviousreasons unsuitable for financing by theissue of new shares or debentures.

6. Reserves for Hard Times: Finallymost prudent businesses set aside some oftheir profits to build up reserves that canbe called upon in the event of hard times.These reserves can give long-run stabilityto a business, and, if properly used, canassist it to maintain its labour force atthe maximum numbers when sales falloff and production has to be curtailed. Infact the contribution which business as awhole might make to alleviating the con-sequences of trade depression through theintelligent use of reserves built up in goodtimes out of profits is a subject to whichfar too little attention has been paid in thepast and to which a great deal of studymight beneficially be devoted by business-men themselves.

Excessive Profits.One of the most widespread and tenaci-

ously-held misconceptions about profits isthat they are excessive and far greaterthan is necessary for the efficient conductof industry. It would be idle to deny thatthere are many instances of unnecessarilyhigh profits. The business man, like thevast majority of other men, is no paragonof virtue and if he sees the opportunity ofincreasing his profits, even though theymay already be more than adequate, hewill generally grasp it. But though thereare cases of excessive profit-making, alto-gether they add up to no more than a veryminor part of business as a whole. Over thewhole field of industry, taking into accountbad years as well as good, losses (whichare by no means infrequent) as well asgains, the average level of business pro-fits is astonishingly. moderate: Statisticspublished by the Commonwealth Banksuggest that the average return on capital

invested in industry is something of theorder of 5% to 6%.

The evil of excessive profit-making—ofprofiteering—remains, however, and mustbe unreservedly condemned. The bestprotection against profiteering is to befound in a lively vigorous competition.'Where competition is- impracticable ornon-existent there is a case for some gov-ernment oversight and control of the levelof profits. But discrimination is needed.There is always a grave danger that alocalised assault on profiteering will de-velop into a general large-scale attack onall profits with disastrous consequencesfor the economy. •

The attempt by the CommonwealthGovernment in 1942 to eliminate profiteer-ing during the war by imposing an over-all ceiling on profit of 4% on capital em-ployed is a case in point. When the pro-posal came to be examined in detail, theimpracticability as well as the injustice ofplacing an arbitrary upper limit over allprofits became apparent and the Govern-ment wisely decided to abandon the

• scheme. The main reason for abandon-ment put forward by the Prime Minister,the late Mr. John Curtin, was that theplan would have had the effect of imposingan impossible tax burden on the smallshareholder. He pointed out that therewere 300,000 shareholders in Australiawith incomes below £250 a year and thatinsuperable difficulties 'had been encoun-tered in providing for a just applicationof the profit limitation.

In this announcement the Prime Minis-ter made the significant admission thathe had yet' to discover the correct defini-tion of "excessive profits." It is in factimpossible to limit profits to an arbitrarystandard rate without committing mani-

Page Fifteen (continued)

PROFITS — and the Profit Motive (continued)

fest absurdities and gross economic injus-tices. Is the new risky speculative busi-

- ness to be permitted no higher profit thanthat earned by the old well-establishedorganisation ? Is a highly competitivebusiness to be placed on the same basisas a monopoly? Is the efficient businessto be allowed no greater profit than theinefficient? Is the gold mining companyto be restricted to the same rate of profitas the company supplying an essentialservice? Is , the pioneer and inventor toget no special reward for years of sacri-fice and arduous work? Excessive profitcannot be decided only by the rate of pro-fit on capital employed in the business.It can be determined only by reference toall the economic circumstances surround-ing the business. These circumstancesvary widely between each industry andoften between individual firin g in the sameindustry.

Profit A .Means Not an End.

Profit is not as is commonly thought thesole objective of business. Strictly speak -ing it is doubtful whether it is an objec-tive at all. It is .a means to an end, notan end in itself. It provides the business-man with a means of estimating the mar-ket for his product, of providing his em-ployees with security and better condi-tions of employment, and of rewardingthose people who are prepared to placetheir savings in his care. To quote a stan-dard text book' on management "Profitcan no more be the objective of a busi-ness than eating is the objective of liv-ing." But without eating there is no lifeand without profit there is no business—at least no business under the privateenterprise system.

Business Man Partly to Blame.For the suspicion and hostility sur-

rounding business profits the business-man himself must bear a large share ofthe blame. He has never made an organ-ised and well-considered attempt to ex-plain the nature' and composition of pro-fits to the public. On the contrary he hastended to surround the 'whole subject ofprofits with a cloak of secrecy. He usuallypresents his financial reports in such away 'that their real meaning is clear onlyto the skilled interpreter of accounts. He •frames his profit statements mainly tomeet the needs of the shareholders, notthe requirements of his workers and thepublic. Only recently, and then only inrare cases, has he attempted to explainhis profits more fully and simply to hisemployees and show the proportion they.consume of the total revenue of his busi-ness. The ordinary citizen reading theheadlines in the financial press since theend of the war can hardly be blamed if heis under the impression that company pro-fits have seldom been higher. He wouldbe surprised indeed if he were told thetruth—that the post-war level of profitsis probably less than two-thirds of thepre-war level.

There are few more urgent needs in in-dustry than the need for franker andfuller information about profits.' If pri-vate enterprise neglects to take the initia-tive in this, governments should considerexercising compulsion. For such compul-sion would be in the interests of businessitself and of more accurate and realisticeconomic and political thinking. As aleading journal* has excellently put it"The aim- would be not to convict industryof sin, but to clear it of unfounded sus-picion."

• "The Economist," 27/7/46.

.Page Sixteen

140

120.

woemose......••

... ■•••••....

Igo .dr.1":„,_ ----OIVIIEN113j

..... ... .... . ........... ....

80

60

WAGES, PROFITS & DIVIDENDS: 1937.1945

Graph No. Money Rates

19 37 1938, 1939 . 1940 1941 • 1942

1943 1944

1945

1.. The index of money wages is based upon nominal weekly wage rates

for adult males as published by the Commonwealth Statistician.

-2. The indices of money profits and money dividends are compiled'

from figures published in the Commonwealth Bank Statistical Bulletin

showing company profits and dividends as a percentage of shareholders'

funds.. These figures are , extracted from the published accounts of some

hundreds of companies with shareholders' funds, aggregating upwards of

£500 million. Profits are shown after making provision for company taxa-

tion.

3. The base year 1937 . = 1.00.

Page Seventeen

WAGES, PROFITS & DIVIDENDS: 1937-1945

110

100

90

80

70

50

Graph No. 2: Real Rates

NIND

.....MOO ■■■ sM.

MEM NM.

•

OIVIOEHOS

PROFITS

.......... . . .

1937 1938 1939 1940 1941 1942 1943 . 1944 ' 1945

1. The indices in this graph reflect the real values, i.e., purchasingpower of the money values shown in the first graph. Real values areobtained by adjusting for changes in prices by the "C Series" index numberpublished by the Commonwealth Statistician.

2. The "C Series" index number merely purports to demonstrate thechange in the cost of a similar selection of commodities and services con-sumed by the average wage-earner between two periods of time, and forthis reason has limited validity as an index of the purchasing power ofmoney. Its application to money wages is much more exact than itsapplication to money dividend receipts. It has been adopted in thisanalysis for want of a better alternative measure. This does not affectthe general argument that there has been a fall in the real value of profitsand dividends for the use of the "C Series" index has the effect of con-siderably underestimating the decrease in the purchasing power of mostshareholders.

3. The base year 1937 = 100.

N.B.—Information published after this analysis was completed indicates that in 1946there was a further rise in real wages and little change in real profits.

.........

.........

Page Eighteen

WAGES, PROFITS & DIVIDENDS : 19374 945

Interpretation of Graphs on pages 17 & 18

THE statistical analysis comprised in thetwo graphs depicts . the trends in pro-

fits and dividends and wages since the pre-war years. The first graph suggests thatthere has been a fairly substantial in-crease in money rates of wages and somefalling away in rates of company profitsand dividends as measured by the percen-tage of profits and dividends on share-holders' funds.

But wage rates on the one handand profit and dividend rates on theother have little significance to the wage-earner, company or shareholder, apartfrom the quantity of goods and ser-vices that they can purchase. It is neces-sary, therefore, to make some allowancefor the changes that have taken place inthe purchasing power of money since thepre-war years. It is the common practiceto measure these changes by the "CSeries" price index number which is theindex adopted by the Commonwealth Arbi-tration Court for adjusting the basicwage to variations in the cost of living.While it is doubtful whether this indexgives a true reflection of the rise in thecost of living or of general prices sincethe pre-war years, and while the index isnot perfectly satisfactory for the purposesto which it has been applied in this -analysis, it is probably the best availablegeneral indicator of price changes.

When rates of wages, dividends and pro-fits have been adjusted for price changes

by this index it appears that real wages(before payment of tax)—i.e., wages interms of the goods they could purchase—have risen by something like 6% since 1937,whereas dividend rates (before paymentof tax) have fallen by 32%. Rates ofcompany profits (after providing for tax)earned on shareholder's funds have fallenby 35%.

With the recent lifting of ceiling priceson shares, the shareholder's capital equityin money terms has increased substan-tially since 1937-8. However; when sharevalues are adjusted for price increases bythe "C Series" index (taking this index tomeasure the depreciation in the value ofthe LA) their average value has risen onlyvery slightly.

No provision has been made in this sur-vey for the effects of personal income taxor of social service expenditure on thereal income of the wage-earner as againstthat of the shareholder. The rise in taxrates has been more severe on incomefrom property than on income from per-sonal exertion. In addition the heavy in-crease in social service expenditure in re-cent years has favoured the wage-earningsections at the expense of shareholdersand those in the higher income brackets.

The.statistical evidence suggests . thatsince pre-war years there has been someimprovement in the economic position ofthe wage-earner relative to that of theshareholder, public companies and otherrecipients of income.

*

Page Nineteen

Full EmploymentSince 1938-9 the Australian social and economic structure has.

undergone a striking metamorphosis. Making full allowance for

the abnormal conditions of the period of post-war transition

it is possible to distinguish a number of structural changes to the

economy, fundamental, and to some extent, permanent, in charac-

ter. It is these changes rather than the out-dated issue of national-

isation versus private enterprise, which should be attracting the

attention of politicians, business• men and social thinkers.

The first is the realisation, temporarily at any rate, of full

employment, which was generally accepted by the. democracies

during the war as the supreme aim of post-war economic policy.

The second, and- the most far-reaching in its implications, is the

redistribution of the total product of Australian work in favour

of the lower incomes at the expense of the middle and high incomes.

The third lies in the great increase in the Proportion of government

expenditure to total national expenditure of all kinds. Allied 'to

this is the fourth fundamental change—the development of gov-

ernment control and of central direction of the economy.

It is the present intention of the Editorial Committee' to pub-

lish in successive issues of the "Review" a series of articles in which

these major changes to the ecenomy will be examined.

•

SINCE the end of the war the level ofemployment in Australia has been at

an all-time high. The percentage of un-employment in the last six months of1946 (according to trade union returns tothe Commonwealth Statistician) averaged1.4%. In the previous twelve months theaverage was about 1.3%. Nothing com-parable with this has been achieved before

under peacetime conditions. In the threeyears 1936-7 to 1938-9, the average level

•of unemployment was' of the order of 9%.Over the twenty years preceding thesecond World War the average was 14%.It is significant that the best figure pre-viously achieved in peace-time was 6.5%in 1918-19 and 1919-20.

Page Twenty

Conflicting Definitions.Insofar as trade union returns—which

cover only members of certain unions—can be taken as an accurate reflection ofthe level of unemployment over the wholeeconomy, the present conditions surpassthe most ambitious aspirations of the pro-tagonists of the full employment economy.Sir William Beveridge, who probably gavebirth to that school of thought which pre-fers to define full employment as a statein which there are "more jobs than men"—a definition adopted by the Common-wealth Government in its White Paper onfull employment—was content to aim atan unemployment figure of 3%. ProfessorCopland attacked this approach on thegrounds that it would involve an economy.constantly under the threat of inflationand needing permanent controls overwages, profits and prices. He • suggestedthat it would be better to shoot at a tar-get somewhere between 5% and 8%.This is identical with the goal recom-mended in the United States by the Tech-nical Committee of the National ResourcesPlanning Board. A somewhat similargoal is implied in the White Paper on"Employment Policy" published by theBritish Government during the war.

It is not the intention of this article to.argue the merits and demerits of theseconflicting definitions of "full employ-ment." They have been mentionedmerely to underline the fact that by what-ever standards full employment is as-sessed, the present level of employmentin Australia more than satisfies thosestandards.

Problems and Opportunities.For almost two years now Australian

industry, perhaps for the first time in

peace, has been operating under aneconomy of full employment. Thiseconomy has given rise both to problemsand opportunities that did not exist wherethe normal state of things was a level ofunemployment of somewhere around 10%.The fact that full employment has beenattained—indeed more than attained-' since the end of the ,war does not prove,however, that the policies for abolishingunemployment, which were thrashed outduring the war as a result of intensethought and mental labour, have beensuccessful. The present state of full em-ployment is largely the natural outcomeof the extraordinary financial and econ-omic conditions of the post-war transitionpediod—the banked up demands of gov-ernments, businesses and individuals sup-ported by plentiful purchasing • powerpressing on short supplies of goods—rather than of any policy adopted by gov-ernments during the war for eliminatingdepression and maintaining a high levelof employment. These policies have yetto be put to the test, which will not comeuntil the abnormal supply-demand rela-tionship brought about by the war hasbeen succeeded by more normal conditions.Nevertheless, the fact that the level ofunemployment in the years followingWorld War II has been substantially lowerthan the level after World War I, on theface of it seems to suggest that we havemade some advances in the practical man-agement of economic affairs.

Hopes for Full Employment Not YetRealised.The condition of full employment—in-

deed of over-full employment—has not so

Page Twenty-one (continued)

Full Employment . (continued)

far proved to be an unmixed blessing. Infact many of the high hopes which wereheld for full employment have up to thepresent not been realised. These hopeswere largely based on the belief that theautomatic outcome of the elimination ofthe waste of resources, inherent in aneconomy with a persistent margin of un-employed labour, would be a higher levelof national production and consumption,and, consequently, a higher average stan-dard of life for all. Economists, most ofwhom foresaw some of the dangers of thefull employment economy, were, never-the-less, over-ready to assume that fullemployment and prosperity were synony-mous terms. Full employment, they said,implies the opposite of economic depres-sion, and therefore, if we can achieve a per-manent state of full employment, we willhave eliminated depressions.

Our post-war experience of full employ-ment, brief though it is, has hardly servedto bear out these hopeful predictions. Infact this experience has been so disil-lusioning that many people who formerlysupported the goal of full employment asan admirable social ideal, have becomedubious whether full employment can bemade to work satisfactorily. A few havedefinitely turned against it and now pintheir faith to the traditional "pool of un-employment" as the only means of assur-ing the progress which derives from hardwork and industrial discipline.

Full Employment and Depression.The post-war period provides abundant

evidence that it is quite possible to havefull employment without full production—that full employment and maximumproduction are not the "all weather" in-separable companions many have believed

•

them to be. More than this, it is becom-ing clear that full employment, if it canbe permanently maintained, does not ipsofacto mean that the devil of economic de-pression will no longer stalk the land.All that full employment implies is theelimination of depression in the old tra-ditional meaning of the term, in whichthe level of employment was the acceptedindex of industrial health. • Recent ex-perience shows that it is possible to enjoyall the advantages of having no unemploy-ment and yet still be in imminent dangerfrom economic depression—a depressionnot of the old type but of one marked andcaused by sheer failure to produce.

Poor Productivity.Only a few weeks ago in evidence before

the Commonwealth Arbitration Court, in.the 40 Hours Case, Australia's best-knownstatistician, Mr. Colin Clark, gave it as hisopinion that despite the great increasein the numbers employed over the lastpre-war years real national income todayis little or no greater than in 1938-9 andthat productivity—output per , manhour-is probably about 10% lower. This ac-.cords with the viewpoint expressed 'in theMarch issue of the I.P.A. "Review" andfairly closely with other expert economicevidence presented in the 40 Hours Case.

Dangers of Under Production.The great dangers of full employment

are those of under-production and of alevel of costs and prices out of the reachof the incomes of the people. Under fullemployment where a man can walk out ofone job into another, the "threat of thesack" no longer holds any terrors. Onthe other hand, under conditions of un-employment, one worker—and not merely

Page Twenty-two

the factory employee but the office workerand executive—is under some compulsionto prove himself at least as efficient asthe next. Competition between employeesfor jobs is no less a potent means of en-suring productive efficiency than is com-petition between businesses for the avail-able market. The traditional "pool ofunemployment" did unquestionably havethe effect of maintaining worker efficiencyand sometimes plant efficiency at a reason-ably high level. It can be shown statis-tically that in periods of acute unemploy-ment manhour output has often increased.This is what happened in Australia duringthe great 1929-33 depression. The lessefficient workers were laid off, workersand executives on the payroll worked moreefficiently, there was keen competition forthe available jobs and the most inefficientmachines and production units were closeddown. It can also be shown that there isa close statistical correlation between theamount of unemployment and the numberand intensity of industrial disputes.Strikes tend to increase in severity intimes of high employment and to fallaway in periods of low employment.

All this of course does not constitutean argument for a return to the pre-war"pool of unemployment." Even if sucha course were economically desirable, itwould be socially most undesirable andpolitically impracticable. As the London"Economist" has so often reiterated, aconscious policy aimed to maintain fullemployment is a political "categorical im-perative" for the government of a moderndemocratic state.

Australian Conditions.Many of those things which were most

feared for an economy of full employment

under peace-time conditions have come topass in Australia since the end of the war.Industrial irresponsibility is fairly wide-spread. It is not easy for management.to enforce even reasonable standards ofdiscipline let alone to bring about a' highstandard of industrial performance. Thisapplies as much, or nearly as much, tooffice as to factory workers. Absenteeismis considerable. Timekeeping is poor. Forinstance rest periods tend to exceed theallotted interval. After the specifiedcommencing time work often takes farlonger than necessary to get under way.Tools are downed and cleaning up at theend of the day's work often begins beforethe recognised time. Bad practices of thiskind soon become the customary thing andacquire the force of a habit. It is widelyagreed by most observers that in gen-eral labour does not do as much in anhour's or a day's work as before the war.There is less respect for authority. Labouroperating in a seller's market is taking the"advantages" of that situation. Employ-ers can hardly complain because in thepast they have not been backward in ex-ploiting the possibilities offered by aseller's market for their products. Inboth cases it is the consumer who suffers.

Record Turnover in Labour.The turnover in labour is at record

levels and involves a' very serious additionto industrial costs. No assessment of.what these costs mean to the economy canbe made because--and this is a seriouscriticism of Commonwealth and Statestatistical departments—there is no at-tempt to measure the rate 'of labour turn-over for Australian industry as a whole.

Page' Twenty-three (continued)

Full Employment (continued)

However, studies for individual factoriesor investigations made by certain com-panies for their own purposes reveal anextraordinarily high -turnover in labour.This is no doubt partly due to the excep-tional conditions of the post-war.period,but it is largely an outcome of the labourshortage. If excessive labour turnover isto be a permanent accompaniment of fullemployment it will present a very seriousobstacle in the way of achieving maxi-mum standards of efficiency.

Working days wasted through strikesare at a peak only surpassed on one or twoprevious occasions in Australia's indus-trial history. This is partly to be ac-counted for by the industrial unsettlementinevitably following upon a world-shaking.war, but is also, as past experience sug-gests, the result of absence of unemploy-ment.

Full Employment Working Badly.

The full employment economy is notworking well; it is working badly. Thesolution to the problems to which full em-ployment has given rise does not, how-ever, lie in a return to the pre-war "poolof .unemployment" even if this werepolitically practicable or morally defen-siblein fact it is neither. A return tounemployment, if it were desired, couldvery easily be achieved by simply neglect-ing to make plans against the time whenwar-time shortages will have been over-come, or against the ever-present possi-bility of a large drop in the price of Aus-tralian exports. We must assume, how-ever; that those plans are being made, andwe must hope that the large fluctuations

in employment and the chronic conditionof under-employment of the pre-war econ-omy will not recur.*

Can Full Employment be Made to Work?How can the new economy of full em-

ployment be made to work effectively?The fundamental mistake has been to sup-pose than an . economy composed of fallible.human beings will operate efficiently inthe absence of adequate compulsions . orincentives. Not only has the compulsionof unemployment disappeared—that wasright and necessary—but we have at thesame time greatly reduced the incentivesto hard and efficient work. Having de-cided to dispense with the "stick" cif un-employment we should have at least main-tained the number of carrots. We . havenot done this. At the same time as theremoval of the stick from the donkey'sback we have taken away the carrots fromhis nose. It is scarcely surprising thatthe donkey is not moving forward veryrapidly or that full employment is notworking out, very satisfactorily. The old-time rewards for hard work, skill, enter-prise and ambition must as far as pos-sible, and as soon as possible, be restored.That is the first and by far the most im-portant requirement.

Education in Industrial Economics.The second need—long overdue—is that

of educating the worker in simple indus-trial economics. This has been neglected

•This does not mean that the maintenance of em-ployment at present levels, even if it were possible,would be desirable. The present employment situa-tion has been aptly and rightly described as over-full employment. The supply and demand for labouris not in a healthy balance. There is an acute short-age of labour. While this condition continues theabolition of financial controls over wages, costs andprices would be fraught with risks. The completeremoval of wage-pegging might easily lead to aninflationary situation of grave potentialities. In orderto obtain a greater share of the short supplies oflabour; employers would bid competitively againstone another, and wages, costs and prices would beforced up at a much more rapid rate than at themoment.

Page Twenty-four

in the past with consequences that arenow coming home to roost. It 'is neces-sary to bring home • to the man "at thebench, in the shop and in the office, thesimple truth than an increase in his realincome and an improvement in his living'standards can only be achieved out of theproceeds of greater production.. He mustbe brought to realise that an increase inmoney wages will in the long run meannothing to him unless it is accompaniedby 'higher productivity. He should betaught the relationship between costs andprices, to understand the functions of pro-

• fits. It is widely realised in Great Britainthat the, greatest single obstacle to thesuccess of the "production drive" launchedby the Labour Government is 'the • diffi-culty of getting the individual worker to.understand and accept these simple econ-omic truths. This is not a job for anyone group, or to be' tackled. by any onemethod: It is one for employers as muchas trade unions, governments as much asemployers.

Joint Consultation.The third requirement, allied to , the

second, is an expansion in the practice ofjoint consultation. This 'is the most pro-mising means yet devised for raising thesense of responsibility of the worker. Fac-tory . and production committees by plae-ing more responsibility on workers them-selves for' the maintenance of discipline,will, sooner or later, prove to be the mostefficient means of overcoming the indisci-pline otherwise inevitable under full em-ployment. Joint consultation also pro-vides the machinery by which a great ad-vance in the understanding of the workerof industrial realities can be achieved.

New Opportunities.

It is not enough, however, merely totake steps to ensure that full employmentwill work with reasonable effectiveness.Full employment offers a great oppor-tunity for positive action to attain a levelof productive efficiency far above pre-warlevels. The restrictive "feather bedding"practices of labour—"the limitation ofoutput," the "dark," production quotas,the opposition to incentive payments, re-gulations stipulating the number ofWorkers required for a given machine, the"make the work go round" philosophy—are in large part the bad fruits of the un-certainties of the employment market.Equally, -the restrictions imposed by em-ployers on competition—the craze forstability rather than expansion, minimumprices, production quotas, internationalcartels—all these, as has been well said,"are the by-products of a long period ofendemic depression" and of the fear a thetreacheries of the market. Under fullemployment the market's both for labourand the products of industry are intended'to be stabilised at reasonable levels . incontradistinction to the widely fluctuatingmarket of the pre-war system. .The res-trictions which were justified in the pastwill have little or no justification in thefuture under full employment.

It would be wrong and disastrous, there-fore, if . 'the comparative failure of fullemployment at the present time were tocause us to lose our faith in it as an in-strument for great economic and socialgood. There is little doubt it can be madeto work—not merely well—but in a waythat will help to raise standards of living •to heights undreamed of in the past.

* * *Page Twenty-five

HOURS and OUTPUT

The following article that appeared in the British industrial journal"SCOPE" is reproduced by courtesy of Creative Journals Ltd., London.The article refers at length to the Institute's report on the "40-HourWeek." In view of the influential character of "SCOPE" in industrialcircles in Britain the reference to the Institute's work is of specialinterest.

T is in the nature of crises that they pass. The time for'I decision is momentary and whatever course is taken the

fateful fork in the road is soon left behind. Writing in theselast days of a crucial February, still uncertain when next weshall appear in print, we are bound to assume that by that timethe people of this country will have made their own . decisionthat the hard road is the only road to recovery. But the passingof the crisis, even though the right decision be taken, will meanno more than that the menacing onrush of accumulatingproblems has been seen and recognised just in time to avoidimmediate disaster. It will not mean that a single one hasbeen solved. The danger is that the moment of clarity in thenational outlook will pass as quickly as the crisis itself, and thatthe clear outlines of courageous decisions will be broken up,as quickly as the snow melts, by the old outcrop of 'ifs'and 'buts.'

"At the root of all else today is the need, imperative and un-conditional, for increased production. The Government'seconomic survey makes it quite clear that this in turn, what-ever auxiliary expedients may. be enlisted, cannot be achievedexcept by increased output per man-year. In this momentof lucidity the harsh prescription is plainly legible: harderwork and longer hours for all. But when the most alarmingpains have been subdued, how long before we begin to murmuragainst our medicine? How long before agitation, for a shorterworking week is, resumed?

"The White Paper itself testifies that the Government not •only expects such demands but knows the grounds on whichthey will be based. There will no hint of any connectionwith the newly ostracised family of restrictive practices.There will not even be a claim that the workers are entitled tomore leisure, as well as higher wages, in the more equitable dis-tribution, of the profits of industry. The demands will be

Page Twenty-six

Page Twenty-seven

based on the argument that shorter hours lead to increased pro-duction. Nor does the White Paper reject such an argumentout of hand: 'The nation,' it says, 'cannot afford shorter hoursof work unless these can be shown to increase output per man-year.'

"There is, therefore, an urgent need to consider the relation-ship between output and hours of work, and any serious at-tempt to establish it on a scientific basis is worth careful study.Under the title, '40 Hour week,' the Institute of PublicAffairs of Victoria has published a valuable report on what isdescribed as 'the most important question agitating the indus-trial community of Australia.'. Australia was one of the firstcountries in the world to introduce the 48-hour week andboth the inevitability and the desirability of further reductionsare regarded as axiomatic by the authors of the report. Buttheir researches have led them inexorably to two conclusions:

(1) The present economic situation of Australia is one whichcalls irresistibly for the maximum possible production and thefullest use of all resources of labour, capital and materials.

(2) All scientific experience shows that a reduction of thepresent standard working week would result in diminished out-put.

"Since the first conclusion, by common consent, applies witheven greater force to this country, there is nothing to be gainedby a detailed examination of the considerations on which it isbased. But the second deals with' the very issue that is adum-brated in the passage we have quoted from the White Paper.'Those who support the introduction of the 40-Hour Week,'say the authors of the Australian report, 'often claim that thereduction of hours of work from 44 to 40 will bring about animprovement in man-hour output, and that this improvementwill for-the most part offset any fall in production consequentupon a shorter working week. While the number of hours ofwork will be less, a greater volume of output will be producedin each hour, thus maintaining total production. Can thisclaim be substantiated?'

"Here, indeed, is the crux of the problem. It is easy tobelieve, and in many cases easy to prove, that fewer workinghours may mean more output per man-hour. Unfortunately,

(continued)

HOURS and OUTPUT (continued)

in the present circumstances, the argument is entirely irrele-vant. It is only the total volume of production that countsand any proposal to reduce working hours must pass the testof a simple but uncompromising equation. To be acceptableit must show that the arithmetical product of work-per-hourmultiplied by hours-worked-per-year will be at least as highas before. As one economist has recently said, the capital let-ters O.M.Y. should now be displayed in every working place.

"The report admits that where the length of the workingweek is still excessive a reduction in hours will no doubt in-crease P.M.H. and may even increase it to such an extent thatO.M.Y. is improved, despite the lower number of workinghours. This may well have been the case in Britain after thefirst World War when, in many industries hours were reducedfrom 56 to 48. But obviously the process cannot be con-tinued indefinitely and there must be a .point at which a 'lawof diminishing returns' begins to operate. This point needsto be established.

"That it has already been reached and perhaps even passedin Australia, where the average working week is 44 hours, isevidently the view of the Commonwealth Department ofLabour and National Service. In a publication entitled 'Plan-ning Hours of Work' there is a significant paragraph on thehours • for best output: 'Measurement of quantity of outputin relation to hours of work is too difficult, and needs too muchtime and attention, to be often done. Sufficient results arenow, available to relieve the individual manufacturer from thenecessity of attempting it in normal cases. As might be ex-pected, hours.for highest weekly output depend to some extenton , the .occupation (type of operation performed) and theconditions in which the work .is done. But often plants inwhich many types of occupation are performed' must, forreasons of organisation, work unifofm hours throughout.Wherever a number of occupations have to be worked foruniform hours, or the trouble of making differences is notworth while, 48 hours per week is the best general level toapply over a period, in manufacturing industry. This is ad-mittedly too long for heavy manual labour, and shorter thannecessary far some machine minding, but' it is a reasonableand simple compromise.'

Page Twenty-eight

"In this country Mr. Seebohm Rowntree, whose judgmentand sincerity must command the respect of employers andemployed alike, has arrived at a similar conclusion: 'Experi-ence,' he writes, 'seems to point to 48 hours as the length ofthe working week which may suitably be regarded as the stan-dard in most industries, and I should say that any deviationfrom it must be justified by the facts. A reduction shouldonly be made if it is necessary for health or if it can be takenwithout materially increasing the cost of production.' Thelast proviso is, of course, only another way of 'saying, 'with-out materially decreasing O.M.Y.' The Australian report,assuming that man-hour output would remain constant,estimates that 'the introduction of the .40-hour week . wouldincrease the costs of production by one eleventh of the wagesbill of those affected, plus an addition for the irreducible over-head charges which would have to be spread over a smalleroutput. '

"The 48-hour verdict is also endorsed by Dr. P. SargantFlorence, who says: 'Reductions from a 12-hour to a 10-hourbasis result in increased daily output; further reductions to an8-hour basis result in at least maintaining this increased dailyoutput; but further reductions, while increasing the hourlyrate of output, seem to decrease the total daily output. Sinceone, standard length of working. week must be chosen, the48-hour week probably best satisfies the criterion of maximumoutput with minimum accidents, lost time and overheadcharges at any rate• this seems. to the writer the teachingof all the scientific investigation hitherto attempted.'

"Has the lesson been learned? Or will this country, whenimmediate disaster has been by hook or crook averted, forgetthat though the Crisis has passed the hard' economic facts re-main? When demands for shorter .hours are again put for-ward, as they surely will be, the Government will need all thecourage of their present convictions to apply the only truecriterion—the rigid test of O.M.Y. Leisure is one of the mostprecious rewards of industry and one which in times of normalprosperity should be steadily increased. But until productionhas at least restored-our standard.of living it is one which thenation simply cannot afford."

Page Twenty-nine . (continued)

Statement Issued to the Press on 27th June, 1947

This statement is a commentary on newspaper reports of a speechby the Prime Minister at the Trades Hall, Adelaide, on the 26th June,

in which he uttered a warning on the danger. of an economic recession.It was prepared by ' the Industrial Committee and issued to the presson 27th June, 1947.

We do not think that there is much pos-sibility of an economic collapse of the1929-32 . proportions for a long time tocome, provided. we do not fall into a self-inflicted depression, caused by failure toachieve an efficient standard of produc-tion.

' On the other hand we agree with thePrime Minister that the present high levelof export prices for Australian primaryproducts cannot be expected to continueindefinitely and that some decline in thoseprices must 'sooner or later 'be anticipated.This could have serious effects on internalstability in Australia, if proper plans arenot worked out to meet the contingencywhen it arises. The fall in export priceswould reduce the incomes of primary pro-ducers who would therefore have less tospend on the products of the home market,and this in turn would affect the incomesof business and of all other sections ofthe community.

The Government's plans to counter thisfall in export prices are by no means per-fectly clear and in the interests of futurestability it is necessary that the public,and particularly the business community,should be well-informed of those plans sothat business can gear its own pro-grammes to meet the situation. We can-not too strongly emphasise that if futuredepressions are to be avoided in Aus-tralia, there must be the closest co-opera-tion between business and governments

and a clear understanding of what respon-sibilities each should bear. Business andprivate investors should take a level-headed commonsense view of the futureand resist any tendency to pessimism orpanic. One of the main causes of depres-sions and their magnitude is the psycho-logical outlook of business. From thispoint of view we should resolutely avoidthe danger of talking ourselves into a de-pression. Too much "depression talk" isin any case quite unjustified by. the econ-omic facts of the world today.

One warning is however necessary.' Thefundamental measure of the old-time de-pression was the level of employment. Weshould not, therefore, fall into the' errorof thinking that if we can maintain ahigh level of employment, we have ipsofacto eliminated .depressions. There canbe an economic decline under full employ-ment—caused by sheer failure to produceon a reasonably efficient basis, so as tobring costs and prices within the reach ofthe incomes of the people. Full employmentis not inconsistent with a low averagestandard of life for the Australian people.All parties to the economic process, gov-ernment, 'employers and workers, shouldrealise that efficient production is the onesure means of preventing a depression ofthis type and of putting Australia into astrong position to withstand the inevitablefluctuations in economic conditions aboard.

Page Thirty

INDUSTRIAL CONFERENCE

Statement on Industrial Conference issued to the press on 12th

. May, 1947, by the Industrial Committee of the Institute of Public

Affairs, Victoria.

The Institute of Public Affairs, Victoria,strongly supports the proposal made inthe "Herald" on Monday, 12th May, for apeace in industry conference attended . byrepresentatives of employers and employ-ees.

It would be futile, however, for such aconference to be held if the respectiveparties go to the conference table with theconviction that there is' no substance ormerit in the viewpoint of the other party..Before the conference is held, therefore,the representative organisations of em-ployers and employees should do a greatdeal of deep thinking and heart-searchingand endeavour to frame a policy whichwill meet the needs of the times in whichwe live and which will contribute in amajor sense toward the creation of a realpartnership in industry. It would be amistake to call a conference before thisfundamental preliminary work is carriedout.

One of the most important things whicha conference should strive to do is to buildpermanent machinery of consultation be-

'. tween employers and employees at alllevels — plant, industry, State aridnational—so that the area of voluntaryagreements and settlement of differences •

can be widened and arbitration will cometo be used not as a first step but only as

a last resort. Until employers and em-

ployees acquire the habit of conductingtheir own affairs, without recourse to in-dustrial tribunals or third parties, there islittle hope of achieving industrial peaceand continuous maximum production.

In the Institute's rf. view the conferenceshould discuss and attempt to reach agree-ment on a broad basis on the followingsubjects:

(1) Methods of wage determination.

(2) Security of employment and incomefor the workers.

(3) The disposal of profits—includingthe question of profit-sharing.

(4) The provision of information toemployees concerning their respec-tive industries.

Joint consultation—its scope andpurposes.

(6). The means of securing reasonablecontinuity of production in the in-dispensable community services oftransport, fuel, electricity, gas.

(7) Means of raising productive effi-ciency and increasing output.

But what is needed, above all, is achange of heart and of understanding byall concerned in industry. Without thisno conference will succeed and good indus-trial relations will remain a remote ideal.

(5)

Page Thirty-one

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