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Memorandum
ON THE
Industrial Situation
After the War
((jArton Foundation)
REPRINTED BY
INDUSTRIAL RELATIONS DIVISION
UNITED STATES SHIPPING BOARD
EMERGENCY FLEET CORPORATION
PHILADELPHIA, PA.
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Garton
.'lo-hinn, "London
Southern Branch
of the
University of California
Los Angeles
Form L-l
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Memorandum
ON THE
Industrial Situation
After the War
(Garton Foundation)
per
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REPRINTED BY
INDUSTRIAL RELATIONS DIVISION
UNITED STATES SHIPPING BOARD
EMERGENCY FLEET CORPORATION
, . PHILADELPHIA, PA.
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PREFACE
I
This Memorandum is the work of a group of men who came together,
at the instance of the Garton Foundation, for the purpose of discussing the
industrial situation in this country at the close of the present war. The
group included men of very varied views, in touch with both the Capitalist
and Employing Classes and Organised Labour, as well as with financial,
economic and administrative circles. As a result of their inquiries and of
correspondence and discussion with representatives of all parties to indus-
try, they became convinced that the return from war to x>eace conditions
woidd inevitably involve great difficulties, which might result, if not- care-
fully and skilfully handled, in a grave outbreak of industrial disorder.
In the endeavour to find a solution of these difficulties, they were led to
analyse the more permanent causes of industrial friction and inefficiency,
and to seek the means by which these causes might be removed or their
action circumscribed. It is their belief that these means can be foimd and
that an emergency which threatened all classes of the community with
serious loss and hardship may be used as an opportunity for placing the
whole industrial life of the counti*y on a sovmder basis.
In that belief, this Memorandum was compiled. It has been the object
of its authors to keep always in mind the human as well as the economic
side of industry. They are conscious that this country has suffered much
in the past from the habit of sectional thinking, which divides our national
activities into water-tight compartments and regards the nation itself as
composed of detached or hostile classes. The keener consciousness of cor-
porate life, which is perhaps the most beneficial result of the present
struggle, has created an atmosphere in which it is easier to conceive of
industry as an inseparable part of the life of the nation; and of those con-
cerned in industry, whether as employers or employed, as co-workers in the
task of building up a future worthy of the sacrifices which have been made
during the war.
The Memorandum has already been privately circulated, to a con-
siderable extent, among employers of labour, leaders of working class
opinion, and those who have taken a prominent place in the discussion of
economic and social questions. A large number of criticisms and sugges-
tions have been received, which have been collated, carefully examined, and,
in many cases, incorporated in the Memorandum. The general tone of its
reception on all sides has been such as to encourage its publication as a con-
tribution to public discussion of what is ])erhaps the most urgent question,
after the immediate conduct of the war. witli which the country is con-
fronted to-day.
3
It is evident that in order to avert the threatened dangers and to take
full advantage of the opportunity afforded by the circumstances of the war,
with its upheaval of existing conditions and its challenge to accepted ideas,
study of the questions involved must begin while the war is still with us.
Many Government Committees and many non-official bodies are, in fact,
already at work upon various aspects of the problem. There is, however,
a danger that the number and complexity of the questions involved, and
especially of those relating to the actual period of demobilisation, may
divert attention from the broader aspects of industrial reconstruction and
the fundamental principles of industrial policy. The authors of the Mem-
orandum have endeavoured throughout to keep their eyes fixed upon the
fundamental facts of industrial life and the spirit by which it should be
animated, treating the more detailed problems of demobilisation and recon-
struction with a view to showing them in their right proportion and relation
to the main issues.
The Trustees of the Garton Foundation (The Et. Hon. A. J. Balfour,
M.P.; The Et. Hon. Viscount Esher, G.C.B., and Sir Eichard Garton) have
permitted the devotion of its staff and resources to this work in the belief
that sincere and intelligent inquiry with regard to these questions cannot
fail to be of national service. While they do not in any way identify them-
selves with the conclusions arrived at by its authors, they believe that
nothing but good can come of submitting them to the test of public discus-
sion. In that belief they have sanctioned its publication in its present
form.
SYNOPSIS*
A.— THE INDUSTRIAL SITUATION TODAY (1-12)
Grave ai^prehensious entertained by Kniployers and Employed. (1)
The appearance of present prosperity deceptive. (2-4~)
Industrial unrest oftly suspended. (5-7)
The dangers of sectional thinki r. (8-11)
Relation of industrial to social , ,h1 {Kjlitical problems. (12)
B.— THE EFFECTS OF THE wUr ON THE INDUSTRIAL SITUATION
(13-63)
I. — Employment: (15-25)
(i) The Supply of Labour. (16-19)
(a) Demobilisation. (10-17)
(6) Diminution of Government Orders. (18)
(c) Stopgap and emergency workers. (19)
(ii) The Demand for Labour. (20-23)
(a) Repair and reconst'-uction demand. (21)
(b) Revival of private demand. (22)
(c) Revival of foreign trade. (23)
Prospects of Employment: No "shortage of work" or 'surplus of labour,"
but a good deal of unemployment due to difficulties of re-adjustment. (24-25)
II.— Earnings: (26-39)
The national income cannot exceed the sum of goods and services produced
(or received from without). (26)
Causes tending to lessen Produetinn: (27-33)
(a) Men killed and incapacitated. (27)
(b) Emigration. (28)
Losses by death or emigration will not be wholly compensated by
reduction in number of consumers, or bv new workers.
( 2!)-30 )
(c) Deterioration of National Plant. (31)
id) Effects of Overwork. (32)
(e) Suspension of Industrial Education. (33)
Causes tending to inerea^e Production: (34-37)
Many people may work liarder aiul former non-producers may con-
tinue working. (34)
Conversion of new munition ])lant. (S."))
Better organisation of production. (36)
Reduction of Income from Abroad. (38)
Net Effect of the War ox Earnixcs: Unless a special effort is made the
national income is likely to be lower tlian l)efore the war. and the likcliliood of
quarrelling over its apportionment will lie increasi^l. (39)
III. — The Distribution of Earnings: (40-46)
New factors afTectin'g questions of distribution. (40)
(a) High Prices. (41)
(6) High War Wages. (42-43)
Weekh' earnings and rates per hour. (42)
EfTect of Prices on Real A\'ages. ( 42 )
EflVct of State allowances. (43)
(c) War Loans and Taxation: EfTect on distribution of national
income. (44)
(d) D^arness of Capital. (4.5)
*The numbers in brackets relate to paragraphs, not to pages.
Prospects ^^•ITH regard to the Distribution of Earnings: The operation
of the above factors will be unfavourable to industry, and [larticularly to labour.
Unless output can be expanded, contlicts between employers and employed are
probable. (46)
IV.— Capital and Credit: (47)
Fixed Capital will have depreciated; tluid capital will be scarce and dear;
we may be threatened with a partial collapse of credit when embargoes
are removed and financial obligations have to be met.
v.— Spirit and Temper: (48-63)
The difficulties of the situation may be complicated by an ugly temper arising
from several causes (48-4i)) X
(a) Economic Discontent. (50-54)
Low real wages and unemjiloyment. (50-51)
Cessation of Separation Allowances. (52)
The war has strengthened the demand for better conditions. (53)
Capital and Management will be hit by restricted output, increased
cost of production and heavy taxation. (54)
(b) Class-Suspicion. (55)
Removal of Trades Union safeguards; war-time strikes; fear that
soldiers may be used for strike-breaking or as "black-leg" labour.
(c) Psychological Reactions: (56-62)
Reaction following on war-time efforts. (57)
Resentment against burdens o'f war. (58-60)
"^Yrecker " doctrines. (61)
Reactionaries in Employing Class. (62)
Prospects as to Spirit and Temper: If not checked, an ugly spirit and
temper may easily deveiop and render a satisfactory solution of industrial prob-
lems impossilile. (63)
C— THE PROBLEM AND SOME REMEDIES (64-132)
I.— The Problem: (64-78)
(i) The Emergency Problem: [65-70)
Every class has much to lose by industrial conflict. The event is
uncertain and the prize of victory will j^erish in the struggle.
(ii) The Constructive Problem : (71-72)
The Constructive Problem is concerned both with meeting the more
lasting effects of the war, and with the permanent difficulties
of our industrial life. (71)
The great opportunity. (72)
If the measures by which the emergency is handled can be such as
will make for permanent reconstruction, so much the better.
(73)
Both the Emergency and the Constructive Problem are dual in their
nature. The direct effects of the war can be dealt with by
specific remedial measures ; the underlying problem of indus-
trial policy and relations requires broader and more far-
reaching treatment. (74-78)
II. — Emergency Measures: (79-93)
(i) Demobilisation: (79-87)
(a) The finding of jobs. (79-80)
(6) The assuring of decent wages. (81-83)
(c) Settling men on the land. (84)
id) Teaching men trades. (85) •
(e) The new workshops. (86-87)
6
C— THE PROBLEM AND SOME REMEDI ES— Continued.
(ii) The Exodus from the War Industries: (88-92)
The number afTectcd. (88)
Transferred workers. (89)
New workers. ( 90 )
Boy and girl labour. (91)
The remedies. (92)
(iii) Industrial Friction: (93)
\Muitever remedial measures may be adopted, friction can only be
avoided by agreement between Capital, Management and
Labour as to the future organisation of industry.
III. — Constructive Measures: (94-132)
(i) I.NULSTKIAL Ekhcie.ncy: (94-112)
(a) Physical efliciency. (95)
(b) ^Icntal and manual efficiency — The Primary Schools. (9fi)
(c) Continuation education. (97)
(d) Labour-saving machinery. (98-102)
(e) Works organisation. (103-105)
if) Labour Legislation. (100)
ig) Reform of the Patent Laws. (107)
{h) The Encouragement of Research. (108)
(i) Improved metliods of distribution. (109)
{Ic) Banking and credit facilities. (110-111.) The Danger of Panic
Economy. (112)
(ii) Increased Saving: (113-117)
Capital for the repair and improvement of the national plant and
tiie reconstruction of devastated areas can only be furnished by
people producing nuich. spending little on consumption of
goods, and saving the balance. (113)
Need for education in the principles of economy. (114)
The distribution of national wealth and its effect upon saving. (115)
Working-class saving and tlie dangers of injudicious "thrift." (116)
The relation of saving to demand. (117)
(iii) Assured Markets: (118-128)
(o) Home Demand: (119-122)
The methods of capital renewal. (119)
The effect of protective tariffs. (120-122)
(6) Empire .Markets: (123)
The (juestion of Imperial Fiscal Union.
(c) Foreign Markets: (124-126)
The organfsation of selling; consular service; adaptability and
languages; Ministry of Commerce. (124)
Prestige. (125)
The connection between home and foreign markets. (126)
(d) Allied Zollvcrein and trade war. (127-128)
(iv) LAND: (129-130)
The question of land ownership and economic rent.
(v) AGRICULTURAL: (131)
The need for better organisation and education.
The above remedial measures, though important, will not solve the funda-
mental question of Industrial Unrest. (132)
D.— THE FUNDAMENTAL PROBLEM (133-180)
To understand tiic fundamental prol)lem we must examine the essentials of
industrial welfare. (133)
The foundation of industrial welfare is production: its volume, its quality
and the conditions of work. (134)
Increased saving, for the renewal of capital and plant is an essential of
increased output. (135)
D.— THE FUNDAMENTAL PROBLEM— Continued.
Increased Production, Increased Saving, Increased Confidence
are the keys to the whole problem. (136)
Limitation of Production:
By Employers. (137-138)
By Labour. (139-140)
Why and how restrictions should be removed. ( 141 )
The Fundamental Question — The Relation Between Employ-
ers AND Employed. (142)
The interests of Employers and Employed are concurrent as
regards production and only partly antagonistic as regards
distribution. (143-144)
The question of status. (145-147)
The grievances of Employers. (148-149)
So long as the fundamental interests of Employers and Employed
are believed to be purely antagonistic, production and saving
will be hampered. '(150-152)
The four guiding principles. (153)
{a) The necessity of increased efficiency in production.
(b) Increased efficiency must be sought for in better methods and organi-
sation, and in a new attitude towards Industry.
(c) These reforms can only be accomplished by the co-operation of
Labour, Management and Capital.
{d) In order to secure this co-operation, Labour must have a voice in
matters relating to its special interests.
In dealing with an immediate problem we must work with the materials at
hand. Gradual progress achieved by co-operation is better and more
certain than revolutionary methods. (154)
Demands made on all classes and the necessity of meeting them.
(155-1.>8)
The State cannot move in advance of public opinion. (159)
The Functions of Capital, Management and Labour. (160)
Inter-relation of these functions and consequent common interests.
(161-162)
Why the possibilities of co-operation are not recognised. The causes of
conflict. (163-169)
The Outlines of a Settlement. (170-180)
Appendix A. — A suggested Experiment.
Appendix B. — Works Lectures.
A. — The Industrial Situation Today
1. The probable course of Trade and Industry after the war is already
engaging the attention of numerous official and non-official bodies. Some
of these bodies are concerned with the difficulties of demobilisation and a
return from war to peace activities ; others with the possibilities of develop-
ment and expansion which the changed political and economic conditions
appear to hold out to us. Both aspects of the problem have attracted a
considerable amount of attention ; but it is doubtful whether there is as yet
any widespread public recognition either of the dangers by which we shall
be threatened, or of the greatness of the opportunity which will be presented
to us. Among those who are closely connected with Industry, whether as
Employers or as leaders of Organised Labour, there are many who regard
the future with grave apprehension. Both in the difficulties inseparable
from readjustment and in the more permanent effects of the war upon our
economic life, they foresee the occasion of a renewed outbreak of industrial
friction which would not only obstruct our commercial progress, but
seriously cripple our power of recovery.
2. The seeming prosi^erity of the country during the war has obscured
the realities of the situation. Because the war has not given rise to unem-
ployment and the financial crisis which followed on its outbreak was suc-
cessfully tided over, many observers ignore the industrial dislocation which
has taken place. Because there has been a general cessation of disputes
between Labour and Capital, which has enabled us to concentrate our
energies upon the vigorous prosecution of the war, they imagine that the
problem of industrial unrest has in some way been solved.
3. These conclusions are altogether contrary to the facts of the case.
The prosperity of the present is artificial and transient. It is due in part
to strenuous exertion which cannot be continued indefinitely; in part to
sacrifices which go unrealised because they are not proclaimed; in part to
the depletion of accumulated stocks; in part to the suspension of expendi-
ture on national plant which, if continued, would end in dilapidation; in
part to the temporary absorption into industry of people who will not con-
tinue to be producers after the war; in part to borrowing and recalling
money from abroad. It resembles in large measure the lavishness of the
spendthrift which leads to bankruptcy. The absence of unemployment is
due, not to thriving trade, but to the withdrawal of several million men
from the labour market, the inflation of the currency, and the concentration
of purchasing power in the hands of the State, which has not to study the
absorptive power of commercial nxiirkets for the disposal of its purchases,
but uses them to destruction as fast as they are produced. It is not till
these stimulants are removed and we are left once more to the operation of
the ordinary laws of supply and demand, complicated by the difficulties of
readjustment to normal conditions, that the real situation ci^eated by the
war will become obvious.
4. It may be said that the success with which our national organisa-
tion and activities were adapted to the circumstances of the war gives a
fair promise of similar success in the readjustments necessitated by peace,
But the problems presented by a temporary crisis in which economic consid-
ei'ations sink into a secondary place and the strongest possible appeal is
mlade to the spirit of self-sacrifice in all classes, afford no real parallel to
those presented by a return to normal conditions after a long period of dis-
location. The factors mentioned in the preceding paragraph, while they
have eased the situation during the war, will become a source of weakness
as soon as peace is signed. In some cases, such as the withdrawal of men
from the labour market, their operation will be exactly reversed. In others,
such as the depletion of stocks and the suspension of expenditure on
national plant, immediate relief has been purchased by mortgaging the
future. The war has, in these two regards, been paid for by drafts upon
the prospective wealth which will have to be met at a time when the enthusi-
asm which sustains a nation during war has given place to the reaction that
usually follows a period of tension. The rapid recovery of Industry from
the shock of war affords no ground for dismissing lightly the difficulties
inherent in a return to peace conditions. On the contrary, an examination
of the causes of that recovery reveals additional grounds for viewing those
difficulties with concern. The prospect is a grave one and it is likely to be
further complicated by the spirit in which it is regarded by both parties to
Industry.
a
5. Even were the present relations of Employers and Employed
entirely harmonious, we could not feel complete confidence in the contin-
uance of that harmony after the war. But such is not the case. Even
under the stress of war there is ill-feeling, suspicion, and recrimination.
Charges have been made against each side of placing personal and class
interests before national welfare, and of using the national emergency to
snatch present gains and to strengthen its strategical position for the
resumption of industrial hositilities. Employers have pointed to extor-
tionate wage demands, broken time, slackness, insubordination, and sullen
resistance to temporaiy changes, the necessity for which has been openly
acknowledged. The workers have pointed to war profits, to the virtual
enslavement of labour by the misuse of powers conferred by the State, to
attempts to undermine and weaken the Unions and so to establish an
ascendency which may be maintained after the war. They lay stress, also,
on the increased cost of living, which they attribute in the main to the
deliberate action of manufacturers and traders, more studious of their own
than of the national advantage. The closing of the ordinary channels for
the ventilation of grievances has served only to intensify the bitterness of
such feelings.
10
6. There is a prevalejit belief that the "brotherhood of the trenches"
and workshops, the spirit of co-operation and self-sacrifice which has made
possible our efforts in the war, will remain as a permanent factor in our
national life. A great deal has been said of the effect of discipline upon
the men who have served at the front, and it is widely assumed that on
their return they will be more amenable to management and less responsive
to agitation. Those who argue thus do so mostly on general principles and
probabilities. But it is no use arguing that certain conditions oxight to
produce certain effects if the facts show that they do not. There is evidence
that many of the m.en who return from the trenches to the great munition
and shipbuilding centres are, within a few weeks to their return, amongst
those who exhibit most actively their discontent with present conditions.
Among those who have fought in Flanders or who have been employed in
making shells at home, there are many who look forward to a great social
upheaval following the war. To some this may be distressing and almost
incredible. The facts remain, and the facts must be faced.
7. So long as the country is actually at war, this spirit is likely to be
held in check both by the abnormal conditions of State control and by the
patriotism of the mass of the people. So long as the peril from without
remains the supreme factor, we may look to the workmen to forego his
most cherished safeguards and to employers and the propertied classes to
bear patiently restriction of profits and an unparalleled burden of taxation.
But we have had signs already, in the war-time strikes, in the denunciations
of profiteering, and in the evidence of a great body of suppressed resent-
ment on both sides, which does not as yet come to the surface, that the
industrial peace is only a truce. It would be a mistake to assume that this
truce will sunave the immediate pressure of foreign war which brought
it about.
8. The truth is that the war has effected a temporary alliance between
different parties and different classes similar to that frequently effected
between States. Just as nations formerly bitterly opposed have been united
in face of a common peril, so Liberal and Tory, Labour and Capital, have
united to-day for a specific purpose. When that purpose has been achieved
the alliance will break up, unless more permanent ties of interest and sym-
pathy can be created.
9. For aid in the creation of such ties we can, indeed, look to that
quickened sense of corporate responsibility which the war has developed.
But for this purpose it will not sufiice to rely upon any vague sentiment of
goodwill. We have for so long been accustomed to consider the community
as divided into classes having neither common aims nor common interests,
and to regard the operations of industry as something apart from the moral
and intellectual life of the nation or of the individual, that it will not be
easy to carry into the industrial sphere that spirit of united effort and high
endeavour which has been awakened by the great conflict. The workman's
sense of loyalty in times of peace has been excited by his Union or by his
class rather than by any conception of natioiuil unity. The employer's
11
business patriotism has stopped short at the conception of successful resist-
ance to foreign competition. By both alike the internal organisation of
industry has been considered as a purely domestic affair, a business bargain
to be arrived at by a compromise between competing interests. The events
of the past two years have emphasised both the advantage of co-ordinated
action and the closeness with which Industry is linked to every other
element of our national life and strength. But to bring home these truths
to the bulk of Employers and Employed, it will be necessary to make very
clear the relations between the various parties to Industry, and between
Industiy itself and social and jwlitical development. The unity of national
effort in the war has arisen mainly from the clearness of the issues involved
and the force with which they have been brought home to every section of