Probably few industrial announcements have created a more world-wide comment than did this one, and hardly any one got the facts quite right. Workmen quite generally believed that they were going to get five dollars a day, regardless of what work they did.
The facts were somewhat different from the general impression. The plan was to distribute profits, but instead of waiting until the profits had been earned—to approximate them in advance and to add them, under certain conditions, to the wages of those persons who had been in the employ of the company for six months or more. It was classified participation among three classes of employees:
(1) Married men living with and taking good care of their families.
(2) Single men over twenty-two years of age who are of proved thrifty habits.
(3) Young men under twenty-two years of age, and women who are the sole support of some next of kin.
A man was first to be paid his just wages—which were then on an average of about fifteen per cent. above the usual market wage. He was then eligible to a certain profit. His wages plus his profit were calculated to give a minimum daily income of five dollars. The profit sharing rate was divided on an hour basis and was credited to the hourly wage rate, so as to give those receiving the lowest hourly rate the largest proportion of profits. It was paid every two weeks with the wages. For example, a man who received thirty-four cents an hour had a profit rate of twenty-eight and one half cents an hour—which would give him a daily income of five dollars. A man receiving fifty-four cents an hour would have a profit rate of twenty-one cents an hour—which would give him a daily income of six dollars.
It was a sort of prosperity-sharing plan. But on conditions. The man and his home had to come up to certain standards of cleanliness and citizenship. Nothing paternal was intended!—a certain amount of paternalism did develop, and that is one reason why the whole plan and the social welfare department were readjusted. But in the beginning the idea was that there should be a very definite incentive to better living and that the very best incentive was a money premium on proper living. A man who is living aright will do his work aright. And then, too, we wanted to avoid the possibility of lowering the standard of work through an increased wage. It was demonstrated in war time that too quickly increasing a man's pay sometimes increases only his cupidity and therefore decreases his earning power. If, in the beginning, we had simply put the increase in the pay envelopes, then very likely the work standards would have broken down. The pay of about half the men was doubled in the new plan; it might have been taken as "easy money." The thought of easy money breaks down work. There is a danger in too rapidly raising the pay of any man—whether he previously received one dollar or one hundred dollars a day. In fact, if the salary of a hundred-dollar-a-day man were increased overnight to three hundred dollars a day he would probably make a bigger fool of himself than the working man whose pay is increased from one dollar to three dollars an hour. The man with the larger amount of money has larger opportunity to make a fool of himself.
In this first plan the standards insisted upon were not petty—although sometimes they may have been administered in a petty fashion. We had about fifty investigators in the Social Department; the standard of common sense among them was very high indeed, but it is impossible to assemble fifty men equally endowed with common sense. They erred at times—one always hears about the errors. It was expected that in order to receive the bonus married men should live with and take proper care of their families. We had to break up the evil custom among many of the foreign workers of taking in boarders—of regarding their homes as something to make money out of rather than as a place to live in. Boys under eighteen received a bonus if they supported the next of kin. Single men who lived wholesomely shared. The best evidence that the plan was essentially beneficial is the record. When the plan went into effect, 60 per cent. of the workers immediately qualified to share; at the end of six months 78 per cent. were sharing, and at the end of one year 87 per cent. Within a year and one half only a fraction of one per cent. failed to share.
The large wage had other results. In 1914, when the first plan went into effect, we had 14,000 employees and it had been necessary to hire at the rate of about 53,000 a year in order to keep a constant force of 14,000. In 1915 we had to hire only 6,508 men and the majority of these new men were taken on because of the growth of the business. With the old turnover of labour and our present force we should have to hire at the rate of nearly 200,000 men a year—which would be pretty nearly an impossible proposition. Even with the minimum of instruction that is required to master almost any job in our place, we cannot take on a new staff each morning, or each week, or each month; for, although a man may qualify for acceptable work at an acceptable rate of speed within two or three days, he will be able to do more after a year's experience than he did at the beginning. The matter of labour turnover has not since bothered us; it is rather hard to give exact figures because when we are not running to capacity, we rotate some of the men in order to distribute the work among greatest number. This makes it hard to distinguish between the voluntary and involuntary exits. To-day we keep no figures; we now think so little of our turnover that we do not bother to keep records. As far as we know the turnover is somewhere between 3 per cent. and 6 per cent. a month.
We have made changes in the system, but we have not deviated from this principle:
If you expect a man to give his time and energy, fix his wages so that he will have no financial worries. It pays. Our profits, after paying good wages and a bonus—which bonus used to run around ten millions a year before we changed the system—show that paying good wages is the most profitable way of doing business.
There were objections to the bonus-on-conduct method of paying wages. It tended toward paternalism. Paternalism has no place in industry. Welfare work that consists in prying into employees' private concerns is out of date. Men need counsel and men need help, oftentimes special help; and all this ought to be rendered for decency's sake. But the broad workable plan of investment and participation will do more to solidify industry and strengthen organization than will any social work on the outside.
Without changing the principle we have changed the method of payment.
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CHAPTER IX
WHY NOT ALWAYS HAVE GOOD BUSINESS?
The employer has to live by the year. The workman has to live by the year. But both of them, as a rule, work by the week. They get an order or a job when they can and at the price they can. During what is called a prosperous time, orders and jobs are plentiful. During a "dull" season they are scarce. Business is always either feasting or fasting and is always either "good" or "bad." Although there is never a time when everyone has too much of this world's goods—when everyone is too comfortable or too happy—there come periods when we have the astounding spectacle of a world hungry for goods and an industrial machine hungry for work and the two—the demand and the means of satisfying it—held apart by a money barrier. Both manufacturing and employment are in-and-out affairs. Instead of a steady progression we go ahead by fits and starts—now going too fast, now stopping altogether. When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction. We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction—that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction—it is either bad manufacturing or bad financing. Is business good or bad according to the dictates of fate? Must we accept the conditions as inevitable? Business is good or bad as we make it so. The only reason for growing crops, for mining, or for manufacturing, is that people may eat, keep warm, have clothing to wear, and articles to use. There is no other possible reason, yet that reason is forced into the background and instead we have operations carried on, not to the end of service, but to the end of making money—and this because we have evolved a system of money that instead of being a convenient medium of exchange, is at times a barrier to exchange. Of this more later.
We suffer frequent periods of so-called bad luck only because we manage so badly. If we had a vast crop failure, I can imagine the country going hungry, but I cannot conceive how it is that we tolerate hunger and poverty, when they grow solely out of bad management, and especially out of the bad management that is implicit in an unreasoned financial structure. Of course the war upset affairs in this country. It upset the whole world. There would have been no war had management been better. But the war alone is not to blame. The war showed up a great number of the defects of the financial system, but more than anything else it showed how insecure is business supported only by a money foundation. I do not know whether bad business is the result of bad financial methods or whether the wrong motive in business created bad financial methods, but I do know that, while it would be wholly undesirable to try to overturn the present financial system, it is wholly desirable to reshape business on the basis of service. Then a better financial system will have to come. The present system will drop out because it will have no reason for being. The process will have to be a gradual one.
The start toward the stabilization of his own affairs may be made by any one. One cannot achieve perfect results acting alone, but as the example begins to sink in there will be followers, and thus in the course of time we can hope to put inflated business and its fellow, depressed business, into a class with small-pox—that is, into the class of preventable diseases. It is perfectly possible, with the reorganization of business and finance that is bound to come about, to take the ill effect of seasons, if not the seasons, out of industry, and also the periodic depressions. Farming is already in process of reorganization. When industry and farming are fully reorganized they will be complementary; they belong together, not apart. As an indication, take our valve plant. We established it eighteen miles out in the country so that the workers could also be farmers. By the use of machinery farming need not consume more than a fraction of the time it now consumes; the time nature requires to produce is much larger than that required for the human contribution of seeding, cultivating, and harvesting; in many industries where the parts are not bulky it does not make much difference where they are made. By the aid of water power they can well be made out in farming country. Thus we can, to a much larger degree than is commonly known, have farmer-industrialists who both farm and work under the most scientific and healthful conditions. That arrangement will care for some seasonal industries; others can arrange a succession of products according to the seasons and the equipment, and still others can, with more careful management, iron out their seasons. A complete study of any specific problem will show the way.
The periodic depressions are more serious because they seem so vast as to be uncontrollable. Until the whole reorganization is brought about, they cannot be wholly controlled, but each man in business can easily do something for himself and while benefiting his own organization in a very material way, also help others. The Ford production has not reflected good times or bad times; it has kept right on regardless of conditions excepting from 1917 to 1919, when the factory was turned over to war work. The year 1912-1913 was supposed to be a dull one; although now some call it "normal"; we all but doubled our sales; 1913-1914 was dull; we increased our sales by more than a third. The year 1920-1921 is supposed to have been one of the most depressed in history; we sold a million and a quarter cars, or about five times as many as in 1913-1914—the "normal year." There is no particular secret in it. It is, as is everything else in our business, the inevitable result of the application of a principle which can be applied to any business.
We now have a minimum wage of six dollars a day paid without reservation. The people are sufficiently used to high wages to make supervision unnecessary. The minimum wage is paid just as soon as a worker has qualified in his production—which is a matter that depends upon his own desire to work. We have put our estimate of profits into the wage and are now paying higher wages than during the boom times after the war. But we are, as always, paying them on the basis of work. And that the men do work is evidenced by the fact that although six dollars a day is the minimum wage, about 60 per cent. of the workers receive above the minimum. The six dollars is not a flat but a minimum wage.
Consider first the fundamentals of prosperity. Progress is not made by pulling off a series of stunts. Each step has to be regulated. A man cannot expect to progress without thinking. Take prosperity. A truly prosperous time is when the largest number of people are getting all they can legitimately eat and wear, and are in every sense of the word comfortable. It is the degree of the comfort of the people at large—not the size of the manufacturer's bank balance—that evidences prosperity. The function of the manufacturer is to contribute to this comfort. He is an instrument of society and he can serve society only as he manages his enterprises so as to turn over to the public an increasingly better product at an ever-decreasing price, and at the same time to pay to all those who have a hand in his business an ever-increasing wage, based upon the work they do. In this way and in this way alone can a manufacturer or any one in business justify his existence.
We are not much concerned with the statistics and the theories of the economists on the recurring cycles of prosperity and depression. They call the periods when prices are high "prosperous." A really prosperous period is not to be judged on the prices that manufacturers are quoting for articles.
We are not concerned with combinations of words. If the prices of goods are above the incomes of the people, then get the prices down to the incomes. Ordinarily, business is conceived as starting with a manufacturing process and ending with a consumer. If that consumer does not want to buy what the manufacturer has to sell him and has not the money to buy it, then the manufacturer blames the consumer and says that business is bad, and thus, hitching the cart before the horse, he goes on his way lamenting. Isn't that nonsense?
