The Principles of Economics Part 25

[Sidenote: Increasing importance of skilled organization and direction]

[Sidenote: The source of American enterprise]

3. _For a high efficiency of production, as a whole, conditions must favor the best organization and direction of industry._ Industry is dependent primarily upon natural resources. Climate, rainfall, iron deposits, fuel, supply of wood or coal, predetermine in large measure the limits within, and the direction in which, the industry of any community can move. The progress of production depends also on an increasing efficiency of labor as embodied in individual men, and upon social and political conditions making possible an increase of capital.

But--a condition as important as any of these--production is dependent also on a wise combination of the factors. Social, political, and economic conditions must be such as to call forth the factor of direction and control of industry, to make possible industrial progress.

This is one of the greatest sources of America's superiority to-day. It has been strikingly said that it is now no longer "young America and old Europe," but "old America and young Europe." America is older in industrial experience; Europe, with undeveloped resources, awaits the touch of American methods and machinery. There are dynamic forces in American society not present in equal degree in any other. It is therefore not alone the great resources of coal and iron,--equal resources may be found in unexplored parts of the world,--it is the dynamic social forces, invention, enterprise, and organization, which have brought America to the forefront in industry. Her natural resources have thus yielded an incentive and a premium to enterprise as a sort of by-product. Absence of caste, political liberty, the democracy following the spread of the frontier, have not made it possible for every one to succeed, but they have made it possible, as nowhere else in the world, for real ability to scale the barriers of birth, poverty, and hardship. A conservative population never can equal a progressive population in industrial efficiency. It has been remarked that America has little to fear from Oriental compet.i.tion so long as the avenues of education and enterprise are open to her young men, insuring her the highest capacity in the organization and direction of industry.

[Sidenote: Growing specialization of industry]

4. _A high efficiency of industry is dependent on many social causes making possible a great specialization._ It was said in another connection that division of labor is dependent upon the size of the market. With a large population ma.s.sed at one spot, so that the demand for even the less important products is large, there may be a high specialization of industry. An increase of transportation, such as railways and telegraphs, is equivalent for many economic purposes to growth of population on one spot. In colonial days it took ten days to go from Boston to Philadelphia, and two weeks to go to Washington. San Francisco is now for many economic purposes but one fourth as far from Boston as Washington was at that time. California and the eastern states are distant only thirty minutes by telegraph and three days and a fraction by railroad, and are thus in many respects in the same market.

The great development during the past century in the means of communication and of carriage has made possible, as never before, the ma.s.sing of population to secure the advantages of division of labor in most lines, without meeting the hitherto insurmountable difficulty in the securing of food for such large numbers in a limited s.p.a.ce. The population draws its food from the whole vast area; whereas it is ma.s.sed at the points more favorable for other products and can make use of the most highly specialized machinery. These several conditions thus have favored the growth of large industry under a single control and direction, on a scale never before approached. These changes have brought in their train social problems connected with the concentration of economic power. It remains to be seen whether the unquestioned economies of this new organization can be retained and improved while it is divested of its evils.

[Sidenote: Growing importance of directive ability]

5. _With the growing division of labor, grows the need of the highest ability for the directing of industry._ Ability may be judged by various standards. From one point of view, the scientific mind, grouping facts in the cold light of reason to arrive at truth, is the highest type. But supreme, each in his own sphere, are also the artist expressing, through painting, poetry, dramatic action, and music, the subtleties and complexities of feeling, the moral philosopher, the prophet, the preacher, in the best sense of the term the teacher, all aiding to guide the spiritual forces of humanity along lines that make for social welfare. Not least is the business enterpriser, whose function is to direct the economic forces for production. It is vain to a.s.sign a mean place to the organizing intelligence and its social work. Its importance grows apace with the growing magnitude and complexity of industry.

Misjudgment now will destroy more wealth, and wise judgment can produce larger results, than ever before. The captain of industry also may work as an artist or as a gambler; he may, by the methods he pursues, uplift the moral plane of his society or he may help to corrupt and degrade it.

No citizen is in control of more potent influence for good or ill than the successful business organizer. On the att.i.tude of society toward him, and on the standards to which he is held, depend in large measure the use that will be made of his exceptional powers.

CHAPTER 29

BUSINESS ORGANIZATION AND THE ENTERPRISER'S FUNCTION

-- I. THE DIRECTION OF INDUSTRY

[Sidenote: Judgment and self-direction as elements in personal skill]

1. _In the simplest kinds of individual production the value of the results depends largely on intelligent choice._ Even for the solitary worker the choice of the right time to do work is most important. The first thing Robinson Crusoe did was to turn to the ship to save as much as possible of the cargo before it was dashed in pieces by the waves. If he had begun first to till the soil to provide a future supply of food it would have shown one kind of foresight, but it would have shown very poor judgment. Every moment of delay in recovering the cargo of the wrecked vessel cost him many useful materials. The humblest farmer has a great range of choice and a need of good judgment in fixing the time to sow, to reap, to do each simple task. There is the same need to-day for the small shopkeepers, for the blacksmiths, for the small producers of all kinds to make wise choice of time in the use of their own labor.

There is also a wide range of choice in the distributing and combining of labor, agents, and materials. A limited supply of agents can be used to secure a variety of goods, more or less desirable. There are many chances for mistake, but in the long run it is judgment, not chance, that determines the success of one man as compared with another. There is a choice in ways and methods by which a thing can be done. There are many wrong ways, there is but one best way, at any stage of industrial progress. While most work is done in customary ways and little independent judgment is required, yet in every business from time to time new problems arise and call for an exercise of choice as to methods. Moral qualities are continually called for, such as control of impulse, and the giving up of the comfort of the moment. The wisdom of our fathers is embodied in a mult.i.tude of proverbs that suggest the wise course. Men must "make hay while the sun shines," not lie in the shade.

But virtue fails less often from lack of knowledge than from lack of will. As men differ in judgment, character, and will-power, their products differ, even in the simplest circ.u.mstances. The ability to choose and to do wisely is an element in personal skill.

[Sidenote: Direction of a group of workers]

2. _When men work in an a.s.sociated group, the direction of effort becomes relatively more important._ The first and simplest advantage of a.s.sociation is working in unison. Men unite their muscular efforts for a single task, and accomplish what is impossible to them working singly.

But when many work in unison, the right selection of time and way is of greater importance; a mistake will waste more materials and agents. If a.s.sociation is to yield its advantages, there must be division of labor; hence harmony of effort, hence agreement or direction. While the gain of well-directed a.s.sociation is large, the waste of ill-directed effort is greater, when specialization has taken place, than with isolated workers. Most communal societies have failed because of the lack of a good head. The few exceptional successes have been due to the presence of a man of superior ability, such as George Rapp of the Harmonist Community, who, had he lived in this day, could have become easily the head of a great business corporation.

[Sidenote: Direction of interrelated groups]

3. _Where various industrial groups are a.s.sociated, direction becomes still more important._ In the single group it is an internal harmony alone that is needed. The work of a dozen men must be so arranged that each is in his fitting place. But as this group comes into contact with others, the relationship becomes two-fold, and there must be both internal and external harmony. The more complex the economic organization of society, the more the chance of mistake and the more injurious are the mistakes to a wide range of interests. Large amounts of capital and labor can be rapidly lost through lack of wise direction of a.s.sociated groups.

[Sidenote: Greatest need now of capable direction of industry]

4. _The increased efficiency of industry has been accompanied by the specialization of control._ The crude, early methods of enforcing harmony in industry were slavery and political subordination. Under division of labor, with free workmen, industry is ruled by impersonal economic forces that bring the less capable under the direction of the more capable. This work is rudely done, no doubt, but the penalties of bad direction of labor and capital are so great that blundering cannot be permitted. The man who shovels dirt must do it at the right time and place if, in this complex society, it counts for something and gives the effort value. If he cannot choose well for himself, he comes under direction. The average man cannot decide nearly as well here as he could on a desert island where and when to put in his spade. There it would be to raise food for the current year; here it may be to dig a ca.n.a.l or a tunnel whose uses will not become actual for many years. The more distant the end sought, the more difficult is the choice. To every worker, according to his personal skill, is left some degree of choice in the method of his work, but in a large part of industry the range of choice is very narrow. The man with the shovel and the man with the hoe come under direction.

-- II. QUALITIES OF A BUSINESS ORGANIZER

[Sidenote: Technical knowledge and skill]

1. _The organizer and director of industry must first have technical knowledge of methods, processes, and materials._ The qualities required in the direction of industry are implied in the foregoing section, but they may be more specifically enumerated. Knowledge of technical processes is relatively more important in the direction of industry in the earlier stage. In the single independent producer it is the quality most desirable. He must know the quality of the materials with which he works and the best modes of combining them. But, as industrial organization becomes more complex, only a broad knowledge and ability to judge of the results of different processes and to compare plans are necessary in the organizer. He can hire the technical knowledge of details required in the larger management of business. Draftsmen, engineers, pattern-makers, men with far more education and capacity in certain lines than the business manager, work under his direction.

[Sidenote: Judgment of men]

2. _The organizer requires ability to judge men and tact in relations with them._ In the small group, ability to get on well in personal contact with workmen is of great importance. Especially rare is the genial manner that wins the confidence and even the affection of the men. A sense of humor and the ability to turn a joke are said to have obviated many a strike and thus to have prevented losses both to the employer and to the men. In large affairs much of this managing tact can be hired in good foremen; but the organizer must still have a knowledge of men, ability to judge of human nature, to select his subordinates, and to animate them with his own purposes and plans. Mr. Carnegie has said that an appropriate epitaph for himself would be, "He was a man who knew how to surround himself with men abler than he was himself." That seems too modest; but in a sense it is not, because he claims for himself, and justly, the highest of all industrial qualities. A great administrator in political or industrial affairs can dispense with everything else rather than with this, the supreme quality of the great organizer.

[Sidenote: Foresight in commercial affairs]

3. _The organizer must have unusual foresight and the ability to form a large commercial policy._ This proposition is to be interpreted relatively to the task before the organizer, and to the size of the business. Modern industry antic.i.p.ates demand far more than did primitive industry. Large amounts of materials and energy are embarked in directions from which they cannot be recalled. With the progress of electrical engineering it soon may become possible to recall at any moment a cargo embarked for a distant port. But no wireless telegraphy is able to recall the great ma.s.ses of capital that are embarked on distant and definite journeys in modern business. The organizer antic.i.p.ates future demand, and prepares for it. The process has been figuratively expressed somewhat as follows: the enterpriser throws into the crucible great quant.i.ties of material; they melt, and an industrial result is secured, but whether the deposit is greater in value than the material is a question that cannot be answered for years. The need of antic.i.p.ating demand is greater to-day than ever before, and this requires large investments months and even years in advance. The losses are proportionally large if there is miscalculation of demand. A large commercial policy is one that takes into account the more distant factors, and antic.i.p.ates the new conditions. The rare ability to do this is rightly called statemanship in economic affairs.

[Sidenote: Command of financial resources]

4. _The organizer need not himself have great wealth, but he must have ability to command financial resources._ Business to-day is done in many cases with borrowed capital. Even a subscription to stock is frequently as much in the nature of a loan, made in reliance on the reputation of the organizer, as an investment for profits. There are many temporary needs that require sudden loans. The confidence of investors, whether banks, trust companies, individual shareholders or investors in bonds, must be secured by the organizer. Good judgment of the money market often is as vital as judgment of the market for the particular product.

In some of the largest corporate enterprises this quality becomes the most essential.

[Sidenote: Scarcity of great organizing ability]

[Sidenote: The industrial leaders]

5. _Organizing ability of the highest order is rarely found._ This is almost a superfluous statement after the foregoing. According to the theory of chances, such a combination and balancing of qualities is likely to occur in very few cases. Even where it exists, it may not be discovered or developed. The man may not find his opportunity, nor the task the man. There are many misfits in the world. On the occasion of the visit of Prince Henry of Prussia to America, in 1902, he was entertained at luncheon in New York with one hundred of the leaders in invention, finance, and industry, wherein have been the most characteristic achievements of America. In jocular reference to the French Academy, whose members are the forty most noted literary men of France, the newspapers called this the meeting of America's one hundred immortals. There were J. P. Morgan, the great financier; Vanderbilt, Hill, and Harriman, the railroad kings; Carnegie, the iron magnate; Irving Scott, "the man who built the Oregon"--nearly all the company deserving a place at the table mainly by reason of excellence as business organizers. Such a gathering has a dramatic interest as presenting the greatest leaders of industry, but about other tables might be gathered thousands of other less notable figures worthy to be accounted captains of industry in their several fields. One may well ask, How did they come into the important places they occupy?

-- III. THE SELECTION OF ABILITY

[Sidenote: Various roads to industrial leadership]

1. _The men actually in control of industry have been selected in manifold ways._ Skill develops a small industry into a large one. A small factory owner gradually adds machine to machine, building to building, till he finds himself at the head of a great industry. Or an employee develops ability and becomes an employer. Who does not know of some one who, as a small boy, went into a store to do ch.o.r.es, worked up to a clerkship and, enlisting the confidence of men of wealth, was enabled to establish a business of his own and become an employer?

Others have won promotion from the ranks to the head of a large industry in which they secured at last a controlling interest. Employees that have proved their ability may be selected by the directors of a stock company. Men that have worked their way up from the ranks may bequeath their business positions to their sons and grandsons, as in the case of the Vanderbilts and the Goulds. And finally, but rarely, there may be selection by fellow-workmen in the case of cooperative business.

[Sidenote: Success as the evidence of ability]

2. _There is a constant selective process: dropping out the weak and advancing the efficient organizer._ There is, to be sure, an element of chance in this selection. The process in general is a rude one.

Accidents and unforeseen changes, industrial crises, failure of health at a critical moment, fraud and crime, may defeat men of ability and they may never regain their foothold. Lack of experience may lead to disaster a naturally able but youthful heir, too suddenly burdened with the responsibilities of a fortune. On the other hand, men of limited ability may inherit fortunes and preserve them by caution, without enterprise. It is not always true, even in America, that "It is but three generations from shirt-sleeves to shirt-sleeves," although many fortunes slip away from the sons of rich fathers. In general, success in retaining the control of a business is an evidence of considerable ability. By loss of fortune unwisely risked, through unforeseen changes in methods, and after manifold blunders, the less capable drop out.

Thus, by the ceaseless working of compet.i.tion, the higher places are taken by those most capable of filling them, and the efficiency both of the employers and of the workmen is increased.

[Sidenote: Various modes of business organization]

3. _In the various kinds of business organization the merits of men and of methods are tested._ The independent producer working entirely alone, directing his own industry, is a.n.a.logous to the animal organism of a single cell. More complex is the family partnership found often in early stages of industry but more rarely now, where the father directs the work of his children and all share in common. The simplest form of the wage system is the single employer with a few a.s.sistants. When the employer is in danger of losing valuable a.s.sistants, he sometimes gives them a share in the business. In the ordinary partnership, two or more men divide the ownership and duties, agreeing as to the division of control. Cooperation among workmen, though rare, gives an unusual opportunity for the discovery of special talent. The dominant form of organization to-day is that of the stock company, or corporation, the ownership of which is divided among the holders of shares of stock, or of certificates of membership.

[Sidenote: Many chances to try ability]

This variety of organization affords opportunity for a two-fold test: that of the ability of men and of the merits, in varying circ.u.mstances, of the different forms of organization. Methods of organization are constantly tested by their results. Men having money to invest are asking whether they would be better off to go into business by themselves, or to join with a partner, or to buy stock in some large corporation. Each of these forms of organization has its peculiar advantages. A stock company can better enlist large amounts of capital, while the individual employer is generally more free from dictation and can adapt his business more quickly to changing conditions. At the same time this variety of organization offers better opportunities for managing ability to show its metal. On the watch towers of industry are many observers sweeping the horizon for the appearance of men of business talent. Some characters develop better under direction; others prove that nowhere does native ability count for more, and mere book-schooling for less, than in business administration. There is some ground for the belief that a college education does not increase executive capacity in business. Such ability often seems to be a freak of nature and a product of practical experience, rather than the result of college training.