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UC-NRLF

MD 531

Memorandum

ON THE

Industrial Situation
After the War

(Garton Foundation)

REPRINTED BY

INDUSTRIAL RELATIONS DIVISION
UNITED STATES SHIPPING BOARD
EMERGENCY FLEET CORPORATION

PHILADELPHIA, PA.

GIFT ©F

Memorandum.

ON THE

Industrial Situation
After the War

(Garton Foundation)

REPRINTED BY

INDUSTRIAL RELATIONS DIVISION
UNITED STATES SHIPPING BOARD
EMERGENCY FLEET CORPORATION

PHILADELPHIA, PA.

PREFACE

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 peace conditions
would 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 found 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 country on a sounder 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 perhaps the most urgent question,
after the immediate conduct of the war, with which the country is con-
fronted to-day. - Q

3 L-^rJ

MQr; i Q -,

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 Kt. Hon. A. J. Balfour,
M.P. ; The Kt. Hon. Viscount Esher, G.C.B., and Sir Kichard 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
aothing 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 apprehensions entertained by Employers and Employed. ( 1 )

The appearance of present prosperity deceptive. (2-4")

Industrial unrest otily suspended. (5-7)

The dangers of sectional thinking. (8-11)

Relation of industrial to social and political problems. (12)

B.— THE EFFECTS OF THE WAR ON THE INDUSTRIAL SITUATION

(13-63)

I.— Employment: (15-25)

(i) The Supply of Labour. (16-19)

(a) Demobilisation. (16-17)

(&) Diminution of Government Orders. (18)

(a) Repair and reconstruction demand. (21)

(&) Revival of private demand. (22)

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 Production: (27-33)
(a.) Men killed and incapacitated. (27)
( & ) Emigration. ( 28 )

Losses by death or emigration will not be wholly compensated by
reduction in number of consumers, or by new workers.
(29-30)

(d) Effects of Overwork. (32)

(e) Suspension of Industrial Education. (33)
Causes tending to increase Production : ( 34-37 )

Many people may work harder and former non-producers may con-
tinue working. (34)

Conversion of new munition plant. (35)
Better organisation of production. (36)
Reduction of Income from Abroad. (38)

NET EFFECT OF THE WAR ON EARNINGS : Unless a special effort is made the
national income is likely to be lower than before the war, and the likelihood of
quarrelling over its apportionment will be increased. (39)

IH._The Distribution of Earnings: (40-46)

New factors affecting questions of distribution. (40)
(a) High Prices. (41)
(&) High War Wages. (42-43)

Weekly earnings and rates per hour. (42)

Effect of Prices on Real Wages. (42)

Effect of State allowances. (43)

income. (44)

(d) Dearness of Capital. (45)

*The numbers in brackets relate to paragraphs, not to pages.

PROSPECTS WITH REGARD TO THE DISTRIBUTION OF EARNINGS: The operation
of the above factors will be unfavourable to industry, and particularly to labour.
Unless output can be expanded, conflicts between employers and employed are
probable. (46)

IV.— Capital and Credit: (47)

Fixed Capital will have depreciated; fluid 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 (48-49)
(a) Economic Discontent. (50-54)

Low real wages and unemployment. (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 of war. (58-60)
"Wrecker " doctrines. (61)
Reactionaries in Employing 'Class. (62)

PROSPECTS AS TO SPIRIT AND TEMPER: If not checked, an ugly spirit and
temper may easily develop and render a satisfactory solution of industrial prob-
lems impossible. (63)

C.— THE PROBLEM AND SOME REMEDIES (64-132)
l._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 perish 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)

(&) The assuring of decent wages. (81-83)

(d) Teaching men trades. (85)

(e) The new workshops. (86-87)

C. — THE PROBLEM AND SOME REMEDIES — Continued.

(ii) The Exodus from the War Industries: (88-92)

The number affected. (88)

Transferred workers. (89)

New workers. (90)

Boy and girl labour. (91)

The remedies. (92)
(iii) Industrial Friction: (93)

Whatever 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) INDUSTRIAL EFFICIENCY: (94-112)
(a) Physical efficiency. (95)
(6) Mental and manual efficiency— The Primary Schools. (9f>)

(d) Labour-saving machinery. (98-102)

(e) Works organisation. (103-105)

(f) Labour Legislation. (106)

(g) Reform of the Patent Laws. (107)

(h) The Encouragement of Research. (108)
(i) Improved methods of distribution. (109)

(k) 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
the reconstruction of devastated areas can only be furnished by
people producing much, 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 the dangers of injudicious "thrift." (116)
The relation of saving to demand. (117)

(iii) ASSURED MARKETS: (118-128)
(a) Home Demand: (119-122)

The methods of capital renewal. (119)

The effect of protective tariffs. (120-122)
( & ) Empire Markets : ( 123 )

The question of Imperial Fiscal Union.

The organisation of selling; consular service; adaptability and

languages; Ministry of Commerce. (124)
Prestige. (125)
The connection between home and foreign markets. (126)

(d) Allied Zollverein 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 the fundamental problem 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 productiori 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.
(6) Increased efficiency must be sought for in better methods and organi-
sation, and in a new attitude towards Industry.

(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.

(155-158)
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 prosperity 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 markets 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 created 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-
erations sink into a secondary place and the strongest possible appeal is
miade 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.

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 cl;is>
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 temporary changes, the necessity for which has been opcnly
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.

6. There is a prevalent 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 ought to
produce certain effects if the facts show that they do not. There is evidence
that many of the men 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 lofig 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 survive 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 suffice 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 national unity. The employer's

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
Industry itself and social and political 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
the people. In order to achieve a similar unity of purpose and effort in the
activities of peace, it will be necessary to make the issues equally plain and
to embody in the form of a complete policy the principles which underlie
them.

10. The idea that the united front shown by the country to the
external enemy implies of itself the burial of class hatred and suspicion
and that the suspension of controversy during the war foreshadows the
cessation of industrial disputes after the war, is dangerous just because
it is so attractive. The natural desire to accentuate the appearance of
unity and minimise internal differences leads us to treat as negligible
sections of public opinion which are really powerful and may become pre-
dominant. The spirit of patriotism which induces the majority of all
classes to remain silent as to their grievances is construed to mean that the
feeling of grievance does not exist. At the same time that criticism is de-
nounced as unpatriotic, abstention from criticism is supposed to imply
unqualified approval.

11. The war has not put an end to industrial unrest. Every one of
the old causes of dispute remains, and others of a most serious nature have
been added in the course of the war. The very moderation and unselfish-
ness shown by the responsible leaders of Organised Labour are looked upon
by important sections of their following as a betrayal of the cause and by
some Employers as a tactical opportunity. The efforts of the Government
to safeguard the interests of the workers are likely to give rise to unrea-
sonable demands for future action on the one side and ungenerous criticism
011 the other. The difficult and complex problem of the return to peace
conditions will bristle with thorny questions only to be solved successfully
by the clear-sighted and unselfish co-operation of all concerned. There are
too many indications that they may be approached in a spirit of passion
and suspicion which would render a satisfactory solution impossible.

12. This would be a serious matter even if the industrial problem
stood alone. Failure to cope with the economic situation must necessarily
involve widespread loss and misery. But the industrial problem is inex-
tricably entangled with social and political development. It is not merely

that a certain minimum standard of material well-being is a necessary con-
dition of moral and intellectual advance, or that commercial prosperity is
an important factor in the strength and prestige of the State. Industry
itself has a human side. The discontent of Labour is not exclusively a
matter of wages and hours of work. It is becoming increasingly evident
that it is based to a very large extent upon questions of status and social
conditions. It is not to be desired, however, that the matter should be
considered from a class or sectional standpoint. Industrial life is simply
one phase of the national activities, and the responsibility of seeing that
the conditions of industrial life are such as make for conscious and efficient
citizenship rests upon the community as a whole. The spirit in which both
Employers and Employed regard their common work will colour not only
their relations to each other, but their general attitude towards the cor-
porate life of the nation. That attitude has been roughly challenged by the
war, which has profoundly disturbed the current both of circumstances and
of ideas. It has shaken men's faith in the permanence of existing condi-
tions and accustomed them to the contemplation of great changes and to the
possibility of extraordinary exertions. The moment is a propitious one for
an attempt to understand more clearly than in the past the fundamental
principles of industrial relations and their place in the national life. The
forces of change are visibly at work, and it rests with us whether we allow
them to hurry us blindly with them, or direct them along the path of
ordered progress.

B. — The Effects of the War on the Industrial Situation

13. The problems arising directly from the effects of the war are, in
themselves, sufficiently serious. It has involved a dislocation of industry, a
diversion of labour and capital and general effort to purely military objects,
which has not only made inroads on the national wealth, but has introduced
altogether new factors into the problems of our industrial life. To accom-
plish the change from war to peace conditions without undue friction or
loss, to accommodate our methods and organisation to the new burdens and
altered circumstances, is a task as heavy as any trading community has had
to face.

14. The industrial effects of the war may be grouped under five main
heads: Employment; Earnings; Distribution of Earnings; Capital and
Credit; Spirit and Temper.

I.— EMPLOYMENT

15. The problem of Employment has two phases: (1) the Supply of
Labour; and (2) the Demand for Labour.

(i) The Supply of Labour
(a) DEMOBILISATION

16. The first factor to be considered is the return of some three or
four million men from military to civil life. It is impossible to forecast

the establishments which may be considered necessary after the war, but
even on the assumption that our standing army is raised to a Continental
standard, there will probably be somewhere about three million men to be
re-induced into civil employment.

17. The problem of demobilisation is already receiving attention with
a view to preventing the flooding of the labour market. The cost of main-
taining forces on the present scale must, however, set a limit to the period
of demobilisation.

(&) DIMINUTION OF GOVERNMENT ORDERS

18. In addition to men actually under arms, those who have been
diverted from their normal employment to the manufacture of munitions
and material of war will have to return to civil industry as the Government
orders for naval construction, artillery, ammunition and equipment are
reduced to the peace scale.

19. The necessities of the war have brought into active employment
a large number of people, especially women, who had not previously been
engaged in industry. Some of these have been introduced into various
trades to take the place of men serving with the colours. Others have been
called into activity by the abnormal demand for munitions of war. Esti-
mates of the increase in the number of women workers in the productive
side of industry vary between 200,000 and 300,000, whilst the number of
those engaged in commercial and institutional occupations — offices, shops,
railways, administration, education — is estimated to have increased by
something over 300,000; but it is to be remembered that a great proportion
of these are women who in the ordinary course would have retired from
industry. A large number of former non-producers (in the industrial sense)
have none the less been added to the labour force of the country. It is
probable that many of these will desire to remain wage-earners. Apart
from the attraction of economic independence, some will be compelled to
seek continued employment by the death or disablement of those on whom
they were dependent, or by diminution of income through the financial
results of the war. In addition, there are large numbers of women who
have left their ordinary employment to take up munition work. These
women, as well as the men. who have been transferred from civil to war
industries, will have to return to their former occupations or find other
jobs. A large number of boys have also been introduced into industry,
and the total number of those who have become workers for the first time
during the war, or have been transferred from one form ,of employment to
another as the direct result of war conditions, will probably amount to
something like a million and a half, divided fairly equally between the
sexes. When the special necessities of their war employment come to an
end, all these will be added to the general reservoir from which the supply
of labour is drawn.

(ii} The Demand for Labour

20. The demand for Labour will arise from three sources ; one directly
connected with the war, the others representing a return to normal
conditions.

(a) REPAIR AND RECONSTRUCTION DEMAND

21. The repair and replacement of property damaged or destroyed
during the course of the war will be an important factor in providing im-
mediate work. In this country the amount of property destroyed is com-
paratively small; but there will be a demand for new tonnage to replace
vessels sunk, for commercial motors and other material to replace those
used for war purposes. Roads cut up by use for heavy military transport
will require mending. Plant and machinery adapted to war purposes or
left idle through stagnation of trade will need alteration and repair. Re-
pairs and renewals postponed for the period of the war will have to be
carried out. Depleted trading and domestic stocks will have to be replen-
ished. In the devastated districts of Belgium, France and Poland recon-
struction on a big scale will be necessary. Roads, bridges, railways, fac-
tories, machinery, houses, churches, will have to be reconstructed or re-
placed. In all this work our foundries and factories will find their
opportunity.

(fc) REVIVAL OF PRIVATE DEMAND

22. Whilst the daily expenditure of some munition workers and gov-
ernment contractors, and of some recipients of war allowances, has largely
increased during the war, the private expenditure of the majority of people
has been considerably reduced. They have spent as little as possible on new
clothes, new furniture, books, utensils, decorations. Such demands may be
regarded as in part postponed and accumulating. How far people will have
the means to make their demands effective will depend on the general indus-
trial and financial position, but it is to be expected that in the relief and
reaction following the declaration of peace money will be more freely spent
and there will be an increase in the demands of one section of the public
which will more than offset the decrease in the expenditure of other
sections.

23. We may hope also for a revival of the Foreign Demand, but we
shall be faced by foreign competition in overseas markets, perhaps still
keener than before the war, and the size of the demand itself will depend
largely upon financial conditions. It is certain, however, that many
branches of commerce suspended by the war will revive. Unfulfilled con-
tracts will have to be executed. Orders which have been held back owing
to difficulties of transport, or to the diversion of labour from industry to
war service in this country, will come forward. The release of shipping
taken over for war purposes will enable the foreign countries most affected
to make good a long period of interrupted communication. There will

-15

be a loss of German and Austrian orders, but this loss will be largely com-
pensated by increased trade with our Dominions and Allies, whilst the
chief neutrals, who have on the balance considerably profited by the war,
will provide unusually good markets. Taking all these factors together,
it is probable that unless a violent dislocation of the foreign exchanges takes
place, there will be a considerable revival of foreign trade, even apart from
purely reconstructive orders. It may, however, be some time before it
reaches the pre-war level.

PROSPECTS OF EMPLOYMENT

24. Against the effects of demobilisation, the cessation of Government
orders for war work, and the addition of new workers to the labour market,
we can, therefore, set off three great sources of employment — the necessity
for reconstructive work, the revival of private buying arid the revival of
foreign trade. So far as we can forecast the net effect of these factors, we
may expect a considerable amount of unemployment, due not to "shortage
of work" or "surplus of. labour," but to the general dislocation of industry
caused by the war and the difficulties of readjustment.

25. The immediate problem will, indeed, be rather the adjustment
than the provision of employment. The returned soldiers and discharged
munition workers will have to be absorbed into the trades where the demand
is greatest. Emergency workers, employed on Government contracts, will
have to be found a place in civil industries. In cases where men now
serving have been guaranteed replacement on their return, the stopgap
workers will have to seek other occupation. In many cases, the experience
of the war has shown that a workshop or office can be run effectively by a
smaller staff than hitherto and men whose places have not been guaranteed
may have to go elsewhere. It is probable that many clerical workers and
male domestics will have to turn to industrial employment, owing to the
competition of female workers and the continued reduction of establish-
ments. The work of reconstruction and the effect of orders held back
for the period of the war will create an abnormal demand in special
trades. The whole machinery of industry and of home and foreign trade
will have to be readjusted to normal conditions. To carry out this com-
plicated task will tax both the goodwill and ingenuity of all con-
cerned, if it is to be accomplished without temporary local distress of a
more or less serious character.

II.— EARNINGS

26. The first step in any enquiry into earnings is the realisation that
wealth cannot be distributed before it is produced; and that the national
income cannot exceed the aggregate value of goods produced and services
rendered within the country or received from without in payment for
goods and services, or as interest on foreign investments. So stated, the
proposition will be recognised as a truism, but a failure to realise its truth
lies at the root of a host of economic fallacies, especially on the part of

those who concern themselves wholly with distribution and those who pre-
scribe some single specific as the cure for every national evil. The founda-
tion of prosperity is production and many causes will tend to reduce pro-,
duction after the war.

Causes Tending to Lessen Production
(a) MEN KILLED AND INCAPACITATED

27. A very large number of those formerly engaged in productive work
will have been killed, or wholly or partly incapacitated. We can only guess
at the figure, but it may probably be put without exaggeration at over half
a .million. To these must be added a cetaiii number, who, though their
names have not appeared in the lists of sick or wounded, have suffered
in body or in mind under the severe conditions of trench warfare and will
feel the effects of the strain in after life.

(ft) EMIGRATION

28. Of the men who come back it is at least possible that we shall
lose large numbers through emigration. Many will have become discon-
tented with sedentary occupations and will prefer the free and open-air
life of the Oversees Dominions. Many will seek better prospects abroad
through fear of the hard conditions likely to be found at home. Such has
been the common experience of nations after great wars, and in this case
the Dominions will themselves have lost a large number of workers and
will be the more inclined to encourage immigration.

29. When a man in the prime of life dies or emigrates, it is a real
loss to the home country. It is true that he has consumed as well as pro-
duced, and when he is gone there is a consumer as well as a producer less.
But an adult man normally produces two or three times as much as he per-
sonally consumes. He has to produce enough in his working years to pro-
vide for the up-bringing of children and for maintenance in old age. Or,
looking at it in another way, the rearing, educating and training of a com-
petent producer entails a cost of several hundred .pounds to the community
and the expenditure vested in him is lost to that community when he dies
or leaves and settles abroad.

30. Even assuming the number of new workers to equal the total num-
ber lost by death, disablement or emigration, we shall still be faced by a
diminution in the ranks of our most efficient producers, for which the new
and imperfectly trained labour introduced during the war will form only a
partial substitute.

• 31. The national plant will have seriously deteriorated. By "national
plant" is meant the whole machinery of production and distribution with
which the industries of the country are carried on — factories, workshops,
machines, tools, railways, roads. While certain trades have been obliged
to maintain themselves at the highest level of efficiency, others less directly

associated with war work have been largely at a standstill. Renewals and
improvements have had to stand over till after the war; machinery has de-
teriorated through enforced idleness and lack of attention. The permanent
way and rolling-stock of our railways, the upkeep of our roads, have been
perforce neglected. All these factors make for diminished efficiency and
reduced production.

(cZ) EFFECTS OF OVERWORK

32. In the war industries many employers and employees have been
working long hours, in some cases with no week-end break and no holidays.
The strain of such continued over-exertion can be borne for a time, but its
effects are felt later. Some diminution of productive capacity must be
allowed for on this count.

(e) SUSPENSION OF INDUSTRIAL EDUCATION

33. Finally, the suspension of industrial education will necessarily
bear fruit in lessened efficiency. Our young men have left their colleges
and technical schools for the trenches. The laboratories and training
shops have been turned into cramming establishments for munition work-
ers. Apprentices and improvers have been withdrawn from the trades
which they were learning. Boys and girls who would have been appren-
ticed to various trades have gone to blind-alley work in the munition shops.
In addition to this interference with directly vocational training, the
ordinary schools have suffered from the withdrawal of teachers, the intro-
duction of less qualified assistants and the interruption of training courses.
Unless an effort is made to make up the leeway, there is a danger that chil-
dren now in the schools will arrive at the age for vocational instruction
with their general intelligence and capacity for learning less fully developed
than might have been the case.

Causes Tending to Increase Production

34. Against the above must be set a number of new factors tending
to increase the national output. In many ways the war has acted as a
stimulus to industry. While the strenuous exertions of those engaged in
war industries may be followed by a reaction, it is probable that on the
whole the habits acquired during the war may result in raising the general
average of application. Many may work harder and more efficiently than
they did. To this end the effort to recover, in harder circumstances, the
standard of living maintained before the war will materially contribute.
Some at least of those who survive the ordeal of the trenches will come
back keener, quicker and more physically fit than they went. The number'
of former non-producers who continue working will probably be large, and
in many quarters they have revealed unsuspected adaptability and
endurance.

35. Much, though by no means all, of the special plant erected for
war purposes can be adapted to peace industries. In some cases, as in the
shipbuilding and army clothing branches, it will be as readily available

for manufacturing for the peace markets as for supplying naval and mili-
tary requirements. A large number of buildings and machine tools erected
during the war can be taken over with little or no alteration. Others can
be converted to the uses of ordinary trade in the same way as those existing
before the war were adapted to the manufacture of munitions.

36. Under the stress of war there has arisen a keener appreciation
of the need for scientific production. In many trades great strides have
been made in the direction of standardisation of parts, better management
of the supply of raw material and better organisation of business. A
knowledge has been gained of special processes hitherto monopolised by
German or Austrian firms. Our manufacturers have become accustomed
to the supply of necessary articles on a larger massed scale. In the engi-
neering industry the use of jigs, limit gauges, and automatic or semji-
automatic machine tools has been enormously extended, and works that
have acquired for the first time an intimate familiarity with these appli-
ances will doubtless continue to use them in connection with their accus-
tomed work after the war.

37. But when all these things have been allowed for, it remains certain
that the national production must, for many years, be reduced, unless it can
be rendered more efficient by better organisation of Industry.

Reduction of Income from Abroad

38. How far the income hitherto received from abroad in the shape
of interest on foreign investments will prove to be diminished after the war
is, at present, problematical. The heavy sales of foreign securities and
the contraction of national and private debts in foreign money markets
will make for a considerable diminution; but against this must be set off
the loans, almost equivalent in amount, made to our Dominions and Allies,
which will presumably bear interest and be subject to repayment. Income
from this latter source will be government income, and will go to pay inter-
est and redemption on State loans contracted at home and abroad. Income
from abroad in the shape of payment for shipping, banking, and insurance
services, may take some years before it reaches its pre-war level.

Net Effect of the War on Earnings

39. Taken as a whole, there can be no reasonable doubt that, unless
an organised effort towards increased production is made, the aggregate
national income is likely to be much lower than before the war. The de-
crease will be cloaked to some extent by the inflation of money values.
It is conceivable that whilst real income in terms of goods and services will
be diminished, nominal income in terms of money will be the same or even
higher. This may ease matters for a while, but in the long run income is
assessed at its intrinsic value; and with the smaller total available for
distribution, the likelihood of quarrelling over its apportionment will
increase.

III.— THE DISTRIBUTION OF EARNINGS

40. With a general reduction in the national income — the amount of
wealth to be distributed — the question of distribution will become acute.
It will be complicated and intensified by the introduction of several new
factors.

(a) High Prices

41. The rise in the cost of living has imposed a burden on the working
and lower middle classes during the war, which is perhaps inadequately
appreciated by those who are accustomed to a larger margin for retrench-
ment. The release of shipping employed for war purposes, the resumption
of industry and the re-opening of closed sources of supply will no doubt
operate in the direction of a fall. On the other hand, the general decrease
in production, the higher cost of production due to deterioration of plant
and diminished efficiency, the corresponding decrease in production abroad
and the general financial and industrial dislocation will all conspire to keep
prices up or even to force them still higher. The probable sequel will be
a demand for increase in nominal wages to enable the previous level of
real wages — the standard of living — to be maintained. The satisfaction
of this demand may quite well lead to a further raising of prices, result-
ing in much hardship among those employed in trades in which no increase
of wages has been secured. The professional classes and clerical workers,
whose nominal earnings have not, generally speaking, been increased during
the war, will be very hard hit. The real value of incomes derived from
investments paying a fixed rate of interest will be appreciably diminished.
Apart from currency influences, the lowering of prices will depend upon
increased industrial output, and upon the extent to which the consump-
tion of luxuries, with its consequent employment of workers on the creation
of useless commodities, is foregone, enabling labour to be diverted into
industries producing the necessaries of life. Increased taxation will con-
tribute to this end, but will not relieve wealthier people of the obligation
to accept without demur a diminished proportion of the national income
if this should prove to be necessary in order to save the poorer sections
of the community from severe hardships. Ill-considered fiscal changes
might, on the other hand, drive prices still higher or retard their fall.

(6) High War Wages

42. The urgent demand for munitions and material of war, together
with shortage of labour, has led to high rates of wages being paid for war
work. The amount of such increases has been greatly exaggerated in the
popular mind by confusing weekly earnings with rate per hour. The large
sums frequently mentioned as being taken home by particular workmen
at the end of the week are in almost all cases earned by unsparing labour
on piece tasks, or by working long hours overtime. Family earnings have
also in many cases been increased as a result of more members of the

family going out to work. The standard of comparison in any considera-
tion of wage movements is the rate per hour, and whilst wage rates in
the munition industries have substantially increased, the average advance
in all industries has been more than counterbalanced by the rise in
prices. It follows, therefore, that any serious reduction in rates after the
war will leave the generality of workers in a far worse position than before
the war. It is to be remembered also that there are a great many employ-
ments in which wages have increased not at all or very little during the
war. Wage-earners in these cases are already suffering from the increase
of prices, and will continue to suffer long after peace is declared, unless
some very definite steps are taken to improve their lot.

43. The attitude of unskilled and unorganised labour after the war
will be influenced by the fact that in military service many of them will
have made acquaintance with a hitherto unknown standard of maintenance.
They have been better fed and better clothed than ever before. Their
dependents, too, have been receiving State allowances, often increased by
their own earnings. These people will not readily go back to the old
conditions of employment and life. For these reasons, among others, large
sections of lower-paid wage-earners will resent and resist any attempt to
make good a reduction in the national income at the expense of themselves
and their families.

44. An enormously increased national debt will be one of the inevi-
table legacies of the war. Its amount will depend upon the duration of
the war, but it will probably not be less than £3,000,000,000. The payment
of interest on this debt, and the provision of a sinking fund for its redemp-
tion, will involve an annual expenditure beginning at £250,000,000 and
diminishing gradually year by year as the debt is reduced. This will
materially affect the distribution of the national income. A portion of the
debt may be presumed to be covered, as already mentioned by loans to
Allies and to the Dominions, but as for the rest the financial obligations
of the National Debt will entail the transference of say £200,000,000 per
annum, roughly one-tenth of the whole national income, from the general
body of taxpayers to a comparatively small class of investors. How far
this will intensify inequalities in distribution will depend upon the inci-
dence of after-war taxation. If an undue share of the burden is placed
upon the non-investing classes the balance of distribution will be seriously
disturbed, and it is even conceivable that a demand for repudiation might
arise. The possibility of this becomes less remote when the situation in
Germany and Austria is considered. There is likelihood of the German
and Austrian Governments being unable to pay the interest on their war
debts, and legislation amounting to virtual repudiation may have to be
passed. Such an example would not be without its reactions here. It
would be asked how we, overloaded with debt and taxes, were to compete
in the world's markets with nations who had repudiated their debts. But

anything amounting to even partial repudiation or' to adverse discrimina-
tion beteen holders of war loan and of other securities would be unjust,
dishonourable and disastrous. Any drift in that direction can best be
prevented by encouraging wage-earners to save and to invest their savings
in small Government bonds; but still more by avoiding, after the war,
the raising of revenue by the taxation of necessaries. • If the incidence
of taxation is such that revenue is drawn mainly from the creditor classes,
the distribution of the national income will so far be left unaffected.

(d} Dearness of Capital

45. With the prospective diminution in the volume and flow of
wealth, capital available for investment will be scarce and dear and credit
facilities are likely to be limited. The argument has been put forward
that the new national debt makes ideal banker's collateral, and so con-
stitutes a basis for a great extension of credit ; but this appears to over-
look the fact that the volume of credit, though conditioned by enterprise
and confidence, is otherwise dependent upon the continuous output of
actual wealth. While a particular kind of paper may be more acceptable
as a basis of credit than another, an increase in the amount of that paper
will not swell the. volume of credit as a whole. There is also some expec-
tation that the Government will be able to repeat and perhaps to extend
the operations of August, 1914, in the way of credit creation or subsidy;
but here again it is apt to be overlooked that such emergency measures
cannot by their very nature be made a permanent and continuous feature
of the financial system. New capital may, therefore, be expected to com-
mand a high return after the war, and to absorb a correspondingly large
share of the national income in proportion to the amount of capital
provided.

PROSPECTS WITH REGARD TO THE DISTRIBUTION
OF EARNINGS

46. Of the four above-mentioned factors tending to influence dis-
tribution, two, high prices and dear capital, will react unfavourably to
Labour and are hardly susceptible of concerted or legislative modification.
High prices may make for higher profits, and thus enable higher wages
to be paid; but unless the national finances are handled with great dis-
cretion heavy taxation will operate against both the making of profits and
the enjoying of wages received. The loading of the scales would in any
case appear to be against Industry, and perhaps more particularly against
Labour; and unless every effort is made to expand the national output it
is difficult to see how conflicts between employers and employed can be
avoided.

IV.— CAPITAL AND CREDIT

47. It has already been shown that the fixed Capital of the country,
its plant and communications, will have deteriorated to a serious extent,

to the national call should have been as ready as it has, that the Trade
Unions should have yielded up their most prized safeguards, that men
should have laboured in the munition shops until they dropped at their
work, that the Income Tax payer should have submitted without murmur-
ing to an unprecedented increase, that so much thought and effort as well
as money should have been poured by the leisured classes into national
channels. But all history teaches us that unless this energy and self-
sacrifice receives a fresh impetus not less potent than that of the war,
the removal of the stimulus will be followed by a dangerous slump.

58. We have to take into account that those who are crushed or
hampered by the burdens arising from a war are apt, when they take stock
of their position, to lay the blame on those responsible for the Government
of the nation during the war, even though they themselves cordially
supported the country's participation in it.

59. It must be remembered that, however these burdens may be dis-
tributed, "Equality of Sacrifice" is in point of actual fact impossible. The
percentage of income reduction which means to one man the giving up
of luxuries and curtailing of travel, means to another shortage in the
necessaries of life. The obligation to serve implies in some cases tem-
porary embarrassment and a reduced income; in other cases it implies
selling up the home and business ruin. To the sorrow of those whose
relatives have been killed or injured, there is added in many cases the
hardship caused by loss of the bread-winner. Great numbers, both of the
working class and the lower middle class, will be hit by the war in a way
that those in different circumstances can only appreciate with difficulty.
Inevitable as this may be and unreasonable as it may seem that inevitable
suffering should result in social or political discontent, it is no use shutting
our eyes to the danger that it may do so.

60. There is no doubt that the working of the Munitions Acts and
the Military Service Acts, the methods adopted in certain quarters to pro-
mote recruiting, the abolition of Trade Union restrictions, the enormous
profits made in certain trades, the rise in food prices, have sown the seeds
of a great deal of bitterness. Much of it may be unreasonable, much of
it based upon demonstrably false assumptions and fanned by unscrupulous
controversialists on both sides; but again we are dealing with facts which
must be faced.

61. There is thus no lack of inflammable material ready to the hands
of the incendiary. The incendiary is not far to seek and may be found
in all classes. It is easy to persuade bitterly discontented men that if
society is thrown into the melting pot their condition cannot be rendered
worse and may be rendered better. It may be argued that force is no
remedy for economic evils, and that its application to social questions
gives very uncertain results. But such arguments require a clearer atmos-
phere than that of class-hatred and suspicion, and unless a practical and
attractive alternative can be offered, there is a grave danger that the
extremists may persuade a large following to try the chance of industrial

warfare. The danger of an appeal to force in some form is all the greater
that the war has habituated men to the idea of conflict as the means of
settling disputes.

62. On the other hand we have the danger arising from a reactionary
section among Employers, who, like the Labour extremists, believe in the
inevitability of class-warfare. There is a real danger that this section
may adopt to some extent the German view of Labour as a force which
needs to be controlled and disciplined from above and may regard the war
as an opportunity to accomplish this end. There is reason to fear that
some Employers look on the Military Service Acts, the State control of
war industries and the temporary abandonment of Trade Union restric-
tions, as an opportunity to establish once for all the ascendency of Capital
over Labour. It is not desired to question in these pages the necessity of
any measure adopted during the course of the war. The gravity of the
danger consists in this half-acknowledged intention to use the new con-
ditions which have arisen for the coercion of. one of the parties whose
co-operation has made the carrying on of the war possible.

PROSPECTS AS TO SPIRIT AND TEMPER

63. The combination of economic discontent, class-suspicion, the
doctrines of Social Revolutionaries and the danger of Industrial Prus-
sianism, threatens us with a bitter conflict between Capital and Labour
which would render it impossible to deal successfully 'with the problems
of readjustment and reconstruction. Only by uniting the efforts of all
classes towards common ends, on the lines of a broad national policy, can
such a catastrophe be averted.

C. — The Problem and Some Remedies

I.— THE PROBLEM

64. The Problem before us has been sufficiently indicated by the fore-
going analysis of the dangers with which we are threatened and the
difficulties which lie in our way. It is only necessary to summarise it
very briefly.

(0 The Emergency Problem

65. The Emergency Problem is simply to avert an outbreak of indus-
trial anarchy in the period immediately following the war.

66. The urgency of the task can only be measured by the magnitude
of the danger. That the possibility, even the probability, of such a
development is a very real one there is every reason to believe. Whatever
the upshot of such an outbreak its effects would be almost equally disastrous
to all classes of the community.

67. To Capital it would mean a long period of suspended activity,
depreciation and possibly wreckage of plant, heavy financial loss, a fatal
handicap in competition with foreign manufacturers. "Victory" would
be dearly won at the price of leaving Labour dicontented, inefficient,
mutinous, ready to renew the fight at the first opportunity. While the
questions at issue might be shelved as the result of a Labour defeat, they
would not be solved and the increased class hostility generated by the
conflict would remain an insuperable bar to the development either of
industrial efficiency or financial confidence.

68. To Labour, industrial warfare involves a long period of hardship
and privation. Any material advantages gained would be largely dis-
counted by the sufferings to be endured, the depletion of Trades Union
Funds and the crippling of the sources of production from which alone
the wealth of any class can be derived. Against the prospect of improved
working conditions and fuller recognition of the rights of Labour, must
be set the risk of internal dissensions arising during a prolonged struggle,
and the possible loss of all that has been won in past years.

69. A clear cut victory for either side is improbable. In an indus-
trial conflict on the scale anticipated, it is unlikely that the anticipations
of either Employers or Employed would be fulfilled. The passions let loose
and excited by the losses of Capital, the sufferings of Labour and the
hardships arising to the whole community from high prices, scarcity of
commodities, dislocation of the ordinary activities of life and destruction
of confidence, might easily create a drift towards general chaos which
would defy the control of either Capitalist or Working-class organisations.

It is not improbable that an intolerable situation would be ended by hasty
and ill-considered State action, placing Industry as a whole under the
yoke of a bureaucratic tyranny — a sort of industrial Napoleonism.

70. Whatever the event of the dispute, the prize of victory would
perish in the struggle.

(ii) The Constructive Problem

71. The Constructive Problem is concerned with the more lasting
effects of the war and with those difficulties, social as well as economic,
of our industrial life, which it has accentuated though it has not created.
On the one hand we have to readjust and reorganise our industries to
meet the new conditions, to provide for replenishing the national capital
and maintaining or increasing the national income. On the other hand,
we have to remove the evils which have rendered the industrial problem
an irritant in our social life, to preserve and strengthen the safeguards
of individual liberty and self-respect and to reconcile the conflicting claims
of efficient production and fullness of life for the Workers. To do this
with success we must face boldly the whole question of industrial policy.
We must endeavour to devise some means by which the wasteful friction
between Employers and Employed may be replaced by co-operation to secure
these national ends and the whole resources of the country directed to
promoting the material prosperity and social well-being of all classes of
the population.

72. If we can accomplish this we shall not merely have dealt success-
fully with the situation created by the war. We shall have removed the
most serious obstacle to industrial and social development. That the
nation should recuperate quickly, that the national plant should be restored,
that capital should be plentiful, that labour should be efficient — these
things are necessary in order that we may avert a threatened danger. To
secure industrial peace* on terms just and honourable to both sides would
be to double the national strength whether in industry or in citizenship.

73. It is obvious that much will be gained if we can frame the meas-
ures adopted for meeting the Emergency Problem in such a way as will
lay the foundations of permanent reconstruction. By so doing we shall
wring a definite good out of the evils with which we are faced, and we
shall have a double claim on all classes for co-operation, and if necessary
for concessions — that they may thereby both save themselves from threat-
ened ruin and look forward to a positive gain.

74. In order to deal effectively with either the Emergency or the
Constructive Problem, it is essential to keep in mind that both are dual
in their nature.

75. On the one hand are the direct economic effects of the war, the
difficulties of demobilisation and readjustment, and the diminution of the
national income by deterioration of plan, loss of workers, and wastage of
capital. These effects can be dealt with by special measures framed with
a view to meeting specific dangers. Some of these measures will be of an

emergency character, having for their object to carry us through the period
of transition with a minimum of suffering and friction. Others will be
of a more constructive kind, intended to increase our general industrial
efficiency and so to neutralise the more lasting results of the war in the
direction of diminished production and reduced earnings.

76. On the other hand, there is the fundamental problem of Indus-
trial Unrest, which may be aggravated and brought to a head by the effects
of the war, but has its roots far back in pre-war conditions. It can be
solved only by a much broader and more far-reaching treatment, based
upon a survey not of the accidental circumstances of the moment, but of
the permanent factors of our industrial life. Unless this problem is suc-
cessfully solved, no other steps which may be taken can be relied upon
either to avert the immediate crisis or to ensure the future prosperity of
Industry.

77. Many of the detailed questions bearing upon the work of readjust-
ment and reconstruction are already the subject of investigation by Gov-
ernment Departments, by well-equipped societies, or by groups of men
having expert knowledge and practical experience. It is well that this work
should be done by those who have special equipment for dealing with its
various phases. But two things require to be kept constantly in mind.
First: No single detailed measure, however important in itself and how-
ever thoroughly it is worked out, will form a substitute for clear thinking
with regard to the essential principles of industrial life and a united effort
by those concerned to give them fuller expression in their joint activities.
Secondly, it is essential to avoid clashing or overlapping by the various
movements represented and to give the work of each its proper place and
perspective in the wide scheme.

78. For the above reasons we propose to do little more than indicate
a number of the more important matters which require study with a view
to neutralising the direct effects of the war, reserving for more extended
treatment in our final section the fundamental problem which is both the
most important and the least recognised.

II. EMERGENCY MEASURES

(*) Demobilisation
(a) THE FINDING OF JOBS

79. It has been shown that the probable cause of unemployment after
the war will be, not the lack of a demand for labour, but the difficulty of
bringing together the workman and the job. A nucleus of the requisite
machinery is provided by the Employment Department of the Board of
Trade; but the emergency will call for operations far beyond the scope
of the existing organisation. The creation of joint committees, represent-
ing Employers, the Trade Unions and Labour generally, working in con-
junction with the Board of Trade, will give the best hope of obtaining the
necessary knowledge as to the conditions of demand in particular localities

and trades. It should be possible for the Government to obtain a complete,
or approximately complete, register of the previous occupations and capac-
ities of the men to be disbanded. A Central Conference composed of rep-
resentatives of the State, Employers and Labour, working on the knowledge
thus obtained, would be in a position to co-ordinate the work of the various
committees and of the Labour Exchanges, and to direct the stream of
demobilised men towards these districts and industries where the prob-
ability of immediate reinstatement or absorption was greatest. So far as
military exigencies will permit, it is very desirable that workers for whose
services there is an assured need should be the first to be disbanded, and
that an early discharge should be given to those for whom situations are
actually waiting. Above all, it is vitally necessary that the preliminary
work of investigation and the creation of machinery should be pushed
rapidly forward, in order that there may be no delay or uncertainty in
taking action when the time comes for disbandment.

80. Even with the most complete machinery that can be devised, it is
difficult to see how a certain amount of temporary unemployment can be
avoided if we are -content to rely entirely upon the ordinary course of
relations between demand and supply. This margin of unemployment
could, however, be largely reduced if not extinguished, by State and Munic-
ipal expenditure upon works of public utility. Such a policy will need
to be carried out with care and closely watched from the standpoint both
of public economy and industrial conditions. Employment of this nature
can never form a permanent substitute for that arising from industrial
activity and it would be worse than folly to keep men engaged upon Gov-
ernment or Municipal work when the industries of the country were ready
to receive them. All such work should, therefore, be undertaken in close
co-operation with the Employment Department of the Board of Trade and
the local Committees representing Employers and Employed. It should
also be confined to work of definite utility and as far as possible to under-
takings of a productive nature or connected with the restoration of the
national plant. At the same time it would be legitimate to anticipate to
some extent work intended to be done in the near future, in order to give
employment at the moment when it is most required. There is a large
amount of really valuable work to be done in connection with housing, the
repair and improvement of roads, afforestation, the reclamation of waste
land, etc., which would prove a sound investment both from the social
and economic points of view, and which the training of the returned soldiers
in trench warfare would have fitted them to accomplish efficiently.

(fr) THE ASSURING OF DECENT WAGE

81. We shall undoubtedly have to meet a demand that men returning
to civil life shall be placed in a position no worse than that which they
occupied before the war. Since the cost of living has risen and will remain
high, this will involve a demand for proportionately increased wages. In
the case of men who have been guaranteed re-implacement, it is desirable

that employers should take this change of conditions into sympathetic
consideration. Men who do not return to a specific job, but who work at a
staple trade will, of course, look for the standard rate of wages current at
the date of their return. Any attempt to use ex-service men as a means
of substituting the old rates of wages for those which have been granted
to meet the increased cost of living, would certainly arouse resentment
and might very well give rise to serious trouble.

82. In the case of those trades in which organisation is but feeble and
in which standard rates of pay can hardly be said to exist, it is probable
that improvement could be secured by the application to them of the Trade
Boards Act. Experience has shown that the fixing of minimum rates under
this Act has had a beneficial effect on the wages paid, and that the increases
so secured have raised the workers affected just above that margin where
they become capable of organising and securing fair conditions of employ-
ment for1 themselves. The fixing of minimum rates in certain trades has
also had a stimulative effect upon workshop management in those numerous
cases where the methods and organisation were such as to leave room for
an improvement out of which the increased labour charge could be recouped.
Direct legislative action of this character could be taken in addition to no
less important measures for the training of those who are employed in, or
might otherwise enter, low paid occupations — measures which are not only
of direct value to those immediately affected, but also of indirect value in
mitigating the rigour of competition among the remainder. A minimum
Wage law is a powerful instrument for achieving improvement and should
not be neglected, but it is well to recognise that its indiscriminate applica-
tion might be attended by certain risks. There is in many trades a margin
of unexhausted possibilities which a wisely fixed minimum wage would do
much to utilise. Beyond such a margin a minimum wage would represent
an increase in the- cost of production and selling prices, and might simply
become a tax on the community as a whole for the benefit of the workers
in the particular trade.

83. The whole question of wages is very closely related to the larger
problem of Industrial Unrest. If the mutual hostility of Employers and
Employed can be replaced by a spirit of co-operation based on mutual
understanding and agreement, there will be less likelihood of friction over
details of the wage question and a better chance of an all round improve-
ment in the conditions of workers, due to increased efficiency in production.

84. The settlement of returned soldiers on the land is desirable from
many points of view. It might retain in this country men unwilling to
return to sedentary occupations, who would otherwise emigrate; and, if
successful, would tend to render the country more self-supporting and to
improve the national physique. It would, therefore, conduce both to the
efficiency of national defence and to social welfare. The respective advan-
tages of State, local and co-operative settlements, the desirability of

ownership or tenancy of small holdings — all these matters are already
receiving the careful attention of experts. It is doubtful, however, whether
sufficient consideration has been given to the question whether the end
desired can be best attained by organised settlement of individuals or
groups on created holdings or by so promoting the prosperity of agriculture
generally and its status as an occupation, that men will be drawn to it by
economic and social attractions. Probably both means may usefully be
employed, and attention should not be concentrated on one to the exclusion
of the other. The problem of agricultural credit, whether on a co-opera-
tive basis or otherwise, is an important phase of the general question of
land settlement, which must not be overlooked.

(d) TEACHING MEN TRADES

85. In the reinstatement of demobilised men and the adjustment of
labour to the new conditions, large numbers of skilled workers may find
themselves compelled to seek employment in trades for which they have
not been trained. To allow these men to sink into the ranks of unskilled
labour would be manifestly unfair to them and harmful to the community.
It will, therefore, be necessary, as soon as the Board of Trade Employment
Department is able to forecast with some accuracy the directions in which
demand is likely to be brisk, to make preparations for teaching men those
trades in which there is the best prospect of employment. Of less economic
importance, but a debt of honour which the nation must not forget to pay,
is the obligation to teach men who are prevented by partial disablement
from following their old occupations, some trade within their present
capacity.

(e) THE NEW WORKSHOPS

86. Although the plant normally employed in many industries has
been allowed to fall, to some extent, into disrepair, a great deal of new
plants have been created for the purpose of making munitions. Much of
this, though unfortunately by no means all, is convertible for the purposes
of civil industry. Part of this plant is in the hands of private owners who
will, in the ordinary course of business, make the utmost possible use of
it for industrial purposes. Much of it, however, is in the new factories
and workshops owned by the State. Of these some may be permanently
retained by the Government for the manufacture of war material. With
regard to the rest, it will be a question how far they should remain under
State control, how far they should be sold to private firms. The former
course would not necessarily involve the entry of the State into com-
petitive industry. The new workshops could be used for the manu-
facture of plant and appliances used in the work of Government
Departments, such as telephone, telegraph and Post Office equipment.
Since this course would involve the maintenance of a permanent staff, it
would not perform the function of steadying general employment or pro-
viding temporary relief during the period of transition. But it might
enable the Government to offer immediate and permanent employment at

standard wages to some demobilised men who had lost their jobs and
were prepared to undergo training for new tasks. It is at least possible,
however, that sale to private enterprise would result in more efficient use
being made of the plant. The knowledge acquired departmentally as to
the adequacy of existing plant in the various industries to meet probable
requirements may be used as a guide in considering the question of transfer.
In many cases it is probable that the cost of conversion would be such
as to make economical working impossible, and it will be necessary to be
careful lest reluctance to scrap State owned property should result in ill-
advised and wasteful attempts to use it for the fulfilment of Government
orders.

87. On the cessation of hostilities, it will be possible gradually to
reduce the production of munitions and military material to a peace level.
There will, however, be an immense v is inertiae to be overcome, tending to
keep a high proportion of our productive power engaged for months after
the war on munition work. It is not easy suddenly to stop or divert the
activities of so powerful and so highly organised a machinery as that con-
trolled by the Ministry of Munitions. Many firms will be interested in
the continuance of profitable contracts. Many people will be interested in
the retention of secure and well-paid employment. There will be a natural
tendency to continue automatically the expenditure of unexpended votes.
Varying estimates will, no doubt, be formed as to the proper standard of
peace requirements. At the same time, it is essential that, without prej-
udicing the requirements of national defence, we should act promptly and
vigorously in switching off munition work, scrapping what is half-done and
re-adapting our industrial plant to the uses of peace. In all the metal
industries there will be an abundance of orders waiting for execution and
it depends upon the rapidity with which we effect this transference of effort
whether we get these orders before they have gone elsewhere.

(M) The Exodus from the War Industries

88. The problem of providing peace employment for those who have
acted during the war as stop-gap and emergency workers will be of less
magnitude than that of reinstating the returned soldiers; but it will none
the less be a formidable one. We have seen (paragraph 19) that the total
number affected will probably fall little short of a million and a half, about
half of whom will be women and girls. This total may be divided into
several classes, both as regards the nature of their employment and the
problem which they will present on a return to peace conditions.

89. The necessities of the war have resulted in the employment of a
large number of additional workers in the munition, equipment, chemical
and other industries, either for the purpose of making material of war or
to supply the exceptional demand for labour created in certain trades by
the circumstances of wartime, such as the cutting off of imports from
abroad. The great majority of these have left other employments, either
because trade was slack in their own line, or because of the higher remuner-

ation or greater attractiveness of war work. Most of those who have done
so may be expected to gravitate back to their former occupations; but not
all will find it possible to gain immediate reinstatement. A large section
consists of married women, more particularly of women whose husbands
are with the Colours, who have returned to industry during the war. The
majority of these will doubtless return to domestic life; but many of them
may be compelled to continue as wage earners, or may desire to do so. A
further section consists of girls, who would, in the normal course, have
entered industry during the period of the war, and whose circumstances will
certainly require them! to seek other paid occupations when their war em-
ployment has come to an end.

90. In addition to those who have been added to the number employed
on special industries, many women have gone into factories, shops and offices,
to take the place of enlisted men. A large proportion of these are young
women who would not, in the ordinary course, have sought for paid employ-
ment. Here again, it is probable that a certain number1 will withdraw from
industry when the national emergency is passed, but that a large number
will remain as wage earners, either from necessity or from preference.
There are also a considerable number of former domestic servants, some
of whom will desire to retain the greater freedom and higher remuneration
of their new occupations. Such women, whether they have taken the place
of enlisted men or have been employed on munition work, will present a
difficult problem; for they have had no pre-war industrial training and the
instruction which they have received in the performance of specialised
tasks will not be of much service in securing employment when war work
comes to an end, or the men whom they have released return. It is prob-
able that a more scientific organisation of office-staffs may find a permanent
place for some of those who have entered on commercial life; but the
greater number of these new workers will have to look for industrial
employment, and unless a satisfactory method of dealing with the difficulty
can be found, there is grave danger of their drifting into the lowest grades
of unskilled labour or the ranks of the unemployed.

91. Finally, there remains the problem of boy and girl labour. During
the war, many children have become wage-earners before arriving at the
statutory working age, and have been put to work in which they have no
future, and are receiving very little instruction of general utility. In the
case of these juvenile workers the primary necessity is to make good the
interruption of their education, both general and vocational.

92. The general situation with regard to stop-gap and emergency
workers will be somewhat relieved by the fact that many women who would
normally have quitted industry for domestic life have deferred doing so
until after the war. The places vacated by them will be available for those
who are returning to ordinary employment from the war industries. In
the main, however, the problem is similar to that of demobilisation, and
must be treated on the same lines. As in the case of returned soldiers,
the transition may be eased by Government orders for reconstruction work

and for undertakings of national utility. The special difficulties presented
by the case of the new women workers, with no previous industrial training-,
and the boy and girl labour taken on for war purposes, will require separate
treatment. The only way in which these workers can be raised above the
level of unskilled Labour or assured permanent work, is by the adoption
of a comprehensive policy of technical and vocational education, directed
to fitting them for those trades in which there are the best prospects of
employment.

(Hi) Industrial Friction

93. Whatever emergency measures may be adopted, the avoidance of
friction depends upon an agreement between Labour, Management and
Capital as to the future organisation of industry. Such an agreement must
be based on frank recognition of the existing grievances of all parties and
can only be attained by bringing home to the minds of each class the
dangers arising from conflict and the advantages to be gained by co-opera-
tion. The possibility of such an agreement will be discussed in the con-
cluding section of this Memorandum.

III.— CONSTRUCTIVE MEASURES
*. (0 Industrial Efficiency

94. The first essential of Industrial Efficiency is the will to produce,
which can only be obtained by providing sufficient incentive and promot-
ing confidence. It is, therefore, dependent upon a satisfactory solution of
the fundamental problem.

Subject to the satisfaction of this primary requisite, much may be
done to promote efficiency by an all round improvement in our industrial
organisation. A number of practical steps in this direction are suggested
below.

(a) PHYSICAL EFFICIENCY

95. The basis of all national progress, whether industrial or social,
is the health and physical efficiency of the people. Any improvement in
this respect must be sought along two lines — the improvement of conditions
and the spread of knowledge. The conditions which exist at present in
the over-crowded areas of our towns and in many of our villages render
healthy life impossible. The progress of physical degeneracy must be
arrested by increased attention to the care of child life, the improving of
housing conditions, both in town and country, and the creation of open
spaces. These steps are essential, not merely to the efficiency of the work-
ing class, but to the health and character of the nation. Closely connected
with this question is that of healthful conditions of work. Not only justice
and humanity, but sheer economic necessity, should prompt us to enforce
strictly all regulations of factory and other work in the interests of health,
cleanliness and decency. It is equally important that ample opportunities

and facilities should be afforded to all industrial workers for rest, recrea-
tion and exercise. Neither efficient workers nor healthy and self-respecting
citizens can be obtained if any part of the community is denied access to
the materials of social life. The assurance of a minimum standard of
maintenance, enabling sufficient food and clothing to be provided for every
member of a family, is bound up with the question of wages and must be
taken into account in any consideration of that question. While the dif-
ficulties in the way of establishing a general minimum wage by State action
are great and probably prohibitive, the wage rates in any trade should bear
a definite relation to the cost of living. A healthy public opinion and the
common sense of employers should both be brought to bear upon the dangers
arising from an inadequate standard of life. To ensure full value being
received for the money spent on food, the laws against adulteration should
be strengthened both in their provisions and enforcement. Adulterated
food and impure milk are still responsible for much malnutrition. All
these questions of conditions are fundamental, and unless they are attended
to, we can look for no great progress ; but in order to obtain the best results
a simultaneous effort must be made to extend knowledge and training. The
work already done in the schools in the direction of physical training and
the teaching of elementary hygiene, is excellent; but with greater national
attention to these subjects, resulting in further financial provision, it could
be largely extended. The same remark applies to the teaching of domestic
economy. While the workers are rightly suspicious and resentful of
grandmotherly interference, an infinite amount of waste and loss could be
saved by spreading among all classes a sounder knowledge of how to lay
out the family income and employ the domestic equipment so as to obtain
the best return. No class is free from the reproach of wasteful expenditure
and inefficient methods and a knowledge of simple facts in elementary
economics should form part of the teaching in all schools.

(fc) MENTAL AND MANUAL EFFICIENCY — THE PRIMARY SCHOOLS
96. The foundations of mental and manual efficiency must be laid in
the primary schools. There is observable among some industrials a recur-
ring tendency to regard all but the barest rudiments of general education
as useless and even injurious to the average run of working-class children,
and to urge that at an early age all but the most promising should be
trained solely with a view to fitting them for a specific occupation. This
course, however, is open to serious objections, both from the social and
from the industrial point of view. The effects of technical instruction at a
very early age are undoubtedly injurious to mental development. It must
inevitably be acquired mechanically and without understanding, and the
cramping effect of a purely utilitarian education upon intelligence and
character renders it a poor preparation even for industrial life. From the
social standpoint there are grave disadvantages, both to the working class
and to the community as a whole, in restricting the education of any chil-
dren to their training as operatives. At the same time, the connection

between the general education given in primary schools and industrial
efficiency is close, and may be rendered still closer. The modern educational
systems, which aim at fostering the child's intelligence and developing its
powers of self-expression, even more than at impairing instruction, can be
made to form the best possible basis for subsequent specialised training.
At present the elementary schools still suffer to some extent from the pres-
sure of sterotyped codes laying an undue emphasis on "book-learning,"
and the development of the child-mind is too often choked by cramming in
the upper standards. What is wanted is not that those who have the wel-
fare of the industrial class at heart should seek to limit the time and
attention given to general education, but that they should ally themselves
with those educational reformers, within the schools as well as outside them,
who are striving to simplify the curriculum and to lay increased emphasis
on the formative side of education. Special attention should be given to
that part of the course which is devoted to bringing out the child's powers
of observation and placing it in an intelligent relation with its environ-
ment. The "eye and hand training," which already forms a large part of
the work, is capable of great extension. To confine it to preparation for
any particular trade would be to rob it of most of its educational and much
of its industrial value. Its purpose is to perfect the instrument of which
subsequent vocational training will teach the use. Experience shows that
instruction in any subject is acquired more quickly and more thoroughly
if it is postponed until the mind and senses of the child have been thor-
oughly and painstakingly prepared to receive it. Education along these
lines will produce at the same time efficient workers and intelligent citizens ;
and the development of the commercial and team spirit by the organised
games which are coming more and more into favour, will play its part in
both these relations. Our hope for the future must lie largely in co-
operation between the industrialists and sociologists, who can best indicate
the national requirements, and the practical educationalists who are entitled
by training and experience to indicate the methods of attaining them.

(c) MENTAL AND MANUAL EFFICIENCY — CONTINUATION EDUCATION
97. The work of the primary schools must be carried forward and
developed by the improvement of our system of Continuation Education.
There is no greater source of national waste than that which takes place
by the premature withdrawal of our children from school life, just at the
age when they are best fitted to -profit by it. The figures in this respect
are so startling that they are worth quoting. In England, out of two and
three-quarter million boys and girls between the ages of 12 and 16, nearly
1,100,000 get no further education after the age of thirteen. Of the remain-
ing 1,650,000, the great bulk are educated, mostly in the elementary school,
only until the age of fourteen. Only 250,000, or one in eleven, go to proper
secondary schools, and in most cases they are there only for a short time.
These figures make it easy to understand the superior success of Germany
in so many departments of activity. That success is not due to the

character of the education received by young people in Germany. It is
due to the fact that so very much greater a proportion of young people in
that country receive any systematic education at all during the all-
important years between 14 and 18. The same is true of University educa-
tion which, whatever its quality, is far more widely diffused in Germany
than in this country. Both for the sake of the future of British Industry
and from the point of view of the development of intelligent citizens, it is
essential that means should be found by which general education can be
continued after the close of the primary school period. This is the more
important because the conditions of modern industry are such as to make
it impossible to rely on apprenticeship as a generally satisfactory method
of industrial training. The methods of attaining the desired end remain to
be considered.

Evening Classes. — Continuation education in this country has for
many years past existed in the form of evening schools. These have
rendered much good service, but attendance has been voluntary and the
number of students has always been small in proportion to the whole
number of juveniles employed in industry. Moreover, attendance at an
evening school for one, two, or more hours, after a 9V2-hour day in the
works, puts a heavy strain on mind and body, and in the case of the keenest
and most promising youths, has often resulted in complete breakdown.
Evening classes are thus open to serious objection and further progress
can hardly be expected from a development of the system.

Part-Time Day Schools. — The method of evening schools having been
found unsatisfactory, it should be replaced by a system of compulsory part-
time day Continuation Schools for all young persons between 14 and 18
who are not receiving whole-time education. Employers, as a whole, must
be required to follow the example already set by many among their number,
who allow their young employees a substantial period every week for attend-
ance at school. These Continuation Schools, if they are to do the best for
their puipls, must not be purely technical or specialised in character, but
must continue the general civic education from the point where it was
left at the primary school, and must lay due stress on the physical side of
development and on the corporate life, which is the essence of the "public-
school spirit" in the schools of the well-to-do for boys of the same age.
Education at this stage must still be primarily formative in its purpose:
and it is because British schools of the older type have always kept this
larger aim steadily in view that they 'have developed the qualities of
adaptability and initiative which the war has revealed. The true period
for specialisation and the perfecting of industrial, as of professional train-
ing, is after the age of 18, for it is only then that most young people
become fixed in what is likely to be a life-long occupation, and have the
necessary knowledge and general equipment to understand the bearings of
the special work which falls to their lot. For this specialised training
the part-time school, with skilled craftsman teachers, affords the best
opportunity. The combination of vocational instruction in the case of

younger pupils, who have developed a special bent towards any particular
craft, with the continuation of their general education, is already provided
for, to some extent, by the Junior Technical Schools which have been
established in many of our large towns.

The Universities. — Much more could also be done to bring the
University life of the country into closer touch with the professional and
industrial classes. A University should not only be a training ground for
the recognised professions, but a centre of research in connection with the
industries of the country. Moreover, it has a distinctive and peculiar
part to play in what has come to be termed the work of adult education.
It should form a meeting place for those engaged in every department of
life, and the natural home of the thought and discussion of the country
on public affairs. Used in this spirit, the Universities should go far to
redeem the country from the shallow and sectional discussions which have
disturbed it in recent years.

(d) LABOUR-SAVING MACHINERY

98. There is no question that an increase in the industrial output
could be obtained by a wider utilisation of labour-saving machinery.
From the Employers' point of view, the cost of an improvement of this kind
in existing plant would be repaid in a very short period and would yield
a high return on the capital invested. The Workman, however, usually
resists and obstructs, or, at any rate, resents its introduction, and before
such extension can be advocated as an item in the programme of recon-
struction, the grounds of this opposition must be examined from the point
of view of the Men as well as of the Employer.

99. The strongest form assumed by this hostility rests upon a human
and not upon an economic basis. It arises from a profound dislike of
seeing handicraft replaced by the machine and the craftsman relegated to
the position of a machine minder. The argument that the use of automatic
machines will increase output leaves this objection untouched, because the
question is not one of the worker's remuneration, but of his position and
self-respect. The tendency of work under modern conditions to become a
mere mechanical routine and of the worker himself to become dehumanised
during his hours of labour is at the bottom of the wide-spread intellectual
revolt against the industrial system. This feeling is not only a natural
one, but is based upon sound instincts. It must be taken fully into
account in any discussion of the subject.

100. It will be admitted by most of those who have thought upon the
question that a complete return to the old conditions of handicraft is
impossible. It cannot, at any rate, be contemplated as a practical pro-
gramme for the near future. The conditions of modern life involve an
ever-extending amount of repetition work done to precise measurements.
In work of this kind, whether it be done by hand or by machinery, there
is little room for exercise of the higher faculties of craftsmanship. The
defence of labour-saving machinery from the human standpoint is that it

removes the sheer muscular drudgery from such work and enables a greater
amount to be produced in shorter hours and with less strain and exhaustion
to the worker. Moreover, the increased complexity of machinery is con-
tinually operating in the direction of restoring the balance, by calling upon
the operator for a care and a degree of skill approaching more nearly to
craftsmanship. This tendency would be largely fortified if more care were
taken to explain to operators the purpose of their task, and the part it plays
in the process of production. There is no reason why even the unskilled
labour connected with labour-saving machinery should not be based upon a
foundation of intelligence and responsibility in the worker which would
preserve his self-respect. Nor must it be forgotten that the construction
and maintenance of labour-saving machinery gives rise in itself to the
employment of a large amount of highly skilled labour.

101. The chief economic objection of the worker to the introduction
of labour-saving machinery arises from his belief, unhappily founded on
experience, that its immediate effect is to lower his wages or deprive him of
his job. With some qualifications, this objection is well-founded. That
such a result is not invariable arises partly from the fact that many labour-
saving machines are very costly, so that a wise employer will offer a
journeyman's wage to anyone who will work them to their full capacity,
rather than pay a labourer's wage for them to be worked at half or two-
thirds capacity. Moreover, the ultimate effect of labour-saving machinery
is to lower the price of the article produced and thereby to increase the
demand for it, which, in its turn, will react upon the demand for labour.
It remains no less true, in the main, that when a craftsman's job passes
to the machine, that special skill which is his sole stock-in-trade loses its
monopoly value and he stands in danger of sinking from an unemployed
craftsman to an unemployed labour unit.

102. The existence of cases of individual hardship does not, however,
prove that the introduction of labour-saving machinery is, in the long run,
economically injurious to Labour as a whole. That such cases of hardship
should arise is inevitable in all industrial progress, as well as in every
other department of life. Any sudden change in industry, whether due to
new inventions, to fashion, or to changing conditions with regard to markets
or raw material, involves a similar displacement. To resist the forces of
change is impossible, and the attempt to retard them is generally pro-
ductive of waste and friction. The better course is to develop the new
trade or system rapidly and efficiently and at the same time to do all that is
possible to bridge over the period of transition and protect the individuals
affected. In the case of labour-saving machinery, this duty is particularly
incumbent upon the employer, because the change is one introduced by him
for his own profit. It is his duty so far as possible to provide alternative
work for the men displaced, to take advantage of the normal fluctuations
of staff to spread out the period of reduction, to allow time for men who
cannot be retained to find another job. The only course, however, which
will go to the root of the opposition to the introduction of such machinery,

is' for the employer to take the workers into his confidence; to explain to
them what is proposed; to discuss with them, through their representatives
or their Trade Union, the machinery required to meet the demands of com-
petition, the rate of its introduction, the conditions under which it is to
be worked and the wages to be paid to the operators. It is only by the
co-operation of Employers and Employed to introduce and use labour-
saving machinery as a means of increasing efficiency of production, and
not merely for the purpose of cutting down wages while increasing profits,
that the advantages to be derived from its use can be attained with the
minimum of dislocation and loss to individuals. At .the same time a better
system of education, tending to produce all-round competence and adapta-
bility, would go a long way towards placing the worker above the prospect
of disaster due to a change in conditions.

(e) WORKS ORGANISATION

103. No method of increasing output is more promising in theory
than that known in America as "Scientific Management"; but none is more
open to abuse and frustration in practice. It is based on the conception of
a works in which the whole routine, down to the last detail of every opera-
tion, is organised by the management, acting through a staff of efficiency
experts. So far as concerns the "routing" of work through the shops, no
objection can arise. Confusion, over-lapping, delay and waste are avoided
and the course of the work is made to run smoothly and rapidly. These
are true functions of Management, and the more thoroughly they are per-
formed the more efficient will be production and the less the strain on the
workers.

104. With regard to the functions of Labour, the methods of Scientific
Management are more open to question. The idea is to analyse and time
the physical movements made in the performance of each operation on
every job; to reduce each task to its simplest elements; to constfuct a
routine from which every superfluous effort or movement is eliminated;
and to train workmen to follow the prescribed schedule as a coach might
train a boat's crew to use their oars. The reactions of environment and
the limitations of fatigue are studied; no overstrain is allowed; rest periods
are provided. An astonishing increase in output can be achieved along
these lines ; so that unprecedentedly high wages can be and are paid to those
who will work under the system. Nevertheless, it is regarded with profound
dislike and distrust by the general run of workers, and in a great many
cases attempts to put it into practice have had to be abandoned.

105. The reason usually given by the men for their hostility is- that
the employer, while paying higher wages, takes care that a much more than
proportionate increase is effected in his own profits, so that the ratio of
distribution becomes less favourable to Labour than before. But this,
though a natural ground of soreness, is not the main reason for the work-
man's opposition. Underlying all economic suspicion is the worker's
instinctive aversion to becoming a mindless automaton, performing without

variation a cycle of mechanical movements which do not lead to increased
general proficiency, which open the way to no higher grade of employment,
and which are prescribed not by himself or by the traditions of master-
craftsmen of his class, but by an outside and unsympathetic authority in
the shape of the scientific expert. Before the undoubted advantages of
motion training can materialise in workshop practice, full security must
be given against these evils. This can be done only by introducing the
system with the full voluntary co-operation of the men; and such co-opera-
tion can only be secured by first putting the whole proposition before them,
explaining frankly the risks to be faced as well as the benefits to be
obtained, and transforming the whole constitution of the works in such a
way that the men themselves may have an interest in the new system and
some share of control over the working of it.

(/) LABOUR LEGISLATION

106. It is clear that organised bodies of workers and employees must
in the immediate future play a greater part in determining the policy and
direction of our economic life. Many industries, however, are not well
organised; and only a quarter of the whole working population is enrolled
in trade unions. The greater portion of the unorganised workers are
women, young persons and children, whom our labour laws are largely
intended to protect. Whatever may be said in favour of voluntary agree-
mentsj it is inevitable that the protection of women and young people must,
for the time, be in large measure left to the State. The first need is for a
revision of our whole code of labour laws with a view to their co-ordination
and the eradication of those anomalies and historical accidents, which
for no real reason establish different standards and conditions for pro-
tected persons. In the second place, there is a strong case for a further
limitation of hours in the case of employees in factories and workshops, and
distributive shops, and for a very considerable improvement in the environ-
ment in which work is carried on. For healthier workplaces, the provision
of dining and rest rooms are absolutely necessary in the interests alike of
industrial efficiency and of social welfare. In general, it may be said, that
our Labour Legislation should be thoroughly overhauled and strengthened
to meet the demand for a higher general standard of life, in such ways as
will increase the self-respect, dignity and efficiency of the protected workers.
The whole task of bringing our industrial legislation on all sides into con-
formity with the new national needs, should be undertaken with the active
co-operation of Labour and Employers; indeed, all modifications and
developments should be based in the first place upon the joint recommenda-
tions of Employers' Associations and Trade Unions.

(#) HEFORM OF THE PATENT LAWS

107. The original purpose of the existing patent laws was (1) to pro-
mote the commercial development of inventions, by giving the inventor a
monopoly in the patented article for a term of years; and (2) to ensure

a full account of the invention being published, in order that when the
monopoly period expires, anyone may be in a position to make, sell or use
the patented device or process. As they stand at present, the laws do not
adequately fulfill these intentions. It is becoming increasingly common
for patents to be obtained or acquired for the sole purpose of preventing
development, in the interests of an existing process. The fees charged also
require revision. Many minor inventions, though important as far as they
go, and entitling the inventor to the protection of the patent laws, will not
yield a return proportionate to the heavy fees demanded in the later years
of the term. Moreover, the effect of high patent fees is to place the
inventor, if he is not a rich man, at an unfair disadvantage as compared
with the capitalist, though both are equally necessary to placing the inven-
tion on the market. There is a tendency to forget that what the inventor
gives to the community in exchange for a temporary monoply is an
account of his invention from which the community derives permanent
benefit. To consider patent fees merely as a source of revenue is, in the
long run, economically unsound. There is every ground for believing that
the pre-eminence of America in the production of ingenious small tools
and appliances is mainly due to the superiority of her patent laws. The
whole matter requires careful reconsideration from the three-fold point of
view of stimulating invention, encouraging production and the protection
of the consumer. An effort should especially be made to devise some
means whereby patentees of small means can obtain guidance, assistance
and protection in the commercial development of their inventions.

(h) ENCOURAGEMENT OF RESEARCH

108. The Encouragement of Research in connection with the applica-
tion of Science to Industry holds out possibilities hitherto better appreciated
by our commercial rivals than by ourselves. The war has called attention
to the advantages which the Germans, in particular, have derived from
their admirable organisation of practical scientific training, especially in
connection with the chemical industries. For industrial purposes research
may be classified under two headings — Theoretical Research of a general
nature, having no obvious and immediate practical application, and Specific
Research directed to the solution of definite problems of production.
Neither kind can be safely neglected. The experiments of pure scientists
have often led to discoveries of high commercial value which were wholly
unlocked for by those who made them. The encouragement of Theoretical
Research, which may yield results of national utility, is a proper object for
State action. Specific Research, the results of which will be capable of
immediate commercial application, can best be carried on in close con-
nection with the industries concerned. It would be well worth the while of
big Employers' Associations to subsidise research on problems connected
with their industry at Technical Colleges or Municipal Laboratories in the
leading centres of industry, on the understanding that the results obtained
were communicated solely to members of the Association. Such subsidies

.43

might even be extended to research of a more general character, in any field
touching the materials and processes of the industry in question. The
results obtained by the scientific experts could then be submitted to the
staffs of works laboratories, who would at once recognise the commercial
possibilities which they might hold and could refer them back for specific
research along the lines indicated by their practical knowledge -and
experience. »

(i) IMPROVED METHODS OF DISTRIBUTION

109. What has been said thus far has had special reference to manu-
facture; but efficiency in the distributive side of industry is no less impor-
tant. To produce a good article at a moderate cost is not enough; the
process is only complete when it has been delivered to the customer. Both
transport and selling methods in this country are capable of improvement.
The question of transport is of special importance in the case of agriculture,
the development of which has been gravely hampered by the lack of railway
or motor facilities. Both in regard to agriculture and manufactures, the
extension of these facilities and the fixing of rates require close attention
on the part of traders, the railways and the State. The system of
co-operative collection and distribution by means of light railways and
motor services, which has been so successful in Ireland, could in many cases
be usefully applied for bringing local products to the market. The arts of
selling, publicity, window-display, delivery, careful study of the require-
ments of the public, the personal element in service, the training of com-
mercial travellers, all require increased attention. The planning and
equipment of shops and offices, the training of the staffs and the organisa-
tion of routine are as important as the equivalent processes in manufacture;
and as in production, the best results can only be obtained by fostering the
intelligence and initiative of employees and cultivating the "team-spirit."
At the same time, the services of the specialist, the advertising or window-
dressing expert, are as important to the distributive business as those of the
scientist and inventor to the manufacturer.

(fc) BANKING AND CREDIT FACILITIES

110. The solid and cautious policy of British Bankers has been a
main foundation of the general financial soundness which has made this
country the credit centre of the world. It would be an irretrievable loss if
their reputation in this respect was allowed to suffer. Nevertheless it is
probable that they could afford greater assistance to Industry than they
have done in the past, without running such risks as would in any way
jeopardise their stability. In view of the probable necessities of the
situation, it is very desirable that the leading bankers should study for
themselves how far it may be possible for the Banks to work in closer touch
with Industry and lend their invaluable support to its future developments.

111. The condition of Industry after the war will render it particu-
larly desirable that the centralisation of Banking by the large Joint-Stock

Banks should not be allowed to hamper the discretion of trustworthy Branch
Managers in making the local advances on the strength of non-paper col-
lateral and of established character which were a useful feature of the
older system. A wise use of this power would enable the Banks to render
valuable assistance to traders, without involving the disadvantages inherent
in the German conception of the relations of Banking and Industry.

THE DANGER OF PANIC ECONOMY

112. In connection with the above points, as well as with those
embraced under the heading of Emergency Measures, it will be necessary
to exercise great care that a reaction from the lavish spending necessi-
tated by the war does not lead to an outbreak of panic economy in State
expenditure. Nothing could create a worse feeling and temper than any
appearance of stinginess towards the men who have fought for us, whether
in connection with the treatment of the disabled or the schemes for reintro-
ducing the demolished men to civil life. These are matters of national
responsibility which cannot be left to any private efforts involving the
stigma of charity. Nothing could be a more false economy than to allow
the work of education — technical or general — scientific research, housing,
or the improvement of the national health to be obstructed at a time when
the whole welfare of the nation turns upon increased efficiency. Money
spent for these purposes is not expended on a luxury, but is a paying invest-
ment, perhaps even an insurance.

X^) Increased Saving

113. Capital for the repair and improvement of the national plant
and the reconstruction of devastated areas abroad — which will provide work
at home — can only be furnished by people pfoducing much, spending little
on consumption of goods, and saving the balance.

114. There is real need for an educational campaign to explain the
principles of economy, whether with regard to spending less or spending
more wisely. Such questions as the comparative effect upon employment
of expenditure upon luxuries and investment in productive industries are
very little understood. There is a vast amount of wasteful expenditure by
the rich which is either due to sheer thoughtlessness or is excused by the
assumption that it "makes work." There is also a great deal of wasteful
expenditure by the poor, which is due either to lack of training in house-
hold economy or to unfavourable conditions.

115. It is necessary to bear in mind that the saving and investing
class is composed at the present time almost exclusively of the compara-
tively well-to-do. If any agreement for the settlement of industrial difficul-
ties is arrived at which results in a wider distribution of wealth, it will be
necessary to consider what can be done to make working-class investment,
whether by individuals or groups, easier, safer and more attractive. The
Co-operative movement, Mutual Insurance and Friendly Societies, and the
management of existing Trade Union Funds may supply hints as to the
best means of attaining this end.

116. There is danger to be avoided in urging working class "thrift."
The man who stints himself or his family in the necessaries of physical,
intellectual or emotional life is rendering no service to the nation, whatever
capital he may accumulate. Up to a certain point the unstinted consump-
tion of the material of life is of definite value in producing industrial
efficiency and capacity for citizenship. But with increased income and a
better acquaintance with the right use of wealth a point is reached at
which an increasing margin becomes available for legitimate saving. It is
probable that a greater feeling of security and responsibility would of itself
lead to the useful employment of this margin.

117. In the immediate future, however, the savings necessary for
capital renewal will have to come mainly from restricted consumption
on the part of the well-to-do. The cutting down of expenditure on luxuries
not only liberates labour for the increased production of necessaries, but
renders capital available for investment in productive industries.
Economy of this kind does not diminish the total demand for goods or
labour. Even if the money be left in the bank, it is used as a basis for the
credit needed for industrial development, and sets up a demand for the
instruments and materials of production. The volume of demand is not
affected, but only its character.

(Hi) Assured Markets

118. Assured Markets are essential to steady production. They will
be found by British industry (a) in the Home Demand; (fr) in the Over-
seas Dominions; (c) in Foreign Trade.

(a) HOME DEMAND

119. The Home Demand depends first of all upon the general pros-
perity of the people. If confidence and credit are maintained and earnings
are large, the increase of spending power will be reflected in a brisk demand
for goods. In this connection the question of agricultural development,
discussed below, is important, as tending to increase the spending power of
a large number of people who have hitherto formed one of the poorest
sections of the home market. For the first few years after the war the
general demand should be guided and restrained by the need of increased
savings, necessitating moderation in consumption as well as increased
output. The use of these savings for the renewal of the national plant will,
howevef, create a strong demand in those trades concerned with the manu-
facture of the instruments of production. As soon as the process of capital
renewal has been accomplished, the special necessity for restricted con-
sumption will cease and the demand will become general, the annual balance
of production over consumption serving for the requisite additions to
capital.

120. The idea of securing the home market to home manufacturers
by levying a duty on competitive imports is an attractive one from many
points of view, and the circumstances of the war will give occasion for new

arguments in its favour. The anticipated danger of dumping by German
or. American firms, anxious to get a footing in the market during the period
of readjustment, the desire that this country should be independent of
foreign nations in respect of vital industries, the means afforded by a
tariff for raising additional revenue and the persistence of war passions, will
all go to make the setting up of protective tariffs more alluring.

121. It has none the less to be remembered that protective duties have
grave reactions and are hedged about with possibilities of abuse and failure.
The difficulty of devising a scheme which will avoid the danger of raising
the cost of living out of proportion to the possible increase in wages and
shifting the financial burden from the shoulders of the income taxpayer to
those of the consumer, has not yet been overcome. There is a further
risk that the imposition of a tariff may cripple our export trade by raising
the price of raw materials and production and shake our position as the
entrepot for the world's products and the centre of the carrying trade. So
far as Germany is concerned, the fear of dumping is probably, in large
part, illusory, having regard to the cutting off of her supplies of raw
material during the war and the excessive drain upon her labour resources.
The stability of our financial position during the war, as compared with
other belligerents, may lead us to pause before we abandon the system under
which our industries have developed. At a time when boldness and
initiative on the part of our leaders of industry are particularly called for,
it Seems specially unwise to provide an artificial shelter from competition.

122. In considering the argument on either side, two things must be
kept in mind. First, that important as the Tariff question is, it cannot in
any case be the primary one. To say this is not to pre-judge the Tariff
question. Whether under a Free Trade or a Protective System, the first
necessities of the situation will be increased output and industrial peace.
The experience of many years, in this country and in America, has shown
that under neither system can these essentials be depended upon, unless a
bold attempt is made to grapple with our internal difficulties. Secondly,
every claim for a tariff must be considered not only from the point of the
industry affected, but from that of other industries, of the consumer and of
the nation as a whole. On this larger survey, it may prove impossible for
even the advocates of tariffs to ask for protection in particular cases or for
even their opponents to resist them in others. But it is exceedingly impor-
tant that in every case the grounds on which the tariff is claimed should be
clearly understood, and that if protection is granted to any particular
trade from considerations of national defence or political desirability, it
shall be granted on those gronuds and without any obscuring of the
economic issue.

(5) EMPIRE MARKETS

123. The question of Imperial Fiscal Union will be argued on the
same grounds as before the war. The desire for the closest possible union
with the Overseas Dominions has, of course, been intensified by the events

of the war, though it is open to doubt whether the spontaneous and splendid
rally of the Dominions has not given a setback to the contention that fiscal
ties were necessary to the permanence of the Empire. It is possible that
they might introduce an element of discord and create a suspicion of
attempted control by the Mother Country which would render them a
disruptive rather than a unifying tendency. In any case the question is
mainly a political one, to be argued on political grounds, but with a due
allowance made for its economic effects.

124. Success in Foreign Markets will depend, as before the war, upon
the production of a desirable article at an attractive price and upon the skill
with which goods are brought to the attention of buyers. It is agreed by
almost all business men that there is room for great improvement in the
organisation of selling. Up-to-date methods of publicity must be adopted.
Industrial concerns will need to unite for the joint cultivation of foreign
markets, sinking their individual rivalries and jealousies in the common
object, receiving much more active aid from the Board of Trade and the
Consular Service than has hitherto been given. A first hand study of
foreign markets, more efficient representations abroad, better co-operation
between merchants and shipowners, greater watchfulness by Government in
cases of infringement of British Trade Marks, are all measures the need for
which was apparent before the war and will be increased by the severity of
competition after peace is signed. The contention that appointments to
the Consular Service should be given only to men of British birth and busi-
ness training will be emphasised. On the other hand it is a constant com-
plaint of our most efficient Consular representatives that so little use is
made of their offices by traders. The need of studying the requirements
of foreign markets and of greater adaptability in respect of meeting local
demands, packing, quotations in metric measures and foreign currency and
the use of foreign languages will all be brought to the front. The utility
or otherwise of creating a Ministry of Commerce or National Trade Agency
will require full examinatior and discussion.

125. One result of the war will have been to give us a certain advan-
tage not only in the markets of our Allies, but in those of some neutral
States. The success with which our own carrying trade has been main-
tained, while that of Germany has been completely shut down, has given to
our merchants an opportunity to extend existing connections and form new
ones which should not be missed. The disregard of neutral rights shown by
the Germans in the use of South American territorial waters is a case in
which we may derive advantage from a strong sentimental preference,
which however, can only be maintained by sound business methods.

126. We must not lose sight of the connection between the home and
foreign markets. The more goods we can sell abroad the greater will be the
purchasing and saving power of our people at home. On the other hand
the ability of foreigners to buy from us depends in large part upon our pur-
chase of their products.

(d) ALLIED ZOLLVEREIX AND TRADE WAR

127. The proposal for an Allied Zollverein and the possibility of a
Trade War with Germany, as distinct from ordinary commercial com-
petition, are very large questions, involving political as well as economic
considerations. It is a matter of importance that these should be clearly
distinguished in the discussion. It may sometimes be desirable to achieve
a political object even at the cost of economic sacrifice; but it is essential
that in so doing we should realise clearly what we are about. On the other
hand, it leads to dangerous mental confusion if a step which can be shown
to be economically desirable is advocated on exclusively political grounds.

128. We shall save ourselves from many pitfalls if we keep steadily
in mind that industry and war are totally dissimilar operations. War is a
conflict, and the object of war is destruction. Industry is a process of
co-operation, the object of wrhich is production. It is much the same with
war and trade. The conflict of war and the competition of trade are dif-
ferent in kind as well as in degree. The object of conflict is to inflict
injury. The object of business competition is the opportunity to serve a
customer. War is competition in its absolute sense and in its most violent
form. If nations co-operate in war it is for the purpose of conflict with
others. Trade is competitive only in its processes; its end is co-operation.
We have learnt by experience that the organisation and processes of peace
are ill-adapted to the needs of war. The processes of war are equally
ill- adapted to the conditions of industry and trade. We may have to choose
between war and trade. Let us at least recognise that it is a choice and not
confound the functions of opposites.

(iv*) Land

129. We have not dealt here with the theory that the root of all
economic evils is the private ownership of land, and that whatever may
be done to increase the output of wealth, the increase will automatically be
appropriated by the land-owning class, in the shape of economic rent. In
the broad sense this theory is demonstrably unsound. It is certainly not
the fact that the increased proceeds of the great industrial development
during the nineteenth century have been absorbed into economic rent. The
general increase of rent is so gradual and laggard a process compared with
industrial progress that it may be left out of account here. Should a rapid
advance in agricultural prosperity take place after the war and be fol-
lowed by a marked increase in rents, threatening to absorb the extra earn-
ings and discourage further progress, the power of the State may have to
be invoked.

130. The question of land ownership and economic rent is the less
pressing at this juncture in that there are unmistakable signs of the breakup
of many of the large landed estates after the war, owing to the inability of
their proprietors to keep them going on the old lines.

(v) Agriculture

131. Far more promising than any land-nationalisation or single-tax
project is the application to agricultural development of the same degree
of thought, energy, training, education and organisation as is devoted to
manufacture. It is eminently desirable that British agriculture should
be developed. It would render us more self-sufficing in the event of isola-
tion, it would restore the balance of our national activities, it would give us
a healthier and more vigorous population, and it would prevent the further
overgrowth of our large cities with its consequent over-crowding. If
agriculture has suffered neglect from our statesmen, it has suffered far more
neglect from our industrial pioneers and organisers. The importance of
improved facilities for transport, and of investigating the problem of
agricultural credit, has already been urged (paragraphs 109 and 84). The
multiplication of existing local Produce Societies for the co-operative
buying of seeds, manures, appliances, feeding stuffs, etc., and the co-opera-
tive marketing of the produce in bulk would do much to ensure the success
of the small-holder. The education of village children should be brought
into relation with thier future work, just as that of town children is made
the basis of industrial training. We have suffered much in the past from
an inelastic curriculum applied indiscriminately, without any attention to
the special needs of localities and classes. Trhe observation and environ-
ment teaching of the primary schools should be directed to awakening-
interest in and understanding of the life around them, and the eye and
hand training to the perfecting of those faculties which will be most useful
in agricultural work. At a later stage, direct vocational training may be
given, either at special schools or in daytime classes for junior workers.
In this way it should be possible to make of the agricultural labourer a
skilled worker, and to invest his work and life with a greater degree of
dignity and interest, which will go far to counteract the drift towards the
urban centres. The facilities for farmers and foremen to acquire a knowl-
edge of scientific farming, stock rearing and gardening should also be
largely increased and greater encouragement given to research and experi-
ment in connection with cultivation. With an improvement both in the
management of the land and the efficiency of the workers, the problem of
agricultural wages should be easier of solution, and a general rise in wages
would enable the question of housing in rural districts to be tackled on an
economic basis.

132. To sum up very briefly what has already been said: We shall be
faced after the war by an industrial situation of extreme gravity due partly
to the intensification of the conditions which made for unrest before the
war, partly to the difficulties inseparable from the readjustment to peace
conditions. These difficulties can be met to some extent by the adoption
of immediate remedial measures, a number of which are suggested above.
But these measures, important in themselves, will go to the root of the
industrial problem. In like manner the increased production and increased
saving which will be essential to the renewal of the national capital and the

restoration of industrial prosperity, can be promoted by the study and solu-
tion of a large number of detailed questions bearing on Industrial Efficiency,
Increased Savings and Assured Markets. Here again the fundamentals
remain untouched. At the back both of the Emergency and the Con-
structive Problems lies the hostility between Labour, Management and
Capital by which prodiiction has been hampered in the past and which now
threatens us with a crisis the dangers of which it is not easy to exaggerate.
Unless we can deal successfully with this basic problem, no amount of skill
in handling the secondary questions will save us. If we can deal with it
successfully we shall have laid the foundation for the solution of all ouf
other difficulties, and we may hope not merely to avert the threatened
dangers, but to establish industrial prosperity and social development upon
a firmer basis.

D.— The Fundamental Problem

133. In order that we may understand the nature and importance of
the fundamental problem, it is necessary to examine a little more closely the
essentials of industrial prosperity and its relations to national welfare.

134. The foundation of industrial prosperity is production. The
material well-being of a nation demands first, the attainment of the possible
maximum both as regards size and quality of output, whether of goods
or services; secondly, the elimination of all waste of material or effort in
the process of production; thirdly, an equitable division of the proceeds of
industry, enabling all those concerned in the creation of wealth to obtain
a reasonable share of its material benefits. The social welfare of the nation
requires that the conditions of work and the relations between the parties to
industry shall be such as make for intelligent and self-respecting citizenship
on the part of all concerned, and that the activities which occupy so large a
proportion of men's time and powers shall be felt by them to be fit and
worthy employment of their energies. Any attempt to solve industrial
problems which is concerned solely with the distribution of earnings must
necessarily be inadequate. In the first place, the amount available for dis-
tribution depends upon the amount produced, and an attempt by any section
of the community to increase its own share of the proceeds by a scheme of
redistribution which ignores the necessity of increased creative effort is apt
to result in a shrinkage of the available total. In the second place, the
questions which centre round wages and profits, important as they are, are
not so vital as the questions of industrial relations and social conditions
with which they are connected.

135. In order that production may be efficient both as regards the
quantity and quality of output and the methods employed, it is essential
that the supply of capital should be adequate and that the national plant
should be kept up to date. The war has involved deterioration of plant and
a heavy drain on capital. In order that capital may be renewed and the
national plant repaired and kept in the highest state of efficiency it is
essential that confidence should be maintained and savings increased. The
accumulation of surplus wealth which we call capital represents the balance
of production over consumption in previous years and is constantly being
added to or diminished in accordance with the ratio of goods produced to
goods consumed. When that accumulation has been depleted, the deficiency
can be made good only by an increase in the annual balance. It will be
necessary to encourage economy in the consumption of goods and the invest-
ment of the resulting savings in productive industries. We must work
hard and efficiently in order to produce more. We must spend less on
luxuries in order that we may save more. We must increase confidence in

the national industries in order that savings may be attracted into the
right channels.

136. Increased production, increased saving, increased confidence —
these are the keys to the whole problem.

137. Production may be hampered either in pursuance of a deliberate
policy, or simply by the use of inefficient methods. The interest of Employ-
ers, as a general rule, is to increase output, the danger of over-stocking
being met by improved distributive organisation and the opening up of
new markets. Cases of restriction, for the sake of keeping up prices, occur
mainly in connection with monopoly products and the problem of counter-
acting the influences which make for restricted output in these cases
deserves a more careful study than has yet been given to it. There is also
a tendency, perhaps unconscious, on the part of some employers to throw
obstacles in the way of increased output due to the exceptional efficiency
of employees. They would rather have a smaller output produced by men
receiving wages not above the customary limit than an increased output
produced by men earning exceptionally high wages. As soon as the earn-
ings of any men in their employ rise above the customary level, they
begin to cut piece rates, with the natural result of removing the incentive
to efficiency and diminishing output. This policy is not only unjust to the
men concerned; it is shortsighted and uneconomic from the point of view
of the employer's own interests. On the other hand, the interest of the
individual employer in maintaining a high standard of quality cannot be
taken for granted, so long as large profits can be derived from the sale of
inferior goods. Stronger action on the part of Trade Associations, and
more general education of the purchasing public in standards of value, are
needed both in the national interest and in that of producers of high class
goods.

138. Much of the limitation of output on the part of Employers arises
from inefficiency in management — conservation in methods, the retention
of badly-planned works and out-of-date plant, bad organisation, neglect of
scientific research, the presence of "dead-heads" on the office staff. There
is some reason to hope that the experiences of the war and the keenness of
competition after it may lead to greater attention being paid to these points.

139. The limitation of output by Labour arises partly from the legiti-
mate desire to restrict the hours of work in the interest of health, educa-
tion, family life and enjoyment. These are considerations of social welfare
which cannot be set aside. We must look for greater production rather
from increased efficiency than from an increase in the number of hours
worked. There are, however, large sections of Labour by whom a further
limitation of output is deliberately practised in the assumed interests of
their class as a whole. In some cases the motive is the honest but mistaken
belief that the less each man does the more work there will be to go round.
"Work" is regarded as an exhaustible fund, or at the best as a diminishable
flow, and it is assumed to be in the interests of his class that each man
should "use up" as little as possible. The fallacy lies in the conception of

an inelastic "wages fund." Wages come out of the stream of products,
and other factors remaining constant, the distribution of wages cannot be
widened except by an increase of the stream. In the case of trades in
which employment is irregular and demand uncertain, the temptation to
slacken work as a job nears completion is easy to understand, but the
results of the policy are too wasteful to be contemplated with satisfaction.
The remedy must be sought in a better organisation of the industries con-
cerned which will give the workman greater security of tenure, and remove
the fear of unemployment or relegation to lower-paid work as a result of
exercising his maximum effort. A further cause of limitation of output
lies in the natural differences of individual capacity. The workers believe
that if each man were allowed to produce to his full power, the minimum
standard demanded by the employer would be based on the performances of
the quickest and most skilful and a "speeding-up" process would be intro-
duced, involving either excessive strain or lessened earnings on the part
of the majority. From this point of view, restriction of output is a sacrifice
made by the ablest workers in the interests of their fellows. While such
restrictions necessarily result in limiting the total output, it is obvious that
Labour cannot fairly be asked to remove them unless some definite assur-
ance can be given against the evils anticipated. The question is one which
will require very serious attention both from Employers and Employed,
when we come to face the task of industrial reconstruction.

140. With regard to quality of output it is obvious that the workers'
interest lies in the direction of a high standard which will improve the
status of those concerned in the industry. Whether from the point of view
of earning power or of interest and satisfaction in their work, the workmen
have everything to gain by the standard of workmanship in their particular
trade being raised. A general appreciation of this fact, resulting in greater
attention by Labour organisations to questions of craft training and quality
of output, would do much both to raise the position of Labour itself and to
strengthen the hands of those employers who are striving for a high level
of production, as against those who seek to make their profit out of the bad
taste of bargain hunters.

141. It is clear that any restrictions placed upon production, whether
by Employers or Employed, beyond those based upon the social needs of the
workers, must be removed if the difficulties of the economic situation are
to be faced successfully. In order to make good the wastage of war and
raise the general level of industrial prosperity, the efforts of both parties
must be united for the purpose of increasing the quantity of output and
improving its quality. In order to avoid disastrous conflicts with regard
to the distribution of earnings, the national income, the total sum available
for distribution, must not only be maintained, but increased. The pros-
pects of success depend upon the willingness of both sides to face the facts
of the situation and to throw aside somewhat of their mutual distrust.
It will be necessary for Labour to abandon the policy of restricting output
and to concentrate upon demanding adequate remuneration for the work

performed. It will be equally necessary for Employers to recognise that
efficient production is the only ultimate source of profit, that the policy of
keeping down wages and cutting piece rates is opposed to their own inter-
ests, and that industry as a whole will benefit by any rise in the level of
craftsmanship and production. There is to-day an urgent necessity for the
removal of all obstacles to any man either working or earning to the full
extent of his capacity.

142. The argument has brought us to the fundamental question which
underlies all our industrial troubles — the relation between Employers and
Employed. The limitation of production, whether by Labour restrictions
on output or cutting of piece rates by Employers, springs from the belief
that the interests of Employers and Employed are inevitably and funda-
mentally hostile. If it can be shown that their interests are concurrent as
regards production and only partially opposed even as regards distribution,
the way will have been paved for a compromise which will leave both
parties free to co-operate in the work of industrial reconstruction.

143. The relations of Employers and Employed are partly antagonistic
as regards distribution, because it is to the interest of each to secure a
relatively large share of the wealth produced. They are not wholly opposed,
even in this respect, because it is to the interest of the employer that his
workpeople's standard of life shall be sufficiently high to promote efficiency
and afford a reasonable incentive to effort; it is to the interest of the work-
man that the firm shall be sufficiently prosperous to provide steady employ-
ment. Good work cannot be expected from men who are ill-fed and insuffi-
ciently clothed, or who feel that they derive no advantage from increased
production. Continued employment cannot be expected from a firm which
is not making a profit on its business. The qualification becomes still more
important when it is extended from the relations existing in a particular
firm to industry as a whole. It is to the interest of all employers engaged
in the supply of common commodities that wages as a whole should be good,
in order that the purchasing power of their customers may be high. It is
to the interest of the workers, who are also consumers, that firms pro-
ducing aticles of general use should be sufficiently prosperous to keep plant
up to date and produce well and cheaply.

144. The interests of Employers and Employed are concurrent as
regards production, bceause it is to the benefit of each that the total
available for distribution shall be as large as possible. The interest of the
working class in increase of output may be limited by other than economic
considerations. They will not accept for the sake of increased wages
methods of work which involve loss of self-respect or a narrowing of their
life by undue restriction of leisure. To this extent the interest of the
employer may be over-ridden by considerations of social welfare. The real
conflict is between his economic interests as an employer of labour and the
social interests of the community of which he is a member. But the
employer and employed are both concerned in increased efficiency of pro-
duction, which implies equal or improved output at less cost to the

employer and with less strain to the employed. Here, too, it is to be noted
that the workman, as consumer, will benefit by any increase in the general
efficiency of production.

145. The great obstacle to co-operation is the question of status.
The ill-will of Labour towards Capital and Management is not wholly a
question of their respective share of earnings. Friction arising over the
distribution of earnings is in itself due quite as much to a sense of injus-
tice to the machinery of distribution as to the desire for actual increase of
wages. The fundamental grievance of Labour is that while all three are
necessary parties to production, the actual conditions of industry have
given to Capital and Management control not only over the mechanism of
production, but also over Labour itself. They feel that the concentration
of Capital in a comparatively few hands has rendered fair bargaining
between the parties impossible. A man who leaves his work without reason
inflicts on his employer a certain amount of loss and inconvenience. A
man who is dismissed without reason may lose his livelihood. While each
great firm represents in itself a powerful organisation, apart from any
Employers' Association to which it may belong, the men employed by the
firm are solitary units, having no power of collective action without calling
in the Trade Unions representing the whole of each craft. In the last
resort the only effective weapon of the Trade Union is the strike, and the
loss inflicted by a strike or lock-out on the Capitalist Class is not com-
parable with the acute personal suffering of the workmen and their fam-
ilies. They feel, therefore, that in any dispute the dice are weighed
against them.

146. There is also a very widespread feeling that Labour as a whole
is faced by great disadvantages in ventilating its grievances. The tribunals
are composed, the Press is owned and run, by men of another class; and
the complaint is frequently made that the Labour representative and the
Labour case do not receive the fair play and courtesy which would be
extended to those of their "opponents."

147. The attitude of a certain section of Employers who look on
their employees as "hands," as cogwheels in the industrial machine, having
a market value, but no recognised rights as human beings, is bitterly
resented. Still more offensive is the attitude which regards the working
man as a very good fellow so long as he is kept in his place and requir-
ing to be guided and disciplined, but not to be consulted in matters vitally
affecting his interests. Labour has come to know its power. It realises
that it is an indispensable party to the production of wealth and it requires
to be treated frankly as a partner with equal rights and equal
responsibilities.

148. The grievances of the Employers are no less valid. They com-
plain of deliberate limitation of output, slackness and inefficiency in work,
short time and malingering, the lack of any feeling of responsibility.
They point out that many leaders of Labour opinion carefully discourage
any sense of loyalty to the firm — the source from which the earnings of

and that new Capital will be scarce and dear owing to the restriction of
production and war losses. The critical period for credit will not have
been passed until twelve months after the end of the war, when the emer-
gency legislation affecting bills of exchange, debts and mortgages expires..
It is possible that when embargoes are removed and financial obligations,
have to be met, it may be necessary for the State to exercise discretion
and even to ask for new powers in order to stave off a partial collapse
of credit.

V.— SPIRIT AND TEMPER

48. The problems presented by the industrial situation would be
difficult enough if they were faced in the best spirit and with the coolest
wisdom. Unfortunately, as has already been suggested, there is a strong
likelihood of their being complicated by the existence on all sides of an
ugly temper which renders it difficult to arrange an acceptable settlement
of the issues at stake.

49. In so far as this temper is directly connected with the war it
may be summarized under three heads: — Economic Discontent; Class-
Suspicion; Psychological Reactions.

(a) Economic Discontent

50. We have seen that several causes will conspire to reduce the
earnings of Labour after the war. Even should nominal wages remain at
a high level or be increased, real wages will be low owing to the increase
in prices. At the same time there will be a certain amount of unemploy-
ment due to the difficulties of readjustment.

51. These are phenomena particularly likely to cause discontent-
The man who sees that while he is receiving more money, his spending
power is actually decreased, the man who finds a difficulty in obtaining
work, although he knows that there is no general lack of demand for
labour, are both apt to imagine themselves cheated, and to break out into
fierce resentment against those better off than themselves. To say that
this resentment is in large part the result of defective reasoning will not
get rid of the trouble. It is not easy for men to reason on economic
causes when the result is felt not merely in need for retrenchment but
in want of necessaries.

52. The sense of hardship will be aggravated by the cessation of
separation allowances. There is no doubt that in many cases, such as the
families of agricultural labourers and unorganised workers, the separation
allowances have represented a substantial increase in spending power,
while the wage-earner has been better fed and cared for in the Army than
ever before. They will not go back without protest to the old, often
wretched, conditions of their life before the war.

53. Unless same means can be found of counteracting the tendencies
above discussed, the lot of the wage-earner is likely to be a hard one. At

the same time, the demand for reasonable remuneration and decent con-
ditions will be stronger than ever. The national exertions during the
war have profoundly affected the minds of the working class and have
impressed them with perhaps an exaggerated notion of the power of the
State and the extent of the national resources. It will no longer be pos-
sible to silence the demand for social reforms, by the assertion that they
cannot be afforded. Such a contention will be met by the argument that
a nation which has been able in an emergency to find several millions a
day for war purposes cannot plead poverty as an excuse for neglecting the
improvement of social or industrial conditions.

54. While there is a danger that the real earnings of Labour will
be reduced, the real profits of Capital and Management may suffer a
similar diminution due to restricted output, increased cost of production
and heavy taxation, whereupon the three great partners in Industry will
be threatened simultaneously and the competition between them for its
proceeds will be intensified and embittered.

(fe) Class-Suspicion

55. The necessities of the war, especially with regard to the pro-
duction of munitions, have resulted in the temporary abandonment of
many of the Trades Union "safeguards." The two most important
instances are the removal of restrictions on output and hours of work and
the dilution of skilled Union Labour by partly skilled or unskilled, non-
Union Labour. Pledges have been given for the restoration of the status
quo. The new developments of industry, the springing up of a great army
of new workers, and the difficulties of readjustment, will make it very
much more difficult than was expected to fulfil these pledges literally.
Unless some new equivalent can be found which will convince the mem-
bers of the Unions themselves that they have gained more than they
have lost, there will very naturally be a strong feeling of resentment.
There is already only too prevalent a belief that advantage is being taken
of the war to prejudice the position of Labour. Any hitch arising in the
restoration of Trade Union "safeguards" will powerfully reinforce this
belief. The allegations made by both Employers and Employed that the
necessities of the war have been turned to account for the promotion of
class or personal interests, the fear that returned soldiers may be used as
"blackleg" labour, the fear of the permanent introduction of compulsory
military service as a means of strike-breaking and neutralising the power
of Organised Labour, the recollection of war-time strikes, will all tend
to increase the bitterness of class-suspicion.

56. We have further to face the fact that the discontent due to
economic conditions will be aggravated by certain features in the general
temper and spirit of the nation.

57. An effort so stupendous as that made during the war is almost
invariably followed by a reaction. It is a great thing that the response

Capital and Labour are alike derived — that even a fair employer can feel
no confidence that his workmen will back him up in a pinch. Any effort
to improve the condition of the employees is regarded as a concession
extorted from weakness and is followed by further demands which bear no
relation to the condition of trade. Every period of prosperity produces
a demand for higher wages ; but no amount of depression is considered as
an excuse for reverting to a lower scale. The Trades Union wage regula-
tions place obstacles in the way of differentiation between the efficient and
industrious workman and those who are less skilled or less hardworking.
At the same time the^y render it impossible to continue in employment,
without actual loss, men whose capacity for production has been decreased
by age or accident.

149. The gravest complaint, however, relates to the' insecurity of bar-
gaining. The Employer's power to negotiate directly with his employees is
restricted by the Union, yet bargains thus made with the men's accredited
representatives are continually broken by those whom they profess to bind
and the Union itself cannot enforce the agreement which it has made.

150. So long as the fundamental interests of Employers and Employed
are believed by the majority to be purely antagonistic, no cure for the
grievances of either side is likely to be found, since the wrongs of which
both sides complain spring from that very feeling of hostility and suspicion.
For just so long as this attitude is maintained, production will fall short
of its possible total.

151. The limitation of production carries with it a limitation of the
possible amount of savings. If the total amount produced is low, the
balance of production over consumption also will be low. But class-
hostility hampers saving in other ways. The supposed clash of interests
destroys the sense of responsibility in the use of wealth. Discontent with
economic conditions is productive of reckless expenditure. The man who
feels his condition of life to be unworthy has no incentive to save, because he
has no hope of substantial improvement in his condition. The worse that
condition is, the greater is his need of amusement and palliatives to render
it bearable. Sound investment is discouraged because the prospect of
repeated outbreaks of industrial warfare makes confidence impossible.

152. We see, therefore, that the mutual hostility of Employers and
Employed is the prime obstacle to the three essentials of industrial pros-
perity— Increased Output, Increased Saving, Increased Confidence. It is
only from the removal of this obstacle that any one of the three parties to
the industrial process can look for a permanent increase of earnings.

153. We may, therefore, law down these four broad principles as those
which must guide our attempt to solve the Industrial Problem.

(a) The first necessity of the Industrial Situation is greater efficiency
of production. In order to meet the difficulties created by the war,
to make good the losses of capital, and to raise the standard of
living amongst the mass of our people, we must endeavour to
increase both the volume and the quality of output.

(b) In order that this result may be obtained without detriment to the
social welfare of the community, it must be sought for rather in
improved organisation and the elimination of waste and friction,
than in adding to the strain on the workers, and must be accom-
panied by a change of attitude and spirit which will give to Industry
a worthier and more clearly recognised place in our National life.

(c) This can only be accomplished if the sectional treatment of indus-
trial questions is replaced by the active co-operation of Labour,
Management and Capital to raise the general level of productive
capacity, to maintain a high standard of workmanship, and to
improve working conditions.

(rf) It is essential to the securing of such co-operation that Labour, as
a party to Industry, should have a voice in matters directly con-
cerning its special interests, such as rates of pay and conditions of
employment. It is necessary to create adequate machinery both
for securing united action in the pursuit of common ends and for the
equitable adjustment of points which involve competing interests.
This machinery must be sufficiently powerful to enable both sides
to accept its decisions with confidence that any agreement arrived
at will be generally observed.

154. There are many to whom these principles will not seem to go for
enough. They are convinced that the only solution lies in a complete
reconstruction of 'Society — the abolition of Private Ownership of Land
and Capital, the establishment of State or Guild Socialism, the Re-integra-
tion of Industry, the Return to the Land, the break-up of the existing
Trade Unions. Accordingly they reject the notion of co-operation between
Employers and Employed as involving an abandonment of the first essentials
of reform. If we were discussing the abstract ideal of Society, it would
be necessary to meet their criticisms by discussing each of their proposals
on its merits. But the present issue is a narrower one. We have to deal
with a definite and immediate danger — the prospect of an industrial crisis
following on the signing of peace. It is obvious that no measure involving
a radical reconstruction of the social system has any chance of adoption
in time to avert this evil. On the other hand, the prospect of any specific
programme emerging from a period of internal conflict is small. The
results of social or political upheavals have seldom been those anticipated
by their promoters. The men whose ideas gave birth to the French Revo-
ution did not foresee the Terror or the Empire. The Long Parliament
foresaw neither the reign of the Major-Generals nor the Restoration. If we
are to find a way out of the threatened difficulties, we must do so by
making the best use of the materials at hand, accepting the conditions
under which we work and seeking to unite all classes in the pursuit of
interests which are common to all. Whatever may be the ultimate direction
of industrial progress, 'an advance is more likely to be founded on a first
right step than to come through the chaos of industrial warfare and
class-hatred.

155. The difficulties of devising any scheme of co-operation which
shall be acceptable alike to Employers and Employed are great enough.
It demands from both a clear understanding of their respective parts in the
process of production, a measure of sympathy with the point of view of
the other parties to that process and a just perception of the respective

weight to be attached to conflicting and to common interests. It calls for a
certain daring in experiment and for a willingness to make concessions, if
needs be, for the common good. It requires both parties to abandon
recrimination as to the mistakes of the past and to approach each other in
a new spirit.

156. These are great demands ; but the emergency and the opportunity
are also great. Whatever we may do, we may be sure that things will not
continue to move quietly in the familiar grooves. The whole world alike
of conditions and ideas has been violently shaken and a ferment has been
set up out of which may come either good or evil, but in no event a reversion
to the old order. We cannot alter the facts by ignoring them. Our only
choice lies between the risks involved in abandoning ourselves passively
to the forces of change and the effort required to harness them for our
own ends.

157. To avoid chaos is much; of itself it would be worth no small
sacrifice and effort on the part of all. The gain which might accrue to any
class from conflict is shadowy and uncertain; the loss and suffering to
every class alike are certain and heavy.

158. But to avoid danger is not all. It seems probable that we stand
to-day at one of those definite turning points in human history where
a generation of men has it in its power, by the exercise of faith and wisdom,
by facing the problems of the moment without passion and without
shrinking, to determine the course of the future for many years. If we
can rise to the height of our opportunity we may hope not merely to pass
safely through the immediate crisis, but to contribute largely to the future
welfare of the nation.

159. Whatever action is taken must be the result of frank and full
discussion between representatives of all parties to the question. Any
attempt to enforce upon one party a scheme framed wholly by another
would defeat its own object and precipitate the crisis. It will not do to
look to the Government for the initiative. Whatever part the State may
play in the future of Industry, it cannot move in advance of the general
level of opinion among those concerned. Most of the difficulties which have
been analysed in this Memorandum apply with equal force to State con-
trolled industries, and while the solution may involve legislative sanction
or State action, the problem itself can be settled only by agreement
between those chiefly concerned.

160. The first step towards agreement is to define the functions of
the three parties to production.

Capital is necessary to a business for the erection of plant, the pur-
chase of raw material and working expenses. In order that Capital should
be used to the best advantage for the purposes of industry, it is necessary
that investors should display sound judgment as to the prospects and
requirements of particular enterprises, exercising caution or daring as
occasion demands.

Management is concerned with the disposition of the Capital provided,
the erection and employment of machinery and plant, the general organisa-
tion of the business, the placing and acceptance of contracts, the purchase
of the raw material and the sale of the finished product. The perform-
ance of these functions requires not merely a knowledge of the particular
business concerned, but of all which are in any way connected with it,
a careful study of markets, of methods of distribution and of financial
conditions.

Labour undertakes the conversion of the raw material into the finished
product, by aid of the plant and machinery provided. While the first
requisite in the workman is a thorough understanding of his own job, the
maximum efficiency can only be attained if he has a clear conception of
the part played by his own work in the whole process of production.

These definitions are framed with a view to a manufacturing business,
but they can be adapted, by changes which will readily suggest themselves
and are not vital, to a distributive industry.

161. It is obvious that the functions of Capital, Management and
Labour overlap. In many cases the man who provides the funds of a
business also directs its working. In such cases he performs both the
waiting and risk-taking functions of Capital and Management's function
of expert control. It is logical to regard his profits as consisting partly
of interest on the capital provided and partly of remuneration for his
services as manager. Again, a foreman or a ganger combines to some
extent the functions of Labour and Management; and in general, the
spheres of management and labour activity are too closely connected for
any clear line of demarcation to be drawn between them. Capital itself
represents the result of past services performed by all three parties.

162. This inter-relation of functions constitutes a real partnership*
between the persons concerned in any business, whether as investors, man-
agers or workmen, or in any two or all of these capacities. At present
the relation between them is unrecognised or only partly understood, and
the result is to produce hostility instead of co-operation between the
partners. The attention of all is apt to be concentrated on the points
in which their interests conflict to the exclusion of those in which they
are common.

163. This failure to realise the possibilities of co-operation springs
largely from neglect of a fundamental principle. The first article of
partnership is equality of knowledge. At present the Workers have little
knowledge of the capital risks, working expenses, establishment and depre-
ciation charges of a business, or of the relation between their particular
job and the general process of production. On the other hand, Employers
have, as a rule, a very imperfect understanding of the Workers' point of
view, the degree in which they are affected by economic and social con-
siderations respectively, and the effect of particular processes and methods

*The word partnership is here used in its widest sense and does not involve the
acceptance of what are generally known as co-partnership schemes.

of working upon their physical and moral life. From the mutual ignorance
arise innumerable misunderstandings with regard to rates of pay and
conditions of labour which are capable only of arbitrary solutions, because
neither side understands the standpoint of the other. It is probable that a
large percentage of the disputes arising over rates of pay, the introduction
of labour-saving machinery, hours of work, the demarcation of tasks,
Trade Union restrictions, could be avoided or compromised, if Employers
and Employed really understood the reasons for the attitude of the other
party. In default of such understanding, the dispute takes on the char-
acter of a trial of strength, in which each side is compelled, for the sake
of principle and prestige, to put forth efforts disproportionate to the actual
point at issue.

164. It has been said in paragraph 145 that the chief obstacle to
co-operation is the question of status. The development of modern industry
has turned the operative into a mere cog in the industrial machine. The
average wrorking man has no say in the management of the business and
very little as to the conditions of his employment; he has no interest
in the success of the firm, except that it should not collapse altogether;
and the tendency has been more and more to reduce his work to a mechan-
ical routine. The term "wage-slavery," so often used, means something
more than the mere economic dependence of the worker on his employ-
ment. It embodies the revolt of the worker against a system which gives
him neither interest, nor pride, nor a sense of responsibility in his work.
To a large proportion of those engaged in industry their work has become
something external to their personal life, a disagreeable necessity afford-
ing no opportunity for self-expression, the joy of creation, or the realisa-
tion of healthy ambitions. The result has been a serious impoverishment
and enfeeblement of life and character and a permanent obstacle to indus-
trial development. It is impossible for men in this position to take long
views, or to consider innovations from, the standpoint of industry as a
whole. The opposition to new methods of working, labour-saving machin-
ery, dilution of labour, scientific management, is only in part the result
of specific and reasoned objections. It springs still more largely from the
fact that these schemes are imposed from above and are presumed to be
framed solely in the interest of the Employers. The opposition to them is,
in fact, a revolt against dictation. On the other hand, the uncompromising
attitude of Employers does not, generally speaking, arise from a tyrannical
spirit or a mere desire for increased profits, but from impatience with the
men's separatist attitude and their inability to realise the common depend-
ence of Employers and Employed upon the produce of their joint exertions.

165. The same difficulty arises in the case of distribution of earnings.
The worker feels ithat his labour is treated as a mere commodity, the
market value of which may be forced down by the Employer, irrespective
of any consideration of a decent standard of life for the Employed, and
that he receives the reward of his toil, not as a matter of right or as the
equitable division of the proceeds of joint effort, but as a dole fixed by the

arbitrary will of the Employer or as a concession extorted by force. The
Employer feels that each demand made upon him represents a raid upon
his profits limited solely by the power of the Workers' organisations and
unaffected by any consideration of the working expenses of the business,
provision for depreciation or dilapidations, or the building up of a reserve
against future depression. In the confusion of thought arising from
imperfect understanding, there is a tendency to regard the whole problem
as centreing round the concrete question of distribution, which becomes
a symbol of the general opposition of interests. The consequence is that
disputes as to wages are often fought on either side with a bitterness and
obstinacy altogether out of proportion to the amounts involved. In order
to arrive at a clearer conception, it is essential to disentangle as far as
possible the economic and non-economic factors. If the question of status
can be settled, the main obstacle to an agreement as to distribution will
have been removed.

166. The problem is, therefore, to settle this question of status in
some way which shall give the workman the sense of self-respect and
responsibility which he desires, without interfering unduly with the
employer's exercise of the necessary functions of management. The Trade
Union regulations, which have been so largely suspended by agreement for
the period of the war, were mostly directed towards this end — the assump-
tion by Labour of some measure of control over the conditions under which
it works. They refer to wages, hours of labour, overtime and Sunday work,
apprenticeship and the method of entry into particular occupations, the
kind of work to be performed by different classes of workers, the methods
of negotiation between Employers and Employed, and similar questions.
In other words, they represent an attempt to substitute for the autocratic
control of the employer over the working lives of his employees a greater
and greater degree of self-direction by the organised workers themselves,
acting through their accredited representatives.

167. As a natural result of the assumed conflict between the funda-
mental interests of Employers and Employed, the action of the Trade
Unions took the form, in appearance at least, of an attack upon the profits
of the Employers and their right to control the conduct of their business.
It was largely as a defence against the Unions that the great Employers'
Associations came into being. After making all allowance for the occa-
sional insubordination of Trade Union members and the lack of support
given in some quarters to the Employers' Federations, the effect of these
parallel organisations has been beneficial to both sides. Hitherto, however,
the action of both groups has been almost entirely negative. They have
placed restraints both upon tyranny and upon anarchy; they have succeeded
in compromising many disputes and in restricting the occasions of open
conflict ; but they have done little or nothing to remove the continual under-
current of latent hostility and divergence of effort which has hampered
industrial development far more than the direct effect of strikes and
lock-outs. They have potected the special interests which they respectively

represent; but they have not risen to the conception of combined action
in pursuit of their common interests. Valuable as their work has been,
it can hardly be regarded as an adequate return for the ability, energy
and power of organisation displayed on both sides.

168. The explanation of the comparative failure of the Employers'
Associations and Trade Unions on the constructive side of the industrial
problem is to be found in their strictly sectional and defensive origin and
outlook. Regarding themselves as entrusted with the interests of one party
to Industry and not of Industry itself, they have paid no attention to the
problems and difficulties of the other side, and they have come together
only when one had a demand to make of the other or when a conflict was
imminent. Thus they have always met in an atmosphere of antagonism,
and their negotiations have been carried on as between two hostile bodies.
Exchange of views has come at too late a stage in the proceedings, when a
stand has already been taken on both sides and prestige or prejudice forms
an obstacle to concessions. What is still more important, their discussions
have been confined to specific points of dispute and have not embraced the
consideration of constructive measures for the improvement of industrial
conditions and the increase of efficiency. Yet the possibilities of combined
action which lie in these two great groups of highly organised and power-
ful bodies might transform the whole face of industrial life. Their united
knowledge of both sides of the industrial process should enable them to
throw light on every phase of its successive developments. Their united
strength would render them, in combination, practically irresistible. But
to secure the realisation of these possibilities the co-operation between
the two groups must be continuous and constructive, and must be based
upon a recognition of the common interests of Employers and Employed,
both as parties to industry and members of the community. Employers
must realise that both their own interests and the obligations of citizenship
impose upon them the necessity of a sympathetic understanding of the
lives and standpoint of those with whom they work and a willingness to
co-operate, without dictation or patronage, in every endeavour to improve
their material or social conditions. Labour must realise its direct interest
in the improvement of industrial processes, the organisation of industry,
the standard and quantity of production, and the elimination of waste in
material or effort. Both the Employers' Associations and Trade Unions
must learn to regard themselves as joint trustees of one of the most
important elements of the national life.

169. The machinery necessary for such co-operation will require to
be created. The existing Conciliation Boards, or Industrial Boards on the
Australian model, while they perform many useful functions, will not
serve this purpose. These Boards are, in fact, independent Courts sitting
to adjudicate upon claims in respect of which the parties are unable to
agree. Such a method of adjudication is in many ways preferable to the
alternative of leaving questions to be settled by conflict, as the result of a
strike or lock-out. They enable Employers and Employed to contract on

more equal terms. They result also in the production of detailed evidence
whereby each side might, if it had the inclination, understand the case
of the other. But here, too, the exchange of views comes too late and
the parties meet not to co-operate, but to oppose each other. Moreover,
they are concerned solely with the settlement of specific disputes, and
while they may continue to do useful work in this connection, they cannot
provide the opportunity for that continuous and constructive co-operation
of Management and Labour which is essential to any satisfactory solution
of the industrial problem.

170. Something much more comprehensive is required, and the task
of providing it will need very careful attention from those concerned. It
is unlikely that any one scheme could be devised which would be applicable
to all industries or in all localities. The utmost elasticity, whether in
present application or in future development, is necessary to any system
of industrial organisation, for industry itself develops and modifies day by
day. But the general lines upon which development is possible can be
reduced from the foregoing analysis of the difficulties to be overcome.

171. In its simplest form, the new machinery would consist of Joint
Committees, representing both the Management and the Works Staff. This
method would lend itself readily to experiment by individual firms and
could be applied even in the unorganised trades where no strong Trade
Unions or Federations of Employers exist. At the meetings of such Com-
mittees any questions affecting working methods and conditions could be
brought up for discussion by either side. The representatives of Manage-
ment would be required to explain the nature and extent of any proposed
innovation designed to increase output or economise effort — the intro-
duction of new automatic machinery, time and motion study, standardisa-
tion of tools, analysis of fatigue, elimination of waste — and its effect upon
the earnings of the firm and the individual worker. This explanation
should be as clear and full as possible, with the object of giving each
worker an interest and sense of responsibility in his work, by making clear
to him, through his representatives, the reason for the methods to be
adopted and the relation of his job to the whole process of production. The
proposals having been explained, the Workers' representatives would con-
sider them from the point of view of the interests of the men employed,
the relation between the different classes of labour, the strain on the
workers, the amount of interest and intelligence put into their work. If
necessary, they would put forward modifications or safeguards for the
protection of these interests. Where the result was to show a real diver-
gence of opinion or of interest, it would be freely discussed, with a view
to finding a way round and adjusting the balance between common and
competing interests. In like manner, proposals for alterations in the hours
or conditions of labour, in the interests of the health or social welfare of
the workers, would be put forward by the Workers' representatives and
discussed in the light of any objections 011 the score of expense or difficul-
ties of working urged by Representatives of Management. While the

Representatives of Management would naturally be concerned mainly with
the efficiency of the business and those of Labour with the immediate
interests of the Workers, it is very desirable that neither should confine
their attention to their own side of the business. A wise Employer will
always have the interests of his staff at heart, and workmen who feel them-
selves to have a recognised interest in the business will have many sug-
gestions to put forward for promoting its efficiency.

172. In the staple trades, the method of Works Committees would
require to be replaced, or supplemented, by Joint Boards contposed of
representatives of the Employers' Associations and the Trade Unions.
Having regard to the differentiation of functions between Management
and Labour and the large number of problems affecting one or both parties,
which arise in a big industry, one representing Management and the other
Labour, with a Supreme Board of Control co-ordinating the work of both.
The functions of the Management Board would cover the "business" side
of the industry; those of the Labour Board would relate to conditions and
hours of labour, the demarcation of tasks and everything that touches most
nearly the life of the worker. Representatives of these Boards, meeting
on the Supreme Board of Control, would deal jointly with all matters by
which the interests of both parties were affected. Such questions as the
Dilution of Labour, which is becoming increasingly important, yet which
cannot be dealt with satisfactorily so long as it is approached from one
side only, would be discussed by the Joint Board of Control, both from
the point of view of efficiency in production and from that of the interests
of the Workers and the position of the Trade Unions. In this manner it
should be possible to construct and give effect to a definite policy and
programme for each great industry as a whole, representing a reconciliation
between the common and competing interests of Employers and Employed,
and based both upon the desire to obtain the maximum of efficiency and
the desire to obtain the best possible conditions for the workers.

173. In order to avoid the evils of inelasticity and over-centralisation,
and to make due provision for the varying conditions of different localities
and firms, it might be advisable to combine the creation of these Central
Boards with an organisation of District and Works Committees, charged
with the special care of local and individual interests and problems. The
representation of such Committees on the Central Boards and the delega-
tion to them of local questions would constitute a protection against the
injustice which might otherwise be done by an attempt to equalise rates
of pay in areas which differ widely as to the cost of housing and food, or
in which the conditions of production and transport produce important
variations in working expenses. They would also serve as a protection to
established workshop and local craft traditions against the deadening
tendency to a mechanical uniformity.

174. In its most ambitious form, the Supreme Board of Control would
resolve itself into a National Industrial Council for each of the staple
industries or groups of allied industries. The members would be elected

by ballot, each electoral unit, or pair of parallel units, returning one repre-
sentative of Management and one of Labour. In many industries it would
be desirable to find a place on the Council for representatives of the Applied
Arts, both with a view to raising the standard of design and workmanship,
and with the object of encouraging the human and creative interest in
production. A Speaker of broad sympathies and experience, capable of
directing and focussing the discussions upon the practical problems to be
dealt with, would be chosen by mutual consent, but would have no casting
vote, his capacity being purely advisory. Such Industrial Councils would
in no sense supersede the existing Employers' Associations and Trade
Unions, many sides of whose present activities would be unaffected by the
creation of the new bodies. Matters connected with the sources and supply
of raw material and the cultivation of markets for the disposal of the
finished products would remain exclusively the concern of purely com-
mercial federations of manufacturers, acting in conjunction with the State.
The benefit side of Trade Unions and many phases of the internal organisa-
tion of labour by them would be similarly unaffected. In other matters
the connection between the old and the new bodies would be close, without
any loss of identity. The Unions and the Employers' Associations would
send their delegates to the Industrial Councils charged with the defence of
the special interests represented by them and equipped with special knowl-
edge of their particular problems. The general policy outlined by the
Industrial Parliaments would be carried out in detail largely through the
older organisations.

175. The field of action open to the Industrial Councils would be
very great. It would extend, for instance, to (a) the suggestion and con-
sideration of improved methods and organisation; (?>) the maintenance of
works discipline and output; (c) the maintenance of a high standard of
design and workmanship; (d) the education and training of apprentices,
and the conditions of entry into the industry concerned; (e) the demarca-
tion of tasks; (f) the prevention of unemployment, the development of
security of tenure in the trades and the decasualisation of labour; (#) ques-
tions of wages and piece rates; (/i) the prosecution of research and experi-
ment, and (i) the improving of the public status of the industry. Where
the Council represented a group of allied trades, it would naturally con-
cern itself with the co-ordination of their work and the adjustment of their
respective interests. In addition to the promotion of internal prosperity,
the Councils would be able to give public utterance to the views and needs
of each industry in its relation .to the whole national life. They would
take account not only of economic but of moral and aesthetic values. Their
object would be not merely to increase .the productive efficiency of the
industry and to reconcile the competing interests of those engaged in it,
but to emphasise the worth and dignity of industrial life and to enlarge
the scope offered by it to the energies and ambitions of those concerned.
It would be part of their task to emphasise the close connection between
industrial questions and those relating to education and social conditions.

It might even be advisable to empower the Industrial Councils to apply for
Board of Trade Orders giving legal sanction to their decisions — but this
would necessitate careful watching, and the provision of adequate safe-
guards, especially in the interests of consumers.

176. There is, of course, a tendency in all great associations of
industrial units to develop the danger of tyranny, which seems almost
inseparable from a close corporation. If, however, it is found that the
requirements of the time call for the creation of such organisations, it
would be well to face this danger without flinching. The advantages to
be obtained are enormous, and with the help of the legislature and the
Courts the dangers can be met.

177. Whatever scheme is adopted, the essential thing is that it shall
give expression to a real desire for co-operation between Employers and
Employed. In the unorganised trades, Works Committees on the plan
already suggested may be sufficient for present needs. The probability is
that, with increasing prosperity and better understanding, the desire for
organisation will grow, and the tendency will be to extend the scope both
of Employers' and Labour Organisations and to increase their effectiveness,
so as to give the Employers' Association greater power to control the
action of individual firms and to enable the Trade Unions to make agree-
ments with the greater certainty of their being carried out. It is evidently
desirable that the organisation of Employers and Labour should proceed
pari passu, with full mutual recognition, so that individuals or small
groups on one side should not find themselves confronted by powerful
organisations on the other. When once a policy of co-operation has been
introduced, its future development and extension may safely be left to
time and experience. An attempt to lay down any definite and rigid scheme
at the start would probably defeat its own object. The whole success of the
policy depends upon the elasticity with which it can be adapted to practical
needs and opportunities as they reveal themselves. It is obvious that, even
in unorganised trades, it might be applied to many questions of works
economy, with the result of stimulating care and efficiency on the part
of the Workers, and giving Management a better understanding of their
point of view, to the advantage of both. In the engagement of men and
their allocation to different departments and jobs, it should be possible to
take advantage of the special knowledge of both sides, by consultation
between the Managers and the representatives of the Works Staff as to. the
numbers and qualities of the men required. In some cases it might even
be possible to appoint a permanent joint committee to deal with the
question of the supply of labour, and the requirements of the work in hand.

178. It is probable that some time must elapse before the benefits of
any such scheme as has been suggested could be fully realised. The change
of attitude involved is too vital, the field of activity is too large to hope
for any but gradual development. At the outset it might often happen
that much of the discussion, either in a Works Committee, or a National
Industrial Council, was obstructive or irrelevant. But it has been proved

again and again that contact breeds mutual understanding and respon-
sibility calls forth capacity. Without depreciating the part which may be
played by Government and by independent experts in the regulation and
encouragement of industry, the primary essential of progress is that
Industry shall have faith in itself.

179. There is nothing to be gained by minimising the practical dif-
ficulties. The task is one which requires the co-operation of the best brains
engaged in the study of industrial questions, whether as Employers of
Labour Leaders of working-class opinion, or Economists. Premature
action, based upon imperfect knowledge, or an ill-considered programme,
would only increase the difficulty of the work. But with so much to be
done and such great issues at stake, no time must be lost in preparing the
ground. The inquiries which will be necessitated by the various phases of
the Emergency Problem will throw valuable light upon the methods to be
adopted in the larger task. The measures by which that problem is dealt
with may be made the foundations of permanent reconstructive work.
There is a danger, however, lest the very complexity and importance of
the questions of reinstatement of demobilised men and readjustment of
industry to peace conditions should divert attention from the fundamental
issues. It is essential that we should see the Industrial Problem as a whole,
and should preserve a clear idea of the relation between its several factors
and the proportionate weight to be attached to each.

180. It is the hope of those responsible for this Memorandum that the
suggestions here put forward may prove of some assistance in attaining
this central standpoint. They have attempted to trace the causes of that
unrest by which industrial troubles have been produced in the past, and
by which the economic dangers arising from the war are likely to be accen-
tuated. From this analysis certain broad principles have been deduced,
and the general lines of their application indicated. There are many
aspects of the problem which have not been dealt with, or have only very
briefly been touched upon in these pages. The details of a practical pro-
gramme require must careful study and experiment. But whatever form
the new developments may take, the essential preliminary is the adoption
of a new attitude with regard to Industry, the recognition of national
responsibility for industrial conditions, the recognition of the joint respon-
sibility towards the nation borne by those who are engaged, whether as
Employers or Employed, in its activities. To hold the balance true between
the economic and the humjan side of the problem; to increase at once the
extent and quality of output; to make the work of each man, in any posi-
tion, an integral and worthy part of his life as a citizen; this is a task
as truly national as that of victory in war. The unparalleled and
undreamt of expansion of our military strength which has been called
forth by the European struggle, may give us the measure of our capacity
to meet the requirements of peace.

Appendix A.

A SUGGESTED EXPERIMENT

The following scheme for an experiment in industrial reconstruction,
as applied to the working of the Post Office, is taken from a paper on "The
Control of Industry after the War," read by Mr. A. E. Zimmern, M.A., at
the Conference of Working-Class Associations held in Oxford, on July 2\st,
22nd and 23rd, 1916. The authors of the Memorandum do not identify
themselves with the suggestions made, l>ut have thought it well to print
the scheme as a concrete example of one way in which the principles dis-
cussed in the Memorandum could be experimentally applied. It would be
of great value as a basis for inquiry and discussion if similar schemes,
applicable to the leading staple industries, could be worked out by represen-
tatives of the trades concerned.

English people are in the habit of believing that ideas are "all very
well in theory," but will never work in practice. The reason why ideas
which are theoretically sound do not work out in practice is generally
because they are applied without sufficient consideration of the conditions
of the particular case, or because those who are entrusted with the task
of carrying them out are not in sympathy with them. It is clear that not
all the British industries are ripe for changes in the direction of demo-
cratic control. There are a number of previous conditions which it would
be well to satisfy if an experiment is to have a good chance of success. I
think we may broadly law down seven conditions which the business or
industry we are looking for should satisfy: —

1. It should be a nationalised industry* — that is to say, an industry
which is recognised to be a public service and a permanent part of the
national life. Such an industry is at once removed from the atmos-
phere of commercialism and immune from the dangers, if also from the
stimulus, of competition and to liability from sudden changes on the side
of demand. It would be possible, of course, to choose a municipalised indus-
try, but a nationalised industry is more likely to yield the broad outlook
required on both sides.

2. It should be an industry where the amount of labour employed is
relatively large compared with the fixed capital invested, and where pros-
perity, therefore, depends principally upon the efficiency of the workers.
Such an industry abviously affords a better ground for experiments in
labour management.

On the labour side it should be an industry where the workers are:

*It should be pointed out that Mr. Zimmern's paper did not discuss the question
of nationalisation of industries, except in so far as the Post Office organisation offered
a specially suitable field for a first experiment in reconstruction.

3. Highly skilled.

4. Have a relatively high standard of general education and
intelligence.

5. Have a high general level of personal character.

6. Where Trade Unionism is well organised both as regards numbers
and spirit and has been afforded recognition by the employing authority.

7. Where there are no serious demarcation difficulties between the
various Trade Unions concerned.

In the case which I propose to submit for experiment, the case of the
Post Office, all these conditions would seem to be fulfilled.

1. It is a nationalised service.

2. The labour force— 253,750 in all, or 230,000 on the manipulative
side — is relatively large compared with the fixed capital.

3. The work is for the most part highly skilled, as it indicated by the
fact that —

4. The great majority of postal workers have to pass a general exam-
ination at the age of 16 or over.

5. The morale of the service is uncommonly good. In spite of obvious
temptations, the number of dismissals from the service is negligible. The
average annual percentage of dismissals in the manipulative branch of the
service is 0.25 per cent.

6. Trade Unionism is powerful and well organised in spite of the large
number of girls employed. Practically all the men are organised.

7. The unions concerned are on good terms with one another and are
organised for common action in a National Joint Committee.

How is the work of the Post Office at present organised? There is, as
already mentioned, a broad division of the employees between what is called
the clerical staff and the manipulative staff. With the clerical staff, which
has organisations of its own, I do not propose to deal in what follows. I
shall confine myself to the manipulative staff, consisting principally of post-
men, sorters, telegraphists, telephonists, and engineering grades, who are
represented on the National Joint Committee of Post Office Associations.
That Committee consists of the following organisations: —

Name of

Class or 'Classes

Official
Establish-

Membership

f\f

Association

Represented

ment of
Classes.

Association.

Postmen's Federation..

Postmen, assistant and auxiliary

68,000

51,500

postmen

Postal and Telegraph Telegraphists, counter clerks and

85,000

22.000

Clerks' Association. .

telegraphists, sorting clerks and

telegraphists, telephonists, and

learners

Fawcett Association. .. Sorters, London Postal Service..

7,021

0.4:50

Engineering & Stores Skilled and unskilled workmen.

13,000

7. (too

Association (Postal,

etc.. in Engineering and Stores

Telegraph and Tele-

Department

phone)
National Federation of

Scale payment sub-postmasters . .

22,658

9,400

Sub-Postmasters ....

Let us now turn to the organisation of the management side. The
control of the Post Office is vested, subject to the supremacy of the Cabinet
and of Parliament, in the Postmaster-General and his permanent Secretary,
known as the Secretary of the Post Office. The control of the service thus
centres in the Secretary's office at St. Martin's-le-Grand. The work of the
Secretary's office is carried on under his supervision in five departments,
dealing respectively with questions of establishment, staff, buildings and
equipment, organisation (i.e., mails, train services, collection of letters,
etc.), and engineering. There are also Secretaries for Scotland and Ire-
land, who exercise a general control over the staff in those countries, subject,
however, to the control of the Secretary's department in London. All
dismissals, for instance, must be referred to London.

As regards local administration, the country is divided into 14 dis-
tricts, each of which is in charge of an official called the Surveyor. Sur-
veyors are allowed fairly wide powers of organisation and control, subject,
however, in the case of the staff to the right of appeal to the Secretary in
London in all cases affecting either individual or a group of individuals.

Below the Surveyors are the Postmasters. In every Surveyor's district
there are a number of Postmasters responsible for the business of the head
office and certain sub-offices. Postmasters are given a fairly free hand
in matters of organisation, but in the more important matters affecting
their subordinates they are required to obtain the Surveyor's sanction.

Let us now turn to the question of the relation between the governing
authorities and the staff, so far as staff conditions are concerned. Those
conditions are laid down in a series of regulations which may be sum-
marised as follows : The associations of postal employees have been accorded
recognition by the Post Office authorities; that is, they are recognised as
having the right to represent the interests of individual workers or groups
of workers. The conditions under which this right may be exercised are
carefully defined by the authorities. • The general procedure is for the
central office of the association concerned to submit a memorial on the point
at issue to the Secretary or to the Postmaster-General. Such memorials
are invariably acknowledged, and it is possible for the representatives of
the association to meet the authorities at periodical intervals to discuss
matters already submitted in writing. The matters on which the associa-
tions are free to submit memorials are defined as "general questions relat-
ing to the conditions at work, i.e., wages, hours of duty, leave, meal reliefs,
etc." Memorials on local questions and on individual questions other than
those affecting discipline or the conduct of supervising officers have to be
submitted in the first instance by the local branch of the association con-
cerned to the local responsible official (i.e., the Postmaster or Surveyor).
The local official first deals with representations, and, failing satisfaction,
the association is at liberty to carry the matter further to headquarters and
obtain a reply. No memorials are allowed to be submitted on questions
relative to promotion. The liberty of action of the associations is also

limited in the case of questions of discipline. The provision in this con-
nection is sufficiently important to be quoted in full: —

"Memorials respecting disciplinary measures that have been taken
against individual officers may be submitted to the Secretary or the Post-
master-General by the central body of the association in serious cases,
where appeals by the individuals, made first to the local authorities and then
to the Secretary or Postmaster-General, have not been successful, and where
the central body have satisfied themselves by a full investigation of the
circumstances that they can present new facts or considerations which
render further review desirable."

It will thus be seen that the Trade Unions are put in the position of a
sort of permanent and official opposition. Their function is not to co-oper-
ate with the management, but to criticise, not to prevent complaints, but to
endeavour to remedy them; and in certain cases, such as discipline, where
feeling is likely to run highest, they are precluded from interfering till
the matter has already been declared upon by the Secretary and has become
the subject of serious and probably bitter controversy.

How can this system of management be modified in the direction out-
lined? An attempt will be made in the following remarks to suggest how
this might be done. The object of the reforms suggested is not to revolu-
tionise the organisation of the postal service or to turn the Department
upside down; it is to take the existing organisation as it stands and to
make the least possible change compatible with granting to the staff that
measure of responsibility which is increasingly felt to be necessary in order
to secure the efficiency and harmony of the service. I am indebted in what
follows to my friend, Mr. J. G. Newlove, a distinguished ex-student of
Ruskin College and now General Secretary of the Postal and Telegraph
Clerks' Association, who has given much time and thought to the improve-
ment of the service with which he is connected, and is willing to accept
full responsibility for the constructive side of this paper.

The first suggested change is that machinery shall be set up which will
give the central bodies of the association representation on a committee of
each branch of the Secretary's office. Where the interests of each grade
are peculiar, as in the establishment branch, there should be a representa-
tive of each grade; where their interests are identical, as on building
qustions, less would suffice.

Similar machinery should be set up in each Surveyor's district.
Advisory Committees should be formed to discuss with the Surveyor ques-
tions of policy affecting his district, and these committees should contain
a representative of each grade to co-operate with the Surveyor's staff.

Passing down to the individual office — what corresponds in other indus-
tries to the "workshop" — it should be one of the duties of the Postmaster
to consult with representatives of the staff on all questions affecting the
particular office. This should extend to all questions without exception,
which affect the office as a whole, for all such questions must in some

way reflect on the organisation of the office. Even a matter like com-
plaints from the public can be traced back to office organisation.

A difficulty arises at this point as to the procedure in very small offices.
The associations find by experience that it is often difficult in such offices
to find a local secretary who is sufficiently well trained to deal with ques-
tions of policy. Yet it is just in such small offices that precedents distaste-
ful to the staff are apt to be created. Such offices, therefore, require special
treatment, and it is suggested that a representative of the Executive of the
associations should be able, if necessary, to act as a medium of advice for
the smaller offices. It might prove desirable in this connection to rearrange
the boundaries of the associations' -districts so as to harmonise them with
the Surveyor's districts.

This procedure is in itself no great innovation. Many Postmasters do
already adopt means of consultation with their staff, and are indeed defi-
nitely encouraged to do so by the rules of the Department. The new
arrangement will merely serve to regularise this and to level up the pro-
cedure in the various offices. It is not suggested that the new committees
shall have a deciding voice. Where 110 agreement can be reached in them
the decision must continue to rest, as now, with the supervising authorities.
If on matters of importance a policy were to be adopted contrary to the
wishes of the associations it would always be possible to them to reopen the
matter through their annual conference and to approach the Postmaster-
General as at present. But the criticism which they" would then bring to
bear would be bred of inside knowledge, and it would of necessity be
constructive rather than critical in tone.

This change of spirit would be likely to apply in special degree to
questions of financial policy. One of the chief functions of the new central
machinery would be to discuss questions involving expenditure, and in
particular questions of wages or salaries. The procedure at present in this
connection is not satisfactory. No scheme involving fresh expenditure can
be adopted until it has been approved by the Treasury. The present method
of dealing with such schemes is to refer them to a Parliamentary Com-
mittee of Inquiry. The members of such Committees are necessarily not
conversant with the whole inner working of a huge organisation like the
Post Office, and are, therefore, unable to form a judgment at first hand on
the problems submitted to them for decision. They must inevitably rely
for their special knowledge upon the high officials of the Department.
This, it will be seen, naturally tends to place those at present responsible
for the policy of the Department in a preferential position as compared
with the representatives of the staff. As under existing conditions the
Department is bound to consider the interests of the taxpayer, its natural
role is that of opposition to increases in pay. This is intensified by the
fact that the Post Office is run at a considerable profit, amounting to no
less than £6,000,000 in the last year before the war, and that there is a
tendency to adopt purely commercial standards of successful administra-
tion. If the procedure by Parliamentary Committee were abandoned and

questions of wages and conditions were threshed out on the proposed central
committees before being submitted to a Parliamentary body for ratifica-
tion, or final decision in cases of disagreement, the arrangement would
work more fairly for all parties concerned, including the Treasury. The
elimination of friction and the consequent increase of esprit de corps
should go further towards true efficiency and economy than the existing
methods, lending themselves, as unequal contests always do, to undesirable
and often unpleasant methods of influence and agitation. It it were found
possible not to pay the profits of the Post Office into the ordinary revenue,
but to earmark them for special purposes of social usefulness, in the choice
of which the associations might have a voice, this would remove any feeling
on the part of the staff that they were being "exploited" in a commercial
spirit, and would act as a strong incentive to use every effort to improve
the service.

This brings us to the functions of the central and local committees.
The most important and difficult of these would be the discussion of ques-
tions of discipline. Discipline is really the crux of the whole change of
method and spirit proposed. The existing rule, which forbids the associa-
tions to interfere except after judgment has already been passed both
locally and at the centre, is based on the root principle of the old system,
that power is exercised from above and that the prestige of the ruling
authority must not be infringed. It is also based upon reasons of practical
convenience in that most men extremely dislike the responsibility of sitting
in judgment on their, companions and workmates. If the associations are
to receive the right of co-operating with the supervisory staff in dealing
with cases of discipline they will be assuming responsibility for giving what
must sometimes be very unpleasant decisions against their members. But
because a thing is unpleasant there is no reason for not facing it. Democ-
racy involves the extension of responsibility in things pleasant and unpleas-
ant alike. If the associations were ready to deal with pay, but shirked deal-
ing with punishment, they would be false to their principles. Fortunately,
the number of serious cases which arise in the service is extremely small,
but these are just the cases which the associations ought to deal with. The
best arrangement would seem to be to leave minor breaches of discipline
to be dealt with as at present by the individual Postmaster, but that serious
cases referred by him to the Surveyor should be dealt with by the Sur-
veyor's Committee, where the representatives of the association would be
less subject than on the local committee to the bias of personal feeling.
Matters dealt with by the Postmaster would be brought before the associa-
tion through the local committee if it were found necessary.

Questions of recommendation for promotion should also be dealt with
by the Surveyor's Committee. Promotion and discipline really hang closely
together; both involve difficult decisions and the danger of heart-burning.
But there seems no way out except through the extension of the principle
of responsibility.

As regards the rest of the committee's work, it can be summed up
under the general heading of "conditions"— hours, leave, meal reliefs,
improvements in office equipment, etc. Most questions of this kind would
be settled locally. Only questions of principle would be referred to the
central committee for decision.

Such, in brief outline, is the way in which the principle of democratic
control might be introduced into the largest single business in the country.
The changes suggested may seem modest in scope, but they would be far-
reaching in effect. The Postmaster-General who had imagination enough
to adopt a scheme of this nature would be conferring a benefit alike on
the postal workers, the Labour movement, and the whole nation. To the
postal workers the change would bring a new sense of dignity and self-
respect and satisfaction in their work, and, more important perhaps even
than these, it would leave them free to exercise their citizen rights as
pure citizens without the constant temptation to use political influence as a
means for remedying grievances arising out of their employment under
Government. It would thus be a charter not only of economic, but of
political emancipation. To the Labour movement it would be an example
and an inspiration to apply the same principle of responsible democracy
to the far more difficult problems of private employment which still lie
unsolved before it. To the community it would mean a transformation
in the spirit of one of the chief of those public services on the efficiency
of which we shall be so much dependent in the work of national recon-
struction after the war. A keen, willing, and enterprising Post Office can
be of far more service to us than we realise at present. But most of all,
the community will benefit from the knowledge that the qualities of mind
and character necessary to the working of self-governing institutions are
not confined to any one class or section, that democracy is a plant which,
properly tended and safeguarded, can grow and prosper in other than its
familiar soil, and that our country, which has led the world in the insti-
tutions of policies and government, is ready and eager to apply the same
enduring principles to wider fields of public business.

Appendix B

WORKS LECTURES

A large firm of manufacturers in the North of England has recently
adopted with every success the following scheme for creating a better
understanding between the principles and the employees, and for pro-
moting the efficiency of the business. An outside person, who has given
much thought to industrial and commercial matters, was requested by the
firm to come and study the business in all its bearings and phases, in order
to deliver lectures to the workpeople, the staff and also the employers them-
selves, with a view of making plain to each the nature of the business, the
principles of industrial efficiency, and the true nature of industrial rela-
tions. He was given every opportunity of acquainting himself with the
business side of the concern, the buying of the raw material, the adminis-
tration of the offices and works, the finances of the firm, and the sale of
the finished product, and was also given every facility for familiarising
himself with the lives, working conditions, thoughts and aspirations of the
workers. In the first place arrangements were made for a course of twelve
lectures to the management and staff. The benefits of these were so marked
that a further course of twelve lectures was arranged to be given to
selected representatives of the workpeople. The lectures were given on
one afternoon, for twelve successive weeks, and were attended by several
hundred employees who were paid their wages for the time of attendance,
the lectures being regarded as a part of the working routine. The lecturer
was left an entirely free hand as to what he should say, and did in fact
administer praise or blame impartially upon the results of his investiga-
tion. The improvement in the relations between the firm and its employees
surpassed all expectations, and the scheme is to be established as a per-
manent feature of the organisation of the business. Many employers who
have been aroused during the war to a quickened consciousness of their
responsibility and who desire to establish for the future a new spirit in
their works, have asked themselves, "What can we do tomorrow?" The
above scheme is suggested as an answer to that question.

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FEB 331942

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.'39519

UNIVERSITY OF CALIFORNIA LIBRARY

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