The Coming of Welfare Capitalism
AT THE BEGINNING of the twentieth century huge corporations dotted America. Inside them, workers labored under the "drive system," which economist Sumner H. Slichter described as "the policy of obtaining efficiency not by rewarding merit, not by seeking to interest men in their work ... but by putting pressure on them to turn out a large output." The system depended on fear of job loss to ensure obedience, and employers did not hesitate to fire workers. Those who were dissatisfied had few alternatives other than to seek their fortunes on the open market. High quit rates contributed to the overall instability of the workplace, which made unemployment a recurring fact of life.
Although European workers faced similar problems, they were supported by a spreading web of institutions that tempered the insecurity produced by the market: labor unions, protective legislation, and social insurance. These institutions were more elaborate and encompassing than those that existed in the United States. Indeed, in the early 1900s the United States had the smallest welfare state and the lowest unionization rate (when adjusted for per capita income) among the industrialized nations.
There were pockets of stability scattered throughout the American labor market, however. White-collar employees enjoyed privileges such as paid vacations, pensions, and exemptions from nightwork and layoffs, all of which were unavailable to blue-collar workers. When the employees were female, companies added an additional layer of paternalism--nicer restrooms, lunchrooms decked with flowers, social clubs--which, says historian Alice Kessler-Harris, had the effect of "reinforcing [women's] sense of obligation." White-collar employees received these perquisites because their positions were considered a fixed cost and because employers entrusted them with cash and company secrets.
Also enjoying favorable employment terms were skilled craftsmen, whose unions sought to regulate the drive system and close the gap between salaried and hourly employment. Union rules ensured that equitable procedures rather than a foreman's whim governed pay and promotion decisions. The union shop undermined a key assumption of the drive system: that employment was a relationship of limited duration terminable at the employer's will. Instead, trade unions held that employment was a permanent relationship between the union--a set of workers--and the employer--a set of jobs; the union behaved as if it owned those jobs in perpetuity. Under the "guild" system, jobs spanned company boundaries, permitting versatile craftsmen to move from shop to shop; under a newer system, "guild manorialism," they were restricted to a single employer. Guild manorialism was found in medium- and large-sized firms operating on a year-round basis, such as meatpacking and printing. Here workers adhered to craft customs while also establishing rules to govern career-type jobs.
Although European employers saw collective bargaining and the welfare state as antidotes to class warfare, American employers, with their strong belief in individualism and free enterprise, reacted vehemently whenever "outsiders" (either government or unions) bothered them. They asserted an absolute authority to control their businesses. According to historian Philip Taft, this attitude resulted in "the bloodiest and most violent labor history of any industrial nation in the world."
Here it is important to keep in mind labor's powerlessness in the United States as compared to the situation in the nations of northern Europe, where craft and class loyalties supported an interlocking structure of labor unions and working-class political parties. On the employer side were numerous small and medium-sized firms, often family owned, specializing in skill-intensive, customized products. To gain control of the shop floor and to allay larger threats to the economic order, these firms formed employer associations that agreed to union recognition and industrywide bargaining in return for labor's support of management rights. The employer associations reduced the cost of union recognition by moving bargaining from the shop floor to the industry level and standardizing labor costs.
These gains, however, were hardly a clear-cut victory for employers. In Britain and other countries where craft unionism was deeply entrenched, industry-level bargaining could not erode craft control of production. And even when employers succeeded in displacing bargaining to higher levels, the outcome was not inconsistent with labor's objectives. Industrial bargaining--especially when combined with extension of contracts to unorganized workers--promoted worker solidarity, legitimated unions as social actors, and made it easier for unions and their affiliated parties to pressure governments to expand the welfare state.
The situation in the United States was different. Working-class parties and the labor movement were weak, and so were craft traditions. There was little in Pittsburgh or Peoria that could compare to the complex and long-established craft communities in Europe. With many trades only lightly organized, the cost of union recognition to a single firm was substantial, including an increase in relative labor costs and possible loss of managerial prerogatives. Such costs could have been mitigated through multiemployer bargaining, but it was difficult to get American employers to form associations because unions were neither strong enough nor radical enough to pose a threat like that which spurred European employers to band together.
The sheer size of American companies was another factor. On average, American firms were larger than those in Europe and were heavier users of mass production technology, a combination of traits the Europeans called "Fordism." Mass production made American firms less dependent on skilled labor and, together with their size and labor's weakness, made them better able to resist unionism. For defense and attack American firms could rely on company guards, on armed strikebreakers, and even on private arsenals.
American employers also had easier access to public police forces. Each state and town had its own militia and police agents, and because labor disputes often were local affairs, employers could rely on local units to act on their behalf. The judiciary, with its "constitutional supremacy over labor legislation," also played an important role. Few judges were friendly to unions, as demonstrated by a steady stream of decisions enjoining strikes, boycotts, picket lines, and other collective actions. The courts refused to enforce collective bargaining contracts and held unconstitutional most legislative attempts to regulate workplace conditions. Although there were instances when the federal government acted to protect organized labor, such efforts were limited to key industries such as coal and the railroads, or were temporary wartime provisions.
No industrial country was as successful as the United States in suppressing organized labor. Rather than stirring revolt, repression reinforced the American labor movement's weakness and conservatism. By the 1890s, Samuel Gompers, who had earlier sympathized with many socialist positions, had become wary of revolutionary goals and increasingly saw trade unionism as an end in itself. Recalling how the police violently broke up a Tompkins Square labor demonstration in New York City, he wrote that the episode taught him how "radicalism and sensationalism" inevitably led to repression which "nullified in advance [any] normal, necessary, activity" on the part of organized labor. Gompers thought that to achieve even limited economic goals, American labor would have to appear sober and respectable, thus garnering support from middle-class allies. Under Gompers, the American Federation of Labor (AFL) pursued a conservative form of job-control unionism, but that strategy had the ironic effect of reinforcing opposition from employers.
An American Alternative
Even as American employers tried to maintain power, they nevertheless felt the need for a more positive response. Thus they fashioned an alternative--welfare capitalism--whose main idea was that corporations would shield workers from the strains of industrialism. Originating in the 1880s as "welfare work," the movement grew to encompass most branches of American industry. By 1914, the National Civic Federation counted twenty-five hundred firms pursuing a gamut of welfare activities, from cafeterias, gardens, and profit-sharing plans to company housing, magazines, and athletic facilities. Welfare work was not uniquely American. Profit sharing was first popularized in France, and elaborate welfare schemes existed in companies throughout Europe, including Krupp, Le Creusot, Cadbury's, and the textile houses of Lancashire, but it was more pervasive in the United States than elsewhere.
Welfare work initially prevailed in companies controlled by their founders. Observing that their firms had grown large and impersonal, these men hoped welfare activities would reproduce the close ties that had existed when they knew each of their employees by name. Company growth had also brought great personal fortunes to these men, and they saw welfare work as a way of responsibly sharing their wealth and discharging the moral obligations that it imposed. Religious beliefs often reinforced these motives. Quaker businessmen started some of the earliest welfare experiments, as did employers imbued with mainline Protestantism's "Social Gospel." The ethical impulse, however, included no small measure of self-interest. It created company bonds that undermined trade unionism and quieted public critics of concentrated wealth.
Welfare work was as diverse as the situations that spawned it. In isolated company towns--particularly in the textile and mining industries--welfare work verged on a feudal system whereby the employer controlled most aspects of a worker's life. As in preindustrial master-servant relations, deference was combined with paternal obligation and prerogative. Closer to urban areas, welfare work was infused with communitarian ideals adopted from utopians like Charles Fourier, Robert Owen, and John Humphrey Noyes, and, later, from thinkers such as the pragmatist John Dewey. Reverend Josiah Strong founded the League for Social Service in 1898 to promote industrial welfare programs, which, he said, enhanced the "oneness of society" and its "interdependent organs."
The company towns built throughout the United States between 1880 and 1915 were characteristic settings for welfare work. Places such as Pullman (Illinois) and Wilmerding (Pennsylvania) were living experiments in paternalistic social engineering. Employers designed every aspect of the industrial community--from leisure activities to architecture to landscaping--to match the putative harmony inside the workplace. With profit sharing, even the worker's pay package was not immune to this encompassing organicism. But communal harmony did not come cheap, if it came at all. Model towns were expensive to build and maintain and, as demonstrated at Pullman, they offered no guarantee of labor peace. Besides, profit sharing and other welfare activities could just as easily be pursued in a conventional factory setting.
As welfare programs became more complex and costly, employers sought to systematize their administration. Among the first companies to hire a specialized manager to oversee welfare programs was National Cash Register. NCR's welfare secretary sought to "restore the old-time 'personal touch'" by counseling employees at work, organizing social activities, and visiting the sick at home. These home visits revealed mixed motives: while they extended a friendly hand from an otherwise impersonal corporation, they often served as occasions for a patronizing lecture on proper housekeeping or a chance to see if the employee was really sick.
Filene's, the Boston department store, took a different approach to managing its welfare programs. It placed the administration of its loan fund, medical clinic, and recreation clubs in the hands of elected employee representatives. Constituted in 1905 as the Filene Cooperative Association, this group of elected representatives was the first major company union in the United States. By giving workers a stake in corporate decisions, management hoped to widen the circle of common concerns while shrinking the distance between itself and the employees.
Welfare work was frequently condescending and manipulative. The hope was that firms could recast the intemperate, slothful worker or the ignorant immigrant in a middle-class mold: uplifting him, Americanizing him, and making his family life more wholesome. The most paternalistic programs were directed at immigrants from eastern and southern Europe and also at women. Skilled workers--who were almost always men, either native born or from northwest Europe--were likely to be offered more straightforward economic incentives for loyalty, including wage bonuses, deferred compensation, and profit-sharing plans.
The relationship between welfare work and unionism was not a simple one. In England, iron and cotton manufacturers combined paternalistic welfare programs with trade-union bargaining. That mixture was rare in the United States, although some American employers were willing to try company unions. The years before World War I saw experiments in industrial democracy at a number of influential companies, including Filene's, Joseph and Feiss, Leeds and Northrup, the Plimpton Press, and Dennison Manufacturing. Avoiding "outside" unions was not always the motive for experimenting with company unions; several of the firms came from industries in which trade unionism was weak or nonexistent.
Welfare work primarily concerned employees' lives off the job; inside the workplace, employment policies often remained crude. Given an abundance of immigrant labor, at least until World War I, employers were reluctant to tamper with the drive system as applied to the mass of semiskilled workers. Between 1900 and 1920, however, some employers began to devise stable, structured employment systems, initially for their skilled workers. The systems combined policies pursued by craft unions, such as seniority rules, with enticements offered to salaried employees, chiefly deferred compensation in the form of pension benefits and stock bonuses. The railroads were pioneers in this area, followed by industrial giants such as U.S. Steel, Baldwin Locomotive, and International Harvester. Because the benefits could not be enjoyed if a worker was dismissed, they raised the cost of engaging in union activity--an intended effect.
By tying skilled workers to the firm, employers hoped to weaken craft traditions, speed the pace of work, and hasten the introduction of new technologies. In effect, employers sought to take the guild out of guild manorialism. Piece-rate and other incentive wage devices were part of this strategy, especially in the metalworking industries, where Frederick W. Taylor's ideas were popular. However, the importance of incentive pay can be overstated. Employers started to realize that incentive pay sometimes produced undesirable results. Because it rewarded proficiency in a given job, incentive pay made employees reluctant to accept technical innovations or job transfers, either of which might cause earnings to decline.
Other, more career-based workplace policies--promotion ladders, seniority rules, and dimissal restraints--began to supplement incentive wage systems. These policies were administered by new employment departments whose job was to keep watch over foremen and other line managers. Gradually the drive system started to give way to more enduring work relationships, intertwined with employer-provided welfare services outside the workplace.
The pioneers in these developments were mid- to large-sized firms serving the national market, companies like Dennison Manufacturing, Goodyear, and National Cash Register. Such firms had the resources to establish career employment policies, a major resource being their managerial hierarchies. To keep pace with company growth and increasing organizational complexity, turn-of-the-century corporations were impelled to adopt systematic planning, accounting, and management methods. Initially these methods were applied to sales and production; managerial rationalization only later spilled over into the employment sphere. Thus, while welfare capitalism emerged as a solution to the problems of modern industry, it was modern industry itself that made welfare capitalism viable.
Welfare capitalism also drew heavily on developments outside of industry. The decades after 1890 saw American society caught up in a "search for order" led by a new class of professional problem solvers--educators and economists as well as social workers and psychologists. Although their specific prescriptions differed, they embraced the idea of deliberate social engineering conducted by benevolent professionals. Scientific administration--order guided by knowledge--was seen as the best hope for stabilizing an industrializing society.
John Commons and Meyer Bloomfield in the United States, and Beatrice and Sidney Webb in England, took these ideas and cast them in terms appropriate to the workplace. The work reformers conceived of industry as the site of reconcilable differences between workers and management, a place where competing interests could be bridged by people skilled in the art of mediation and compromise. At the center of this approach was the impartial professional, trained to prescribe administrative solutions to workplace problems. Where unions were present, these professionals would serve as arbitrators, the approach developed by Louis Brandeis for the New York clothing industry. In the absence of unions, newly created personnel departments would, it was hoped, bring to unorganized employees some of the same benefits as unionism.
Despite a penchant for top-down social engineering, these reformers hoped to create institutions that would encourage democracy as well as efficiency. "Consent of the governed" was necessary to avoid the resentment bred by autocratic hierarchies. Here the reformers drew on a set of common ideals inspired by Progressive pragmatism: that individuals are capable of making choices, that differences can be solved through open communication, and that democracy would emerge from decentralized problem solving. Characteristically American in its optimism was the belief that modern industry could avoid the deadening rigidity of bureaucracy by applying what John Dewey called the "science of participation."
For those reformers concerned with industrial democracy, these ideas pointed in the direction of trade unions, which were seen as the only genuine vehicle for realizing citizenship norms within industry. The "new" unions in the needle trades were viewed as the exemplar of a laborist alternative to welfare capitalism. The new unions were promoting modern management methods and joint problem solving, while also building worker-run schools, banks, and other institutions to serve their immigrant membership. Reformers were enthralled at the prospect of foreign-born workers being educated to participate in industrial as well as civic democracy.
Other reformers rejected laborism in favor of a private corporatism that elevated enterprise ties over those of craft or class. For the corporatists, modern industry was viewed as a vast experiment in cooperation. Managers, technicians, and workers had what Dewey called a "genuinely shared interest in the consequences of interdependent activities." Only by thoroughly involving workers in production--through company unions, shop committees, and the like--could industry realize its cooperative ethos, what Dewey called "reciprocal solidarity." These corporatists were liberals, but they were wary of what they perceived as Luddite tendencies within the labor movement. They also were skeptical of legislative responses to social problems, preferring instead to rely on private solutions--especially programs associated with welfare capitalism--although some saw a government role in coordinating the economy through trade associations and industrial planning.
The Taylor Society (originally the Society for the Promotion of Scientific Management) was a hotbed of liberal corporatism. By 1915 it had been taken over by progressive engineers sensitive to the criticism that scientific management "had not fully caught the organic nature of human relations in industry." As currents of reform passed through the Taylor Society, they produced a fascination with the idea that industrial democracy was the key to industrial efficiency. Company unions, works councils, and employee participation in time studies were justified as stimulants to productivity.
The Taylorists also were captivated by the idea that unemployment--perhaps the most pressing problem of the day--could be mitigated through the application of scientific management techniques by private employers. The Taylorists believed that market analysis and production planning could stabilize fluctuations in employment, thereby removing a major cause of joblessness. Stabilization would also make employees more willing to participate in works councils and more tolerant of schemes to raise efficiency.
After World War I, some laborists were drawn to scientific management and to the idea that "microregulation," as historian Steven Fraser calls it, would efficiently reduce unemployment. But the group--including Sidney Hillman, Mary van Kleeck, and John Commons--continued to believe that collective bargaining was the best way to achieve microregulation. As proof they pointed to union efforts to rationalize production and reduce seasonality in the clothing industry by hiring industrial engineers, cooperating with management in redesigning wage systems, and negotiating joint unemployment insurance plans. In contrast, the employers who moved in the Taylor Society's orbit--liberals like Henry S. Dennison, Henry P. Kendall, and Richard Feiss--criticized the drive system and saw trade unions as a reasonable corrective, but held traditional unionism to be inferior when measured against their own brand of enlightened management. Their synthesis of personnel administration, employment stabilization, welfare work programs, and company unionism served as a model for other employers to follow.
The welfare capitalist model, however, was not entirely free of kinks. Although personnel management was intended to resolve conflicts between workers and foremen, welfare programs implicitly denied that such conflicts existed. Meanwhile, employer paternalism contradicted the citizenship ideals informing employee representation. These tensions--between authority and democracy, efficiency and community--would strain industrial relations in progressive companies for years to come.
Before World War I, companies like Henry Dennison's constituted a distinct minority within American industry. Although numerous employers adopted welfare work programs, few combined them with systematic personnel administration, and fewer still had company unions. But the war changed all that. After 1916, the combined pressures of labor shortages and labor unrest produced a rapid expansion in all manner of workplace reforms. By 1920, more than half the firms with five thousand or more workers had established personnel departments.
The war also saw a proliferation of welfare work programs. Much of it was of the uplift variety: such things as Americanization classes and glee clubs. With time, employers gradually relinquished these activities to groups like the Young Men's Christian Association (YMCA) and began to direct more attention to insurance plans, pensions, and profit sharing. Financial benefits were less paternalistic and intrusive than other welfare activities, and they could be keyed to specific workplace needs such as retention, recruitment, and union avoidance. In 1918, Standard Oil of New Jersey--a bellwether among the Rockefeller companies--initiated a comprehensive package of financial benefits that included health and accident insurance, pension and stock ownership plans, and mortgage assistance.
During the war, workplace reforms were motivated by rational calculations made in the face of labor shortages and encroaching unionism. This was particularly true at large companies, which had long known about personnel management and employee representation but, with some notable exceptions, had done little to support them. In a flash, the titans of American industry set up personnel departments and representation plans: in 1918 at Bethlehem Steel, Jersey Standard, and Western Union, and in 1919--when strikes and union membership reached peak levels--at American Telephone and Telegraph (AT&T), Du Pont, U.S. Rubber, and Westinghouse. To justify these reforms, managers at companies such as AT&T began to use a sophisticated set of ideas drawn from the new discipline of industrial psychology.
The impetus for change sometimes came from below, as when striking General Electric workers demanded that the company hire a "Manager of Man Power." And here and there managers could be found who envisioned the firm as a democratic community, men like Morris Leeds of Leeds and Northrup and Gerard Swope of General Electric. Swope was an exemplar of liberal corporatism, having spent his youth living and teaching at Hull House, the renowned settlement house in Chicago.
As before the war, corporate reforms were often contradictory. On the one hand, the new personnel departments sometimes were as vigorous as any trade union in standing up to foremen and pursuing rule-bound employment practices. Grievance procedures in employee representation plans had the potential for restraining arbitrary, egregious supervisors, and sometimes acutally did so. A few firms even had company unions coexisting with craft unions.
On the other hand, employers hoped that workplace reform would cause employees to see themselves as an integral part of the enterprise--siding with management rather than against it. Issues of power and conflict were downplayed in the hope of fostering a sense of community. But although picnics and parties served to create a harmonious family atmosphere, other policies such as company unions could serve either unitary or power-balancing ends. Most managers were unconcerned by these inconsistencies, yet they did not go entirely unnoticed.
One influential observer was Mary Parker Follett, a management theorist who drew her ideas on democracy from pragmatic philosophy and the "new psychology" of industry. Follett, a former settlement-house worker, was friendly with such liberal Boston employers as Edward A. Filene and Henry S. Dennison. Seeking to counter what she saw as modern society's anomic individualism, Follett advocated group participation--in communities and in industry--as a democratic solution. Although Follett idealized the solidarity of groups and organizations, she nevertheless was a trenchant critic of power balancing. Follett argued that a fundamental problem with trade and company unions was their insistence on "drawing an absolutely sharp line between management and labor." This distinction resulted in an emphasis on "grievances instead of problems" and on bargaining instead of "integrative unity."
Follett endorsed various postwar experiments in union-management cooperation such as those pursued by the Baltimore and Ohio Railroad and its shopcraft unions, but she thought that company unions were more capable of achieving the desired end of "integrating relations."
Follett also urged employers to adopt modern psychological techniques to assess worker attitudes and bring them into alignment with the ideas of upper management. Her industrial psychology was one branch of a wider movement--including advertising and opinion polling--that sought to incorporate the masses into modern industrial society by manipulating their preferences from above. Although some liberals, like Walter Lippmann, were horrified by this kind of social engineering, other liberals--including John Dewey, Charles Horton Cooley, and Follett herself--saw "positive, democratic possibilities in the social construction of human desires and interests."
Characteristically pragmatic was Follett's belief that orderly and lawful employment relations would emerge from regular deliberations between managers and workers. Although Follett was more interested in achieving unity than in resolving conflict, she was at pains to point out that "integrative unity" did not deny workers an independent voice. Nevertheless, her view of what this meant in practice entailed employees presenting to management "the workers' point of view of what is best for the plant as a whole."
Welfare Capitalism Takes Hold
Follett's ideas presaged the approach to welfare capitalism taken by progressive employers in the 1920s, when cutting-edge companies moved away from heavy-handed paternalism and also from the power-balancing approach. The 1920s were more conservative and less uniformly prosperous than the decades that preceded them. Employers who saw welfare capitalism as nothing more than a roadblock against unions were reluctant to pump money into expensive expedients. Welfare capitalism was more prevalent in large firms than small, although there were many exceptions. Some large companies adopted only bits and pieces of welfare work; others undermined their welfare programs with harsh shop floor practices. Comprehensive welfare capitalism--including financial benefits, career jobs, company unions, and supervisor training programs--was limited to an elite group of companies employing at most a fifth of the industrial labor force. The movement's impact, however, was greater than this figure alone would suggest. Welfare capitalism drew attention from academia and the press because it was concentrated among the nation's most prosperous companies: science-based firms in the electrical and chemical industries and highly visible "modern" producers of mass consumer products. By pursuing welfare capitalism, they endowed the movement with an aura of technological inevitability. Thus, despite its shortcomings--coverage was limited and benefits meager--welfare capitalism came to be seen as America's future.
A shifting political climate and a steep decline in union membership also contributed to the perception of welfare capitalism's inevitability. Although many former laborists would have preferred larger roles for trade unions and government, they deferred their desires or came to share the corporatist view that individuals were best cared for by their employers. John Commons, a prominent prewar laborist, became resigned to private regulation after the Wisconsin legislature repeatedly refused to pass an unemployment insurance bill in the early 1920s. A discouraged Commons wrote in 1923, "Only from the large establishments, and not from the smaller establishments, nor from employees, nor from the state, can any material progress be made towards prevention of unemployment." Though a stalwart friend of the AFL, Commons now argued that workers could thrive under company unions so long as these unions rested on "the integrity, capability, and good judgment of the workers."
From the intertwining of liberalism's laborist and corporatist strands emerged a new consensus. Welfare capitalism, company unions, and corporate efficiency were seen as complements rooted in the logic of mass production and consumption. Here was a distinctively American response to the "labor question."
Welfare capitalism's corporate core in the 1920s was the Special Conference Committee (SCC). Executives from ten of America's leading companies founded the committee in 1919 to coordinate their labor relations and personnel policies. The SCC had close ties to the Rockefeller interests; until 1933 it was chaired by Clarence J. Hicks, former head of the personnel department at Standard Oil of New Jersey. In addition to Jersey Standard, other members included Bethlehem Steel, Du Pont, General Electric, General Motors, Goodyear, International Harvester, Irving National Bank, Standard Oil of Indiana, and Westinghouse Electric. U.S. Rubber joined the group in 1923 and AT&T in 1925. (U.S. Steel, a laggard in most respects, did not join until 1934.) The upshot was a tilt in corporate policies toward greater integration and consistency.
In 1920 the SCC adopted a set of principles, the heart of which was the belief that, as John D. Rockefeller, Jr., put it, "the only solidarity natural in industry is the solidarity which unites all those in the same business establishment." Corporatist cohesion was intended to supercede other forms of collective identity: workers were expected to eschew trade unions and instead to identify with their company; in return they would receive steady jobs and welfare benefits. The SCC approach was more enlightened than the unbridled repression of the American Plan, a coordinated employer campaign to break the AFL unions at the local level. Although repression was not entirely absent from SCC companies, it played a shadowy, secondary role in the 1920s. The prominence of the SCC companies and their control of organizations such as the American Management Association ensured that the SCC approach had considerable influence on the conduct of industrial relations at other large companies.
A key part of the SCC approach entailed placing the personnel department under the control of line management. With personnel managers taking their orders from production officials instead of the other way around, there was little chance that line managers would be questioned or overruled, especially in cases of discipline and dismissal. The idea was to replace centralized power-balancing on the employee's behalf with integrative practices on management's terms. Rules would continue to be promulgated--in fact, the 1920s saw growing adherence to the seniority principle in employment decisions--but they would be interpreted and enforced by line managers.
More than a few personnel specialists had a hard time adjusting to the new realities. Humble Oil, a subsidiary of Jersey Standard, fired its personnel manager in 1922 for being overly zealous and "tactless" in urging the company to adopt an eight-hour day. Even at progressive companies outside the SCC nexus--such as Leeds and Northrup in Philadelphia--personnel departments were abolished in favor of less conflictual methods of restraining line officials.
One such method was to instruct foremen in the psychology of work relations. In classroom courses and at weekend retreats on "the new foremanship," participants were taught "teamwork," "cooperation," and how to be "both big brother and boss to [their] people." That leadership styles might affect employee attitudes was an idea industrial psychologists had recently begun to explore. Industrial psychology had achieved national prominence during the war, when the army began giving intelligence and vocational aptitude tests to new recruits. Industrial psychology's technocratic ethos--that scientific methods could simultaneously improve both human welfare and human efficiency--appealed to managers in technology-based companies like AT&T. Early in the 1920s, AT&T aided efforts to create the Personnel Research Federation, a consortium of about a dozen companies interested in industrial psychology. The federation disseminated research on psychological approaches to work problems such as employee selection, wage administration, and supervision. Federation members also teamed up with university-based psychologists to conduct applied research in these areas. Leadership studies were done at several sites, including a Kimberly-Clark plant in Wisconsin and various AT&T facilities, notably the Western Electric plant outside Chicago.
Central to the SCC approach was employee representation, which, according to the committee, formed "the practical application" of its philosophy. Company unions were supposed to provide a forum for cooperative problem solving and the airing of grievances. Since many worker complaints concerned supervision, foremen were adamantly opposed to employee representation, "feeling that their authority was being curtailed and their discipline slipping away." Reluctant to upset existing disciplinary regimes, the two most conservative companies belonging to the SCC--General Motors and U.S. Steel--eschewed company unions in the 1920s. International Harvester adopted a works council plan in 1919, but company foremen "resented the authority that the [council] exercised and took steps to combat it." Later in the decade, as complaints from foremen persisted and the union threat faded, Harvester clipped the wings of its councils. At Du Pont, management simply began ignoring its councils; by the early 1930s they were moribund.
Many company unions deserved their poor reputation. Samuel Gompers lambasted them as a "pretense admirably calculated to deceive," an opinion shared by other AFL leaders. Yet here and there company unions could be found that had support from management as well as from employees. Medium-sized innovators like Dennison Manufacturing and Leeds and Northrup, as well as large SCC members like AT&T, Goodyear, General Electric, and Jersey Standard, all had such unions. Goodyear's Industrial Assembly included joint worker-management committees to deal with issues ranging from time-study standards and transfers to plant safety and sanitation. At GE's Lynn works, says historian Ronald Schatz, by 1926 management "had won the loyalty of the plant's former labor leaders--not through use of threats, for none were employed--but by education. At meetings of the Plan of Representation, management disclosed financial data to the workers' leaders, showing them the plant's costs, its return on various products, and its problems. They frankly sought the representatives' advice, while simultaneously expressing a willingness to adjust grievances as they arose."
Active works councils like these were a far cry from the rough-and-tumble world of the drive system. Not only did they shrink the gap between managers and managed, they proved capable of solving a variety of local problems. Moreover, as managers at Jersey Standard and General Electric were quick to point out, their company unions included immigrants from diverse ethnic backgrounds as will as blacks and women--groups neglected by most AFL unions. Like John Commons, some laborist liberals decided in the 1920s that company unions were preferable to the AFL or were a realistic alternative to no representation at all. Others saw company unions as a transitional form that could serve as "education for democracy" until workers were ready to run their own unions. William Leiserson, an economist with close ties to the AFL, predicted in 1928 that active company unions would evolve "in quite unforeseen directions," possibly becoming "more and more like trade unions." But any such evolution was cut short after 1935, when most company unions were taken over by national unions or disestablished by the Wagner Act, which created a regulatory framework for labor-management relations.
A common objection to company unions was their inefficacy in the economic realm. To avoid controversy and to retain control over compensation decisions, managers steered company unions away from pay issues, or they limited pay discussions to internal wage inequities. Pay cuts, however, were considered a legitimate subject; company unions were pressured to ratify cuts at International Harvester and other companies, especially those that hastily adopted representation plans after passage of the National Industrial Recovery Act in 1933. None of this is to deny that some company unions did bargain over wage increases--even, until the mid-1920s, at International Harvester. And at Goodyear, after electing new officers in 1922, the company's Industrial Assembly demanded a 15 percent pay raise. Management vetoed the raise but then assented to it after the assembly overrode the veto. In 1926, the assembly voted to adjourn after the company turned down its request for higher pay, resulting in the only recorded company union "strike" during the 1920s.
Still, even progressive employers like Goodyear were dismayed by pay disputes and saw them as evidence that employee representation had failed. For this reason, several of the decade's most liberal firms--including Eastman Kodak--rejected company unions while searching for less conflictual methods of achieving "integrative unity." These employers held the belief (not entirely naive) that distributive conflicts could be minimized through a combination of premium wages and profit sharing, which could amount to as much as 10 to 12 percent of base pay.
A problem with profit sharing occurred when it was used to raise inadequate pay levels to the market average, a practice condemned as "illegitimate" by Dennison and others. Another problem stemmed from the formula used to determine the share workers would receive. Although one employer touted profit sharing as "a bridge across the natural chasm between the management and the rank and file," most companies kept the determination of relative shares a management prerogative. Workers had no voice in setting the formula. However, a few companies--including Dutchess Bleachery, Leeds and Northrup, Simplex Wire, and Procter & Gamble--made the profit share a subject for deliberation by the works council or company union. A manager at Dutchess cautioned that "books must be kept open to workers" if they were to become "partners in industry."
SCC and other companies also adopted a slew of welfare programs that provided monetary benefits: pensions, stock ownership plans, paid vacations, mortgage assistance, and health insurance. The SCC believed that such benefits "establish a mutual interest between management and the employees." Although some historians claim that the growth of welfare capitalism slackened by the late 1920s, the evidence shows that this was true of meddlesome activities like home visiting but was not true of financial benefits. The provision of financial benefits had various objectives, but the most important was to create a body of stable, loyal, and productive employees. The logic was the same as that behind the pecuniary benefits earlier devised for salaried and skilled employees.
Benefit plans contained various incentives to increase employee stability and loyalty: only workers with a minimum level of tenure were eligible to share in profits or belong to company unions, and insurance and pension programs had a "continuous service rule" that linked receipt of benefits to unbroken tenure, thus making dismissal more costly for workers. Yet these incentives also imposed costs on the employer. With service restrictions came seniority rules that prevented workers from being transferred, laid off, or fired at will. Profits had to be shared with eligible workers, and employee representatives had to be heard.
Welfare capitalism in the 1920s resembled earlier paternalist experiments. As before, employers offered security to their core employees while using economic and cultural controls to get workers to identify with the firm. There were, however, some significant changes. The ties binding workers to the firm had become more bureaucratic and impersonal, with managers taking care to distinguish between an employee's work life and home life. Managers were more sensitive to workers as individuals whose "personality and dignity, whose attitudes and inner feelings, must be respected." Unlike turn-of-the-century paternalists who believed they knew best, employers in the 1920s began to probe the opinions of workers to find out what they wanted, relying on psychologists and employee representatives to convey this information to them.
Because welfare capitalism denied or suppressed conflict, some historians have characterized it as a system whose "central purpose" was identical to the American Plan--"the avoidance of trade unionism." But in contrast to the American Plan, welfare capitalism reached its goal in an ironical fashion: by reproducing within the firm the same regulatory structures sought by trade unions, a phenomenon Mary Follett called "the anticipation of conflict." In other words, it achieved its goals by an elaborate system of employer self-restraint.
Such paradoxical dynamics were hardly new. Just as a master's paternalism had given slaves "their most powerful defense against the dehumanization implicit in slavery," and just as nineteenth-century English employers found that paternalism was "the prison of the rulers as of the ruled," so, too, did welfare capitalism bind the employer along with his employees. American employers did not go the European route--containing worker radicalism by recognizing national unions--but they did engage in their own kind of buyout: guild manorialism was preempted in favor of a top-down, nonunion version. The savviest managers came to realize, as John Commons claimed, that most American workers wanted "nothing more than security in a good job with power to command respect."
Yet even those employers who grasped Commons's point did not always follow through on it. Some firms gave their all and others gave only lip service. For example, although the 1920s saw operatives and laborers included for the first time in benefit programs, status differences remained large. Vacation plans were limited to salaried employees, who were also given better cafeteria facilities and more regular work schedules than hourly employees. At the bottom of the ladder were semiskilled and unskilled workers, especially women, who were more likely to quit or get laid off than other employees. As a result, they often failed to qualify for benefits requiring continuous service.
Though meant to be an enlightened alternative to trade unionism, welfare capitalism retained a primitive underside that surfaced whenever workers showed union sympathies. At these times, few managers could resist turning to coercive practices such as spies, injunctions, and dismissals. These tactics rarely blemished welfare capitalism's reputation during the 1920s only because labor was unable to penetrate the new mass production and distribution industries. Yet even with labor quiescent, welfare capitalism still rested on a questionable premise: that it was efficient, even moral, to give employees what they could obtain for themselves. To critics, this was social engineering of a kind that was inimical to democratic principles. As Sumner Slichter asked, "Is it not, in general, desirable, that men be encouraged to manage their own affairs rather than that they be deliberately and skillfully discouraged from making the attempt?"
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