IN the previous article (April 25 issue) we discussed the principles ot distribution of the social product operative in our present economic system and we saw that just returns to factors would be obtained by accident rather than by design. And, in addition to mal-distribution, we saw that labour
was considered the least significant of factors, whereas, being the only animate one it should be the most significant.
Our problem now is to propose certain remedies so as to ensure to society. a just distribution of wealth. We shall examine three possible lines of action:
(I) to control the present capitalist system, without essentially altering it, so that each factor gets its just reward ;
(2) since the cause of the mal-distribution seems to be the undue importance attached to capital, to forgo the use of this factor and return to " primitive " life;
(3) to overcome the present defects by putting labour in control of industry, that is, by instituting cormartneiship.
Would this Solve the Problem ?
( The allocation of just returns to the
various factors by a central authority would Create certain statistical problems but it would not be an impossible task. The actual reward of each factor would be determined on the basis of its needs and also the price at which the commodity is to be sold, given the supply and demand ; profits would therefore be the unallocated residue. But having done this, would we have solved the fundamental problem?
Surely not, because although it is true that labour would be receiving adequate wages, it would still be considered as a factor of productiort; the entrepreneur would still be in a position to substitute other factors for labour in an attempt to maximise his returns, whilst the equity holders might consider the returns they are getting on their investment inadequate for the risk incurred (this would be a personal estimation) and would therefore aftempt to liquidate it, or at any rate reduce the supply of capital., Further, there is no guarantee of employment by the State; were the State to prevent the substitution of factors it would have to take over the function of capital and so control industry itself. Thus we would get an anomalous situation where part of the industry is run by the State in competition with the remainder, privately owned. It would be better for the State to control all enterprise rather than to enter as a competitor.
Title to Ownership The " inter-beaten " history has given us sufficient examples of State control breaking down owing. to its incomprehensiveneas; a State enterprise must be monopolistic in character. The only way to raise the status of labour above that of a mere factor of
production is to give it title to ownership, which this method would not do. Further, this solution would not in any way mitigate the acquisitive spirit.
The Guild System is an elaboration of this line of action and it also does not solve the fundamental nroblem. There would still exist the vital queation of who has the casting vote, the employer, ihe employee or the consumes. If it rests with either of the last two, the function of the employer would cease to exist and the investment would be come co-operatively owned. If it rests with the employer, we still have all the old problems of the capitalist system, which we have found to he inherent in the system and which cannot be overcome by legislation alone.
The Guild System worked in the Middle Ages because there were not the technical
opportunities to encourage or allow the de velopment of the acquisitive spirit such as exist to-day; to be successful it demands,
therefore, a state of affairs where capital is not an essential or significant factor in production.
No, the evils of our system lie in its very roots : mere regulation is of no avail.
Do Away with Capital
(2) Since the capitalist system regards capital as the most significant factor, and since it is dependent on the full development of the acquisitive motive, then surely, if we forgo the use of capital, we shall free society from its injustices. The abolition of capital would mean renouncing the use of machinery and all the fruits of scientific progress. Ti would indeed make labour supreme and make it more than a mere factor of production. There would he no competitive factors so that labour would not tend to become unemployed, while production would tr carried on by small concerns. The acquisitive spirit would be restricted because there would be little or no opportunity to use it.
This state of affairs is similar to Medievalism and there is much in it to cormnend. The only query one can raise. however, the most fundamental: is It possible to renounce the use of capital? Is if possible or even right to forsake the results of scientific knowledge that hair accumulated over centuries?
Personally I think not, unless, of course, civilisation were so ravaged by war and revolution as to be almost annihilated. In any case it would be impossible to give an adequate standard of living to 40 million people in our islands without the aid of modern technique. Those who propose this
solution of returning to " primitive • life'
fail to appreciate the growth of society. The communal existence of society has gradually developed over centuries and will continue to do so; society could not suddenly forsake and forget its own development and return to re-live its past.
(31 Our solution must therefore contain a further principle. It must not only curb the acquisitive motive, restrict the significance of capital, give just returns to the factors of production and put labour in a position above the inanimate factors; it mutt also be compatible with the normal development of society and it must allow society to make full use of technological and scientific pro gress. Co-partnership is, I think, the only form of economic organisation that covers these requirertients.
Under co-partnership each person employed would own at least one share in his firm. A board of directors would be elected by the workers on the basis of one man a vote (this principle could be modified in certain cases, hut on the whole it would seem to be a just one); a high quorum should be fixed to psevent a militant minority from gaining control.
The board of direators would be responsible for engaging the managers, technicians and business advisers (who would all have to enter the partnership) and for directing the general policy of the firm. The capital invested would earn a fixed rate of interest determined by the national financial policy.
Rents would be fixed by the State and also minimum wages, family allowances, etc.
From the profits obtained cirtain amounts must go to reserves and also to a Government Inainance Scheme as a cover against trading losses. The remainder would be distributed among the employees on a per caput basis, or on a family basis, i.e. according to the number of dependants, while some allowance could also be made for grades, but this must be very closely watched so as to avoid abuse.
All business proceedings must be given full publicity.
Incentive for Workers to Become Masters
Funds for the initial investment would come from the State in the form of debentures which would be repaid as the employees take up their shares. The degree of State-conirol would depend on the proportion of the shares held by the Stale ; this would act as an incentive for the workers to become their own masters.
Private investment, therefore, except in one's own business and one's own house and personal belongings, would be non-existent: people would be allowed to sate and keep cash balances but they would not be allowed to own shares in any business in which they did not work. Banks would come under the control of the Government, who would be the sole recipient for all savings. Because the Government gives the initial funds for starting enterprises, it would also be responsible for the employment of the people. All public utility concerns would be run by thc State.
Such an organisation would raise the status of labour by incorporating it into the control of industry. Labour 'would become the owner, and this method would ensure the widest distribution of ownership. Both large and small enterprises would be able to exist side by side according to their proper economic functions.
State Guarantee Employment
The State would guarantee employment and there would be no fear of substituting other factors for labour ; whilst at the same time, technological inventions would be exploited. Indeed, with labour in control, we would use machines to cut down the hours of work rather than the numbers employed.
The acquisitive motive would be controlled, because although the directors would still attempt to reduce costs, rationalisation would not be carried out to the detriment of labour, as the ultimate control would lie in the bands of the workers.
I was once of the opinion that co-partnership should be used only for productive processes and co-operation for distributive trades; the basis for this being that in the former class, the employees are more important than the conSurners whilst in the latter, the consumers have the greater significance. I now think that co-partnership must be used throughout society, and this for three very good reasons.
Three Very Good Reasons
In the first place, if co-operative organisation were resorted to in the distributive trades, the workers in these branches of industry would not have control except as consumers and they might not be registered consumers at the place in which they work. Further, those people employed 'in productive processes would not only be in control of their own enterprises, but as consumers they would also control others, and this seems hardly fair.
Secondly, co-operation would not allow one-man or family businesses, whereas copartnership would. With family businesses; State loans would also be available to start the enterprise and this would act as an encoui agement. The State debentures would be redeemed by the family taking up shares; where, however, labour outside the family is employed, it must be allowed to enter ownership on co-partnership lines.
Thirdly, when consumers are in control, there is no guarantee that the employees will be treated fairly. To protect the consumers, however, advisory councils could be formed, endowed with certain but not absolute powers concerning price fixation.
Limited Liability Must Go
Finally, whatever system is instituted, the principle of limited liability should be abolished. This was introduced in the nineteenth century to enable the capital market to mobilise the dormant wealth of those who were either insufficiently adventurous to invest themselves, or who had not the time to look after their interests in the management of the firm. The shareholders' financial responsibilities were restricted to the value of their shares, even if the firm became bankrupt and had considerable debts outstanding to creditors.
The revocation of this principle would make the shareholders (under co-partnership the workers) take a more active interest in the management of the firm, because the shareholders would be responsible for the firm's debts up to their entire personal wealth. Hence, to mitigate any possible hardships caused by this policy, a Government Insurance Scheme against loss was suggested. The moral position of the law of limited liability is also rather shaky, for Clearly, if a firm contracts debts, the owners (i.e. the shareholders) are surely morally responsible for those debts being paid up in full. In connection with bankruptcy, provision should also be made for finding alternative work for the employees.
It is not suggested that in co-partnership we have found the palliative for all ills. Goodwill and Christian charity are also necessary to overcome the effects of original sin expressed in the acquisitive spirit. It will therefore be necessary to have a Government body interrelating all the functions of the various industries; it would be the regulator of society, not the controller, and this, after all, is one of the main functions of the State.