An Employer's View of the Labor Question

by Andrew Carnegie
Reviewed date: 2006 Oct 1
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A strike or lockout is, in itself, a ridiculous affair. Whether a failure or a success, it gives no direct proof of its justice or injustice. In this it resembles war between two nations. It is simply a question of strength and endurance between the contestants. The gage of battle, or the duel, is not more senseless, as a means of establishing what is just and fair, than an industrial strike or lockout. It would be folly to conclude that we have reached any permanent adjustment between capital and labor until strikes and lockouts are as much things of the past as the gage of battle or the duel have become in the most advanced communities.

A series of high-profile strikes and lockouts in the 1870s and 1880s prompted Andrew Carnegie to offer an essay that analyzes the relationship between labor and employers. Carnegie's goal is to find a way to avoid strikes and lockouts, which are disruptive and ultimately harmful to all involved.

One solution is to make all employees part-owners of the company. This does not work, because (according to Carnegie) employees are generally inept at running a company. It takes a rare genius to build a successful company, and it is counter-intuitive to human nature to ask these geniuses to voluntarily give the ownership of their company away to the employees.

A better solution is a plan that rewards employees based on the performance of the company, so that they have an incentive to do what is best for the company. Therefore: "Wages should be based upon a sliding scale, in proportion to the net prices received for product month by month." When employees have a vested interest in the success of the company, they will be less likely to demand increased wages when the company can ill afford to pay more.

In turn, the owners must agree to run the company themselves, instead of turning control over to "salaried officers" and professional managers who care for nothing except "to present a satisfactory balance-sheet at the end of the year, that they may therefore be secure in their positions." Owners care about the long-term survival of the company, and thus have an interest in maintaining a satisfied workforce. Unlike salaried managers who view the workforce as numbers on the accounting reports, owners will stay in tune with their employees needs. Carnegie gives an example of a coal company, whose owners discovered the employees had to buy their coal from resellers at exorbitant rates. The company let employees buy coal at the wholesale rate, saving them a significant amount of money on their heating bills. Cost to the company for this benefit: zero.

So Carnegie's solution looks like this:

  • Employees are paid on a sliding scale in proportion to the success of the company
  • Owners stay in charge rather than turning the company over to paid managers

But there will still be disputes, so Carnegie suggests that employees must form unions, which will negotiate with the company. The negotiation will usually resolve any conflicts. ("My experience has been that trades-unions, upon the whole, are beneficial both to labor and to capital.") When negotiation fails to produce a solution, Carnegie envisions a system of arbitration. ("There is no excuse for a strike or a lockout until arbitration of differences has been offered by one party and refused by the other.") Arbiters will be retired businessmen who have an intimate understanding of the industry. Their judgement will be final. Strikes and lockouts will thus be avoided.

I'm not convinced Carnegie's concept of arbitration would work. The main problem is that if the arbiters are retired businessmen, they will naturally be biased toward the owners and against labor. (Carnegie does suggest that retired trade union presidents could also be arbiters.) However, Carnegie is right when he says that a well-informed workforce should work for the success of the company, even if that means some sacrifices. We see that happening in the United States today: pilots' unions and flight attendants' unions are giving in to airline demands because they realize the future of the airline is at stake. They understand that if the airline goes bankrupt and out of business, everybody loses, so they are willing to take a reduction of salary and benefits.

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