Chapter 9 - Why not always have Good Business
The employer has to live by the year. The workman has to live by the year. But both of them, as a rule, work by the week. They get an order or a job when they can and at the price they can. During what is called a prosperous time, orders and jobs are plentiful. During a "dull" season they are scarce. Business is always either feasting or fasting and is always either "good" or "bad."
Although there is never a time when everyone has too much of this world's goods--when everyone is too comfortable or too happy--there come periods when we have the astounding spectacle of a world hungry for goods and an industrial machine hungry for work and the two--the demand and the means of satisfying it--held apart by a money barrier. Both manufacturing and employment are in-and-out affairs. Instead of a steady progression we go ahead by fits and starts--now going too fast, now stopping altogether. When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction. We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction--that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction--it is either bad manufacturing or bad financing. Is business good or bad according to the dictates of fate? Must we accept the conditions as inevitable? Business is good or bad as we make it so. The only reason for growing crops, for mining, or for manufacturing, is that people may eat, keep warm, have clothing to wear, and articles to use. There is no other possible reason, yet that reason is forced into the background and instead we have operations carried on, not to the end of service, but to the end of making money--and this because we have evolved a system of money that instead of being a convenient medium of exchange, is at times a barrier to exchange. Of this more later.
We suffer frequent periods of so-called bad luck only because we manage so badly. If we had a vast crop failure, I can imagine the country going hungry, but I cannot conceive how it is that we tolerate hunger and poverty, when they grow solely out of bad management, and especially out of the bad management that is implicit in an unreasoned financial structure. Of course the war upset affairs in this country. It upset the whole world. There would have been no war had management been better. But the war alone is not to blame. The war showed up a great number of the defects of the financial system, but more than anything else it showed how insecure is business supported only by a money foundation. I do not know whether bad business is the result of bad financial methods or whether the wrong motive in business created bad financial methods, but I do know that, while it would be wholly undesirable to try to overturn the present financial system, it is wholly desirable to reshape business on the basis of service. Then a better financial system will have to come. The present system will drop out because it will have no reason for being. The process will have to be a gradual one.
The start toward the stabilization of his own affairs may be made by any one. One cannot achieve perfect results acting alone, but as the example begins to sink in there will be followers, and thus in the course of time we can hope to put inflated business and its fellow, depressed business, into a class with small-pox--that is, into the class of preventable diseases. It is perfectly possible, with the reorganization of business and finance that is bound to come about, to take the ill effect of seasons, if not the seasons, out of industry, and also the periodic depressions. Farming is already in process of reorganization. When industry and farming are fully reorganized they will be complementary; they belong together, not apart. As an indication, take our valve plant. We established it eighteen miles out in the country so that the workers could also be farmers. By the use of machinery farming need not consume more than a fraction of the time it now consumes; the time nature requires to produce is much larger than that required for the human contribution of seeding, cultivating, and harvesting; in many industries where the parts are not bulky it does not make much difference where they are made. By the aid of water power they can well be made out in farming country. Thus we can, to a much larger degree than is commonly known, have farmer-industrialists who both farm and work under the most scientific and healthful conditions. That arrangement will care for some seasonal industries; others can arrange a succession of products according to the seasons and the equipment, and still others can, with more careful management, iron out their seasons. A complete study of any specific problem will show the way.
The periodic depressions are more serious because they seem so vast as to be uncontrollable. Until the whole reorganization is brought about, they cannot be wholly controlled, but each man in business can easily do something for himself and while benefiting his own organization in a very material way, also help others. The Ford production has not reflected good times or bad times; it has kept right on regardless of conditions excepting from 1917 to 1919, when the factory was turned over to war work. The year 1912-1913 was supposed to be a dull one; although now some call it "normal"; we all but doubled our sales; 1913-1914 was dull; we increased our sales by more than a third. The year 1920-1921 is supposed to have been one of the most depressed in history; we sold a million and a quarter cars, or about five times as many as in 1913-1914--the "normal year." There is no particular secret in it. It is, as is everything else in our business, the inevitable result of the application of a principle which can be applied to any business.
We now have a minimum wage of six dollars a day paid without reservation. The people are sufficiently used to high wages to make supervision unnecessary. The minimum wage is paid just as soon as a worker has qualified in his production--which is a matter that depends upon his own desire to work. We have put our estimate of profits into the wage and are now paying higher wages than during the boom times after the war. But we are, as always, paying them on the basis of work. And that the men do work is evidenced by the fact that although six dollars a day is the minimum wage, about 60 per cent. of the workers receive above the minimum. The six dollars is not a flat but a minimum wage.
Consider first the fundamentals of prosperity. Progress is not made by pulling off a series of stunts. Each step has to be regulated. A man cannot expect to progress without thinking. Take prosperity. A truly prosperous time is when the largest number of people are getting all they can legitimately eat and wear, and are in every sense of the word comfortable. It is the degree of the comfort of the people at large--not the size of the manufacturer's bank balance--that evidences prosperity. The function of the manufacturer is to contribute to this comfort. He is an instrument of society and he can serve society only as he manages his enterprises so as to turn over to the public an increasingly better product at an ever-decreasing price, and at the same time to pay to all those who have a hand in his business an ever-increasing wage, based upon the work they do. In this way and in this way alone can a manufacturer or any one in business justify his existence.
We are not much concerned with the statistics and the theories of the economists on the recurring cycles of prosperity and depression. They call the periods when prices are high "prosperous." A really prosperous period is not to be judged on the prices that manufacturers are quoting for articles.
We are not concerned with combinations of words. If the prices of goods are above the incomes of the people, then get the prices down to the incomes. Ordinarily, business is conceived as starting with a manufacturing process and ending with a consumer. If that consumer does not want to buy what the manufacturer has to sell him and has not the money to buy it, then the manufacturer blames the consumer and says that business is bad, and thus, hitching the cart before the horse, he goes on his way lamenting. Isn't that nonsense?
Does the manufacturer exist for the consumer or does the consumer exist for the manufacturer? If the consumer will not--says he cannot--buy what the manufacturer has to offer, is that the fault of the manufacturer or the consumer? Or is nobody at fault? If nobody is at fault then the manufacturer must go out of business.
But what business ever started with the manufacturer and ended with the consumer? Where does the money to make the wheels go round come from? From the consumer, of course. And success in manufacture is based solely upon an ability to serve that consumer to his liking. He may be served by quality or he may be served by price. He is best served by the highest quality at the lowest price, and any man who can give to the consumer the highest quality at the lowest price is bound to be a leader in business, whatever the kind of an article he makes. There is no getting away from this.
Then why flounder around waiting for good business? Get the costs down by better management. Get the prices down to the buying power.
Cutting wages is the easiest and most slovenly way to handle the situation, not to speak of its being an inhuman way. It is, in effect, throwing upon labour the incompetency of the managers of the business. If we only knew it, every depression is a challenge to every manufacturer to put more brains into his business--to overcome by management what other people try to overcome by wage reduction. To tamper with wages before all else is changed, is to evade the real issue. And if the real issue is tackled first, no reduction of wages may be necessary. That has been my experience. The immediate practical point is that, in the process of adjustment, someone will have to take a loss. And who can take a loss except those who have something which they can afford to lose? But the expression, "take a loss," is rather misleading. Really no loss is taken at all. It is only a giving up of a certain part of the past profits in order to gain more in the future. I was talking not long since with a hardware merchant in a small town. He said:
"I expect to take a loss of $10,000 on my stock. But of course, you know, it isn't really like losing that much. We hardware men have had pretty good times. Most of my stock was bought at high prices, but I have already sold several stocks and had the benefit of them. Besides, the ten thousand dollars which I say I will lose are not the same kind of dollars that I used to have. They are, in a way, speculative dollars. They are not the good dollars that bought 100 cents' worth. So, though my loss may sound big, it is not big. And at the same time I am making it possible for the people in my town to go on building their houses without being discouraged by the size of the hardware item."
He is a wise merchant. He would rather take less profit and keep business moving than keep his stock at high prices and bar the progress of his community. A man like that is an asset to a town. He has a clear head. He is better able to swing the adjustment through his inventory than through cutting down the wages of his delivery men--through cutting down their ability to buy.
He did not sit around holding on to his prices and waiting for something to turn up. He realized what seems to have been quite generally forgotten--that it is part of proprietorship every now and again to lose money. We had to take our loss.
Our sales eventually fell off as all other sales fell off. We had a large inventory and, taking the materials and parts in that inventory at their cost price, we could not turn out a car at a price lower than we were asking, but that was a price which on the turn of business was higher than people could or wanted to pay. We closed down to get our bearings. We were faced with making a cut of $17,000,000 in the inventory or taking a much larger loss than that by not doing business. So there was no choice at all.
That is always the choice that a man in business has. He can take the direct loss on his books and go ahead and do business or he can stop doing business and take the loss of idleness. The loss of not doing business is commonly a loss greater than the actual money involved, for during the period of idleness fear will consume initiative and, if the shutdown is long enough, there will be no energy left over to start up with again.
There is no use waiting around for business to improve. If a manufacturer wants to perform his function, he must get his price down to what people will pay. There is always, no matter what the condition, a price that people can and will pay for a necessity, and always, if the will is there, that price can be met.
It cannot be met by lowering quality or by shortsighted economy, which results only in a dissatisfied working force. It cannot be met by fussing or buzzing around. It can be met only by increasing the efficiency of production and, viewed in this fashion, each business depression, so-called, ought to be regarded as a challenge to the brains of the business community. Concentrating on prices instead of on service is a sure indication of the kind of business man who can give no justification for his existence as a proprietor.
This is only another way of saying that sales should be made on the natural basis of real value, which is the cost of transmuting human energy into articles of trade and commerce. But that simple formula is not considered business-like. It is not complex enough. We have "business" which takes the most honest of all human activities and makes them subject to the speculative shrewdness of men who can produce false shortages of food and other commodities, and thus excite in society anxiety of demand. We have false stimulation and then false numbness.
Economic justice is being constantly and quite often innocently violated. You may say that it is the economic condition which makes mankind what it is; or you may say that it is mankind that makes the economic condition what it is. You will find many claiming that it is the economic system which makes men what they are. They blame our industrial system for all the faults which we behold in mankind generally. And you will find other men who say that man creates his own conditions; that if the economic, industrial, or social system is bad, it is but a reflection of what man himself is. What is wrong in our industrial system is a reflection of what is wrong in man himself. Manufacturers hesitate to admit that the mistakes of the present industrial methods are, in part at least, their own mistakes, systematized and extended. But take the question outside of a man's immediate concerns, and he sees the point readily enough.
No doubt, with a less faulty human nature a less faulty social system would have grown up. Or, if human nature were worse than it is, a worse system would have grown up--though probably a worse system would not have lasted as long as the present one has. But few will claim that mankind deliberately set out to create a faulty social system. Granting without reserve that all faults of the social system are in man himself, it does not follow that he deliberately organized his imperfections and established them. We shall have to charge a great deal up to ignorance. We shall have to charge a great deal up to innocence.
Take the beginnings of our present industrial system. There was no indication of how it would grow. Every new advance was hailed with joy. No one ever thought of "capital" and "labour" as hostile interests. No one ever dreamed that the very fact of success would bring insidious dangers with it. And yet with growth every imperfection latent in the system came out. A man's business grew to such proportions that he had to have more helpers than he knew by their first names; but that fact was not regretted; it was rather hailed with joy. And yet it has since led to an impersonal system wherein the workman has become something less than a person--a mere part of the system. No one believes, of course, that this dehumanizing process was deliberately invented. It just grew. It was latent in the whole early system, but no one saw it and no one could foresee it. Only prodigious and unheard-of development could bring it to light.
Take the industrial idea; what is it? The true industrial idea is not to make money. The industrial idea is to express a serviceable idea, to duplicate a useful idea, by as many thousands as there are people who need it.
To produce, produce; to get a system that will reduce production to a fine art; to put production on such a basis as will provide means for expansion and the building of still more shops, the production of still more thousands of useful things--that is the real industrial idea. The negation of the industrial idea is the effort to make a profit out of speculation instead of out of work. There are short-sighted men who cannot see that business is bigger than any one man's interests. Business is a process of give and take, live and let live. It is cooperation among many forces and interests. Whenever you find a man who believes that business is a river whose beneficial flow ought to stop as soon as it reaches him you find a man who thinks he can keep business alive by stopping its circulation. He would produce wealth by this stopping of the production of wealth.
The principles of service cannot fail to cure bad business. Which leads us into the practical application of the principles of service and finance.