C. L. Dickinson was the vice president for business affairs at the Institute for Humane Studies with a background in business management and academia. This essay was first published in 1966. This is the first of two installments. Copyright 1966 by C. L. Dickinson. Reprinted by permission of the Institute for Humane Studies.
American industry and its managements have been the world’s leaders in management techniques and in productive efficiency. However, there are signs that this leadership may be slipping. Most companies are experiencing Parkinsonism in a mild if not severe form. Decentralization and other techniques have neglected the consideration of individual employees and their ownership and control of the faculties for which they were employed. Government-protected restrictions imposed by organized labor seem to be pricing some U.S. industries out of world markets. The influence of vast government purchases, accompanied by more and more reams of paperwork and hours of unraveling red tape—these and other factors have had their effect on management and on industrial efficiency. Executives complain that they experience difficulty in getting managers and supervisors who will assume responsibility for making decisions. The “organization man” has become a symbol of the company politician who never makes a mistake because he always agrees with the right people “higher up.”
Down on the production floor, the worker is the “hired hand.” He looks, not to himself or to the employer for his job and the size of his pay check, but to the union. How can this dangerous trend be reversed?
The Property Idea
Property is a man’s control of his life and all else of value that he has justly acquired. Anything unjustly acquired is possession but not property.
Ownership is the recognition of property.
The ownership by a free man of his life and his talents and other productive faculties permits him to invest these properties in his job.
This concept of property in the mental, spiritual, and physical qualities of man is not new. James Madison had this to say about property in a National Gazette essay in 1792.
This term in its particular application means “that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual.” In its larger and juster meaning, it embraces every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage. In the former sense, a man’s land, or merchandize, or money is called his property. In the latter sense, a man has property in his opinions and the free communication of them. He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them. He has property very dear to him in the safety and liberty of his person. He has an equal property in the free use of his faculties and free choice of the objects on which to employ them. In a word, as a man is said to have a right to his property he may be equally said to have a property in his rights. Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties or his possessions.1
When Madison was writing his essays, it took nine out of every ten citizens of the new republic to grow food enough for themselves and one other. At that time nearly every man had to be independent to survive, and most men worked alone and for themselves.
The Inside Contract System and Individual Enterprise
The Industrial Revolution led men off the farms and guided them to factories. For nearly all of the nineteenth century, even as the factory system grew, owners and managers practiced a system of “inside contracting” in which “. . . the management of a firm provided floor space and machinery, supplied raw materials and working capital, and arranged for the sale of the finished product. The gap between raw materials and finished produce was filled . . . by contractors to whom the production was delegated.”2 Individual enterprise under the contract system allowed each person to control the use of his property in performing his job. It meant, as Madison said, that the worker had “property in the free use of his faculties and free choice of the objects on which to employ them.”
With the development of extending lines of transportation and communications, manufacturing and marketing changed from the horse-and-buggy perimeter to regional, nation-wide, and world-wide distribution. Management no longer consisted of the owners of factories and tools, raw materials, and capital. Former factory contractors became foremen and production superintendents. Business management was developing into a profession. The production employee who, as a party to the inside contract system had been an intimate part of the company production plans, now became a laborer for wages. “The factory required more planning and supervision than the smaller and simpler handicraft units. The function of work division became more important and complex. The relationship between the employer and the worker became more impersonal, and the problem of the motivation became more difficult. The worker in the evolving factories no longer felt that he was an organic part of the enterprise.”3
The situation was ripe for incubating the seeds of scientific management. Frederick W. Taylor, the American pioneer in scientific management, and many others who made important contributions to its development, including Henry L. Gantt, Morris L. Cooke, and Frank and Lillian Gilbreth, gave birth to the science of industrial engineering and the profession of management consulting.4 They developed the techniques for time and motion studies. They led the way to the formulation of the major propositions of Organization and Management Theory.
These propositions hold that administrative efficiency is increased as:
- Authority is a formal, one-way relation from organization superiors to organization subordinates;
- Supervision is close and constant;
- For practical job-relevant purposes the individual is considered a physiological organism who is socially isolated; and
- Specialization and routinization are increased.5
There is ample evidence that business generally has moved in the direction of authoritarian control of management and production by accepting the major propositions of Organization and Management Theory quoted above.
The general acceptance of these authoritarian propositions has not resulted in an increase in administrative efficiency. There has been a consistently rising trend in productivity per worker, to be sure, but this reflects for the most part the transfer of savings into better tools and other production facilities. “Many managers would agree that the effectiveness of their organizations would be at least doubled if they could discover how to tap the unrealized potential present in their human resources.”6 Parkinson’s Laws, “Work expands so as to fill the time for its completion” and “Expenditures rise to meet income,” affect all organizations.7 These “laws” seem to operate wherever humans get together in formal organizations whether in business for profit, government, or nonprofit agencies.
Business managers are concerned with the problem. It is a rare organization that does not periodically call upon the services of a management consultant to make a survey and provide management with recommendations for cutting overhead.
The usual procedure is for a team of consultants to make a thorough survey of the particular operations that appear to be less profitable or less efficient than the standard for the entire organization. Work flows are studied. Output is measured and compared with “scientifically” established standards. Eventually a report is issued and suggestions for improvements are made in the form of recommendations to top management.
The report is reviewed, usually by a committee. The members of the committee may themselves be affected, if and when the recommendations are accepted and implemented, particularly if they call for a reduction in staff. Frequently the report is “approved in principle,” the recommendations with certain modifications are accepted, and reductions in staff, it is agreed, will be made by “normal attrition” of those who retire or resign. By the time the consultant’s recommendations are acted upon and the last position is vacated, the entire staff probably has increased ten percent. This expansion is explained by the increase in business or, in the case of government, by the increase in the “demand” for services or, in the case of universities, by the increase in funds for teaching and research.
Is it possible for management to control this ever-expanding bureaucracy? Professor Parkinson seems to think not.
The consultant’s recommendations are often mysteriously brought to naught by the employees, usually by group action too subtle for management to control. The small group psychologists find that the behavior of the group affected by the changes can result in success or failure to accomplish the desired objective. Thus, recommendations of management specialists for changes in organizations or procedures are often ineffective.
The group plays an important part in shaping the behavior of subordinates from vice presidents to factory and office workers. The penalties that may be imposed by the group for failure to conform to its norms may significantly influence a subordinate’s response to organizational responsibilities. A subordinate may refuse to obey an order because he fears the penalties of the group more than penalties that may be imposed by the superior.8
On the other hand, as Robert Golembiewski points out, “The positive role of the small group in achieving organization purposes also demands attention. A high output norm, for example, would serve such a purpose. . . . A norm supporting high output is often more potent than the most stringent of attempts to coerce effort through formal techniques, for the norm is of the group’s own making; it is not imposed upon them. The difference is a profound one—the difference between being told to do and being anxious to do.”9 Is it possible for managers to create this potent incentive?
Business managers are familiar with the behavior patterns of individual employees and of small employee groups. The company Christmas party, the department picnic, the recognition of employee anniversaries, the company magazine—all these and more are primarily aimed at improving the relationships between the company and its employees. Do these activities improve productivity and company profits? Do they create the “anxious to do” climate? My own experience, covering about thirty years of management in various situations, leads me to believe that most company employee benefit programs exert negligible effects on productivity and generally become an expected part of the annual wage.
Could it be that the individual has been submerged, to be replaced by the group? Could it be, if this is so, that a re-examination of the elements of liberty may provide the clue to responsive and responsible individual and group action? Liberty, the quality or state of being free, is defined in Webster’s Third New International Dictionary as “a condition of legal non-restraint of natural powers.” It is the condition that leads to man’s greatest accomplishments.
Liberty and Property
Liberty and property are inseparable. The urge to protect and enhance that which one owns is the essence of liberty and progress.
Most of us tend to become less vigorous in safeguarding our property or attending to its improvement when we look to fortune for the promotion of our interests. Swings in the business and economic cycles seem always to find the majority reaching for the speculative handle which will take them ever upward with little effort. All too soon the cycle turns, and with the turning comes the sudden shock. All too often, it has taken a reversal in fortune to strengthen the economic structure. As William J. Palmer, Judge of the Superior Court of California (retired) puts the matter, “Cycles of higher and lower activity and their accompanying psychological cycles are not only inevitable in any sound economy, but, within limits, are beneficial. It is during periods of reduced activity that the best thinking, house cleaning, planning, and self disciplining are done in the economic structure. Such periods are pruning times; roots are strengthened and driven into new soil; and following every recession and depression the economic organism of a free society burgeons with renewed vigor and variety.”10
Those of us old enough to have worked our way through the depression years of 1929–34 have firsthand knowledge of the accuracy of Judge Palmer’s observation. Unfortunately a depression is one way to improve management efficiency only for those managements able to survive. The struggle to survive is a potent force. Expenditures considered normal, or even essential, when income is high suddenly become extravagances to be eliminated when income falls. Productivity tends to increase when wages and salaries level off or decline or, at best, fail to maintain the customary annual percentage increase. If management can act to improve efficiency under these conditions, why can’t it always do so? Why must we pay the price of depression to improve management and increase efficiency?
What universal values are there that impel men to do their utmost? To the extent management can discover these values, perhaps it can organize in ways best suited to utilize them for the benefit of employees, owners, customers and clients.
Ownership and Incentive
One of the most important of these values is ownership. An economy built on slavery cannot compete with an economy built on universal freedom. If the freedom to produce and consume, to buy and sell, to bargain and change jobs prevails, those who have an understanding of ownership as the essence of freedom will out-produce those who do not. The enterprisers will make things cheaper than those who prefer the security of the guaranteed wage, the safety of decision-making by committee action, and the symbols of bureaucratic status.
Management can increase efficiency by adopting the principles of ownership in the performance of all jobs including the subordinate ones. If ownership is an incentive to greater productivity, it seems worthwhile to explore ways to organize business in order to utilize the ownership incentive without infringing on the property rights of the organization’s investors and major risk takers.
By establishing the concept that performance of jobs requires the application of the property of the job holders, subject to appropriate conditions incorporated in the “lease” or employment agreement by the grantor, it is possible to create a climate conducive to expanding individual effort.
Two conditions are essential to the establishment of meaningful ownership: (1) a complete and accurate description of the property owned, and (2) control.
The first condition is met for real estate by describing metes and bounds and such improvements as are contained therein; for other physical possessions it is met by whatever distinguishing characteristics are apparent; and for the performance of jobs it is met by defining the objectives, the relationships with others, and the duties and responsibilities of each individual employee.
The second and most important condition, control, is the right to “possess and use to the exclusion of others.”* Restrictions, that reduce this control, obviously reduce the extent of the property right, by reducing the freedom to possess and use exclusively. Control is reduced by mortgage restrictions or government-imposed restrictions on real estate. Conditional sales restrictions on anything bought on credit, and management, government, or organized employee restrictions on jobs or job performance—all reduce or eliminate part or all of the control that is the essence of ownership.
The actions of labor leaders publicly defying court orders and the property rights of union and non-union workers, as well as others, establish these labor leaders as the controllers of possessions† for which they have no just or moral right. In the Spring of 1966 the New York City bus and train drivers and other employees obviously did not own and control their “faculties and the free choice of the objects on which to employ them,” or even their “opinions and the free communication of them.” This is one example of many that have conditioned a nation of free men to relinquish the control of their faculties, their jobs, and their other properties to union leaders, to the government leaders, and yes, in too many instances, to the business leaders.
There are now more than 70 million Americans who work for wages and salaries. Most of them are employed by private or corporate businesses. Is it possible for managers to find ways to overcome the slave philosophy that has led so many managers and employees to look to government or the union or to the patronage of the company for their security?
Liberty, the condition of legal non-restraint of natural powers, is essential. Work can be organized to utilize the great power of liberty and property for effective business administration and maximum individual productivity.
Management—Agent of the Owners
Management’s chief function is the organization of capital, physical energy, and brain power in ways to obtain the best results with the least expenditure. Management‡ is the agent of the owners. The owners delegate rights to control their property to the board of directors which establishes the general policies for the development and operation of the owners’ property—capital—in accordance with the terms of the grant under their corporate charter and by-laws. In effect, the owners have granted, revocably, property rights to a group they elect to manage their property.
The board of directors employs the top management people, in many cases with a contract which provides a legally enforceable property right in the management positions. Administrative management divides the work into manageable pieces and forms the company organization structure.
The typical organization chart is a map of the functions that steer the course to the organization’s objectives. Tracing the delegation on a chart is as easy as reading any map. Just as maps seldom describe the cities, villages, and points of interest, organization charts seldom describe the duties and responsibilities of the jobs placed in an orderly array of squares and connecting lines. The application of the concept of combining the property of owners with the mental and physical faculties of managers and production workers makes it possible to establish an owner-tenant relationship. This is the necessary first step in assigning each tenant employee his lease on part of the owners’ property. The next step is a word description of the lease (the employment contract or agreement). Here it is important to visualize the business operation, not only as bricks and mortar, machines, capital, and people, but more importantly as integrated functions.
The owners’ capital is as surely invested in these functions as in the bank account and other tangible assets. The owners delegate the responsibility and commensurate authority to the directors, who re-delegate to one or more administrative officers “. . . for the effective and profitable operation and growth of the corporation; for the general direction of all business, operations or other affairs of the corporation as a whole; and for advising and making recommendations to the Board of Directors with respect to these activities.”11 The owners also authorize these officers to delegate (sub-lease) portions of their responsibilities with proportionate authority for their fulfillment but they may not delegate or diminish their own accountability for results. These delegations of responsibilities and authority may be delineated in job descriptions.
Tenants or Hired Hands
If these descriptions also include monetary arrangements, they become similar to other forms of owner-tenant lease arrangements. Many very successful lease arrangements provide for a mutually agreeable distribution of the proceeds, resulting from the combining of owner and tenant property contributions. A farm lease may include a division of production in lieu of cash rent in payment for the owner’s and tenant’s contributions to the farm operation. All leases result from voluntary agreements between willing owners and willing renters, when each party to the contract is satisfied that his own interests are served best.
The typical lease calls for payments by the tenant to the owner. The owner-employee agreement calls for payments by the owner to the tenant employee. Yet another arrangement is found in a broiler-growing contract between the farmer (lessor) and the feed company (lessee). These different methods of distributing income from production do not alter the similar contractual relationships that exist between employer and employee, farmer and tenant, or broiler grower and feed company. The employee combines his property with the property controlled by his employer, as does the tenant with the farmer and the broiler grower with the feed company.
The history of industrialization or automation, or whatever we call the transition wrought by the substitution of mechanical energy for physical energy, is replete with examples of organized efforts of men to find security of job and income tenure. The owner-capitalist-employer is often pictured as being on one side of the table fighting to preserve and enhance his capital at the expense of the helpless workers arrayed against him. Of course, owners should protect and enhance their capital, but in the absence of coercion this cannot be at the expense of the workers. Organized “bargaining” for wages, or, in the case of agricultural producers, for prices, today affects all wages and nearly all agricultural prices. Whether we should distort word meaning by referring to government-enforced prices as “bargaining” is of little concern here. What is important is whether individual employees and farmers are better or worse served, and whether owners of capital and workers are deprived of their property by such organized force.
F. A. Harper finds no evidence that collective force is any more effective in setting general wage levels than is the operation of a competitive market.12 W. H. Hutt emphasizes the downward movement in the application of resources when restrictions prevent competition from establishing the price level in a market economy.13
The total value for combined capital, labor, management, and other resources is determined by consumers. Competition in a free market will establish not only the size of the pie, but also the size of the pieces for consumers, owners, managers, and production workers. Collective bargaining for wages always tends to equalize the rates regardless of the differences in productivity of individual workers in each group for which the rate is set.
The application of the property concept to jobs at all levels will change the way that the production segment of the consumer’s dollar is divided. By stimulating greater efficiency it will increase the size of the pie and also increase the amount that the consumer’s dollar will buy. The most productive employees will receive the greatest rewards.
Man has property rights in his skills, experience, and character that he should be permitted freely to use within the terms of his contract and without restricting the rights of others.
- Writings of James Madison (New York: G. P. Putnam and Sons, 1906), Vol. VI, pp. 101–03.
- John Buttrick, “The Inside Contract System,” The Journal of Economic History (Summer, 1952), p. 205.
- Henry Albers, Principles of Organization and Management (New York: John Wiley and Sons, 1965), pp. 14–15.
- Albers, pp. 27–32.
- Robert S. Golembiewski, Behavior and Organization (Chicago: Rand McNally & Company, 1962), p. 64.
- Douglas McGregor, The Human Side of Enterprise (New York: McGraw-Hill Book Company, Inc., 1960), p. 4.
- C. Northcote Parkinson, Parkinson’s Law (London: John Murray, 1957), p. 9, and The Law and the Prophets (London: John Murray, 1960), p. 9.
- Albers, p. 540.
- Golembiewski, p. 97.
- William J. Palmer, “Some Lawyers’ Views on the Issues of Our Time,” American Bar Association Journal (Nov.–Dec., 1954).
- C. L. Bennet, Defining the Manager’s Job (New York: American Management Association, 1958), p. 143.
- F. A. Harper, Why Wages Rise (Irvington-on-Hudson, New York: Foundation for Economic Education, 1957).
- W. H. Hutt, Keynesianism, Retrospect and Prospect (Chicago: Henry Regnery Company, 1963), Chap. IV.