| The following article was published in the April 1946 edition of "The Atlantic Monthly" magazine: |
SMALL BUSINESS FIGHTS FOR LIFEby ROBERT E. OUTMANROBERT E. OUTMAN considers himself a typical small manufacturer. He came up the hard way and now in his forty-sixth year has risen to be Executive Vice-President of the United States Mineral Wool Company -- main office in Chicago. Manager and executive, he is on friendly terms with his men -- and on the telephone half the night trying to understand and explain changing government policies and regulations. 1Caught in the showdown battles between the big labor leaders and the giant corporations are the GI's of industry whom Washington has overlooked, the small manufacturers. To them and their employees, still friends in spite of superimposed class warfare, the national labor-management crisis is a fight waged far overhead in the headline strata of industrial relations. The crisis is not their crisis, except indirectly. They are anxious and able to start production for abundance, but with conflicts raging in the upper ranks of industry, they are confronted with a shortage of everything except customers. As unpretentious as enlisted men among the brass-hat industrialists, the small manufacturers are nevertheless the mainstays of American economy. More than 60 per cent of our national production comes from manufacturing concerns with annual gross sales under five million dollars. The huge companies with million-dollar weekly payrolls make the news, but nearly 80 per cent of our industrial labor is employed in plants which have fewer than 1000 men on the payrolls, and nearly 50 per cent in plants with fewer than 250 employees. To attain our goal of sixty million jobs, these plants must absorb the bulk of increased production. Yet the post-war expansion programs of these many thousand unpublicized industries are hamstrung by officialdom's self-created labor and reconversion problems. While the labor leaders, industrial giants, and various Federal agencies jockey for top spots in the new era of push-button prosperity, the small manufacturers cannot even get the material to make push buttons. In the three-cornered controversies, they are the only sure losers. Their labor costs rise whenever the powerful unions effect a wage boost, the cost of their raw materials goes up whenever the large corporations break through a price ceiling, and the daily changes in Federal rules multiply their clerical work and overhead costs. Practically no small industrialist has yet been able to go back to a normal forty-hour work week. With labor still scarce and with the civilian demand for consumer goods greatly exceeding available supplies, the small plants continue to work overtime. And the employees in those plants take home just as much money as during the war. Thinking only in terms of industrial giants like General Motors, however, our labor leaders, newspaper columnists, and Washington spokesmen talk in sweeping generalities about reconversion cutbacks, loss of overtime pay, curtailment of buying power, and unemployment. They make an issue of localized problems and spread unrest and dissatisfaction throughout our industrial structure. The effect of misplaced emphasis in high places on my own small plant is merely one example out of thousands. I have 250 employees engaged in the manufacture of building insulation, a material as critically needed now as during the war, when it was classified as an essential commodity. Soon after V. J. Day, in an atmosphere of shirt-sleeved familiarity, I sat down with the heads of the union local to discuss a new contract. We signed an agreement which called for no wage increases during the next twelve months, and, strange as it may seem, the men were willing to make their share of the sacrifices during the reconversion period. Naturally, the men in our plant wanted more money, and the union leaders wanted to be credited with getting it. Contract negotiations have always begun with a demand for higher wages. But on the intimate level of human relations which keynotes discussions between small manufacturers and their employees, no one in our labor-management talks was out to “get” anyone else. It was not too difficult to prove that the company could not afford to raise pay until increased production had lowered unit costs, because the key men in any small plant are close enough to the front office to know what the facts are. I showed the foremen and union representatives our income-tax returns and stockholder's reports. Like most small industries, we had a post-war expansion plan which meant more money for owners and workers, and the men in the shops expected to have a fair share of the profits when, but not before, the expansion program paid off. Shortly after our contract was signed, President Truman broadcast to the nation his famous wage-policy speech of October 30, in which he declared that industry as a whole could afford “substantial wage increases without price increases”. He stressed the “drastic cut in the take-home pay of millions of workers”, and urged employers to make up the difference because “throughout industry and in every branch of industry, profits have been and are still very good indeed.” It was obvious that he was thinking only in terms of the largest corporations, although he talked always in generalities. He devoted less than thirty seconds, out of a full thirty minutes, to summarizing some of the special reconversion problems which would mean lower volume and higher unit costs for industry, and then he added: “These problems and difficulties are particularly true in the case of small business -- which is the backbone of the American competitive spirit.” Having made his sweeping statements about industry's ability to raise wages, he acknowledged the exceptional position of the small plants, which hire more than 75 per cent of the labor. 2The next morning my men, and those in the many other plants where wage increases had not been possible, were saying, “The boss claims he can't raise our pay, but the President says he can!” Instead of lessening the discord among prominent union and industrial leaders, Truman passed the dissension down the line to the rank and file of manufacturers. Labor's desire for more money had become an officially inspired right, and the ability of the few industries at the top to absorb increased production costs had become an added burden on the majority of manufacturers. To have a large corporation such as General Motors strike-bound is a tragic thing, but the loss to the national economy is small in comparison with a production slowdown throughout the small manufacturing concerns. And that slowdown is inevitable when the small manufacturers lose their key men to higher-paying industries. We do not expect a wave of strikes, even though under certain circumstances our employees have the right to reopen wage discussions once during the contract year. The loyalty of our men is one of the small industrialists' greatest assets. Resignations and the resultant drop in output, not strikes, are our chief concern. We had our men primed to battle reconversion with the same spirit with which they won their share of the war, but we cannot expect them to work fifty hours for us when they can work forty hours somewhere else for the same amount of money. If only a handful of men are hired away from a small plant, production lags and unit costs multiply until less efficient men can be trained to fill the breach. In my own shops, for example, we can account for almost any off week by checking back and saying, “That's when we lost Al and Harry.” The small manufacturer cannot pay this year's wages out of next year's profits by increasing hourly wages before decreasing unit costs -- not if he wants to replace his obsolete machinery, expand his plant capacity, step up his promotion campaign, hire more help, and contribute generally to the “mobilization for abundance” program. The large corporations may have sufficient reserve funds to do it, but not the man who kept his plant together during the war with baling wire and a prayer. Neither his own men nor the union leaders working with small industries have demanded that he do it. Labor is not fighting us, who provide the bulk of industrial jobs. Only in Washington does the illusion prevail that industry as a whole can afford substantial wage increases. By making an issue, however, of the industrial giants' ability to absorb overtime losses through hourly rate increases, in some cases before those losses actually materialize, prominent union economists and their Washington supporters help to break what the President so graciously called the backbone of American competitive spirit -- meaning us, the GI's of industry. We are competing with our large neighbors for labor, and when they are forced by union demands or Federal suasion to pay 10, 20, or 30 per cent more than the going rate for that labor, there is no question as to who gets the best men. Either we have to match a competitor's high bid for the best labor, or we are left with dissatisfied, inexperienced employees, a rapid labor turnover, increasing inefficiency, and a higher unit cost of production. Ironically enough, the large industries have less need for top-quality manual labor in their mass-production lines than the small industries, which require highly skilled workers and low overhead costs to compete sucessfully with large-scale mechanization. President Truman has fostered the popular mis-conception that the war years were profitable throughout industry. The reverse of this was true for a vast number of small manufacturers. While the large industries were making the end-products for war, -- tanks, planes, landing craft, and ships -- upon which no price ceilings could be set, -- the small plants were producing spark plugs, gears, radio instruments, and other component parts, the selling prices of which were held as close as possible to pre-war levels. The large corporations had their profits assured, because they were exploring new fields on a cost-plus basis. The small man had no such assurance, because he was producing much the same products as before the war, at a cost of production greatly increased, and had to sell them at a price only slightly increased. Any outsider passing a lighted factory during the war probably found it difficult to believe that high profits were not being made. Who would suppose that a plant had to work day and night to maintain normal one-shift production? Yet that was the fix many of us were in. With our young, able-bodied men in the services, and many of the others hired away by the lush war industries, we were trying to attain capacity production with the rawest of un-skilled labor, and not nearly enough of it. We had to work men seventy, eighty, and sometimes ninety hours a week, which meant paying time-and-a-half and double-time wages to get much less than pre-war man-hours of work done. Although the small manufacturer was granted some relief through elevations in price ceilings, his increased cost of production wiped out any material gain. As just one instance, the price ceilings on building insulation rose approximately 10 per cent above the 1941 level, while the unit cost of production in my plant rose nearly 50 per cent. Among other factors working against the small manufacturer, the cost of his raw materials, less easily controlled than manufactured goods, rose rapidly, and his machinery grew old and inefficient before its time through excessive wear and tear in the hands of inexperienced workers. To stay in business at all, he had to cut to the bone his sales, promotion, and administrative forces. Even then, he fluctuated between profit and loss in direct proportion to the caliber of the labor obtainable in any one week. Production in our small plant slowed down to half capacity in the middle of 1943. The dire Saturday came when we knew that if we lost five more men over the week-end, we could not open our doors on Monday. All normal channels of labor closed, our chief salesman took on the hardest selling job in his life. He went down at dawn to what was left of the local skid row to try to convince the supposedly unemployables that hard work never hurt anyone. Rousing derelicts asleep in doorways and button-holing itinerants in flophouses, he used a free breakfast as his prime lure in coaxing eight reluctant prospects into a company car. The plant superintendent nearly collapsed when he caught sight of the new hands, but production was resumed once again. Not one of the eight recruits came back after one day of work, but the next day's dragnet yielded one or two semi-permanent employees. To bolster the night shifts, our salesman toured the saloons in the afternoons and brought back any candidates who could still stand erect. His offer of $8.40 a day fell flat more times than not, because the word spread around that a twelve-hour shift in a mineral wool plant was dirty, hot, hard work. There were worse things in life for stumble-bums, he discovered, than being broke. “Why, when I get home at night,” complained one indignant draftee, “I have to wash all over!” Unsteady as they might be, the irresponsibles and undesirables represented the marginal labor needed to keep the plant open, and a million dollar's worth of essential material a year depended on them. Of the first two hundred recruits cajoled into giving work a try, the majority stuck at it less than a week. But twenty down-and-outers became steady, fulltime employees. These men, rescued from discard were our real “finds,” and our pride in their rehabilitation compensated for many other heartaches. To help them avoid temptation, we established them in furnished rooms away from their former haunts and promised to pay the landladies for any unwarranted damage. One habitual drinker not only reformed: he became a champion of sobriety and explained loftily that he was compelled to change rooming houses because his first landlord drank. With our old reliable hands, our twenty new converts, and five or six prospects hauled out of bars and doorways, we would begin a typical wartime shift. We also relied heavily on a work group known as the “regular irregulars.” These were men dependable for twelve hours of hard work three or four times a week, but there was no predicting which days they would choose for a binge. Although our success at shanghaiing disinterested workers was erratic, the system had good results. By the end of 1943, production rose to 110 percent of capacity, with unit costs down 15 per cent. And some of our discoveries, including two excellent men found wasting away in a poorhouse, are still with us. Keeping a plant together with baling wire was not merely a figure of speech. When the moving belt in our collection chamber wore thin and finally broke, baling wire bridged the gap during the eight weeks required to obtain a priority and locate a new belt. Usually too much time and paper work was necessary to get priority machine parts, so when a breakdown occurred, the plant superintendent improvised repairs from ancient equipment found by salesmen and accountants in assorted junk yards. The main goal was to keep production moving, and small manufacturers had to utilize every expedient. At one point we found ourselves becoming manufacturers of blowing machines. Supposedly we were only producers of mineral wool, which the government wanted installed in as many dwellings as possible to conserve coal and oil. Installation required blowing machines, and the applicators were critically short of them. The bottleneck was broken by our plant supervisor, who hauled engines out of wrecked automobiles, used parts of an old blower as patterns for casting handmade duplicates, and fashioned a weird assortment of Rube Goldberg contraptions which did the job. 3Having survived the war years, the small manufacturers had no fear of the peace. On the contrary, they had looked forward to the cessation of hostilities as their M-Day, the start of our “mobilization for abundance” campaign. The problems of reconversion were obvious, but having demonstrated the ability of American industry to convert production at a speed which caught the Axis flat-footed, the small manufacturers wanted no part of Washington's gloomy outlook on the future. The industrialists, both large and small, were all set for V-J Day, and the government was not. A few days after the joyous announcement that Japan had surrendered, the War Manpower Commission made the dire prophecy that there would be five million workers unemployed within three months. And instead of urging employees to accept temporary pay cuts as their contribution toward the reconversion period, Washington encouraged the belief that industry could well afford to carry them through the lean months without any loss of take-home pay. The government has continued to handle the peace as though it were a depression, even though its grim picture of unemployment and loss of buying power has failed to materialize. Wrong from the start, the “emergency” planners have tried to doctor up a once healthy situation with so many panic policies that industry, the unwitting patient, is sick from too much of the wrong kinds of medicines. It is hard to believe that the nation's business was ever before the victim of quite such muddled thinking in high places. Greatly underestimating industry's capacity for quick action, the government began with the false supposition that reconversion in most plants would entail extensive retooling, a production slump, and drastic reductions in payrolls. Here the royal economists were thinking only in terms of the few large corporations, which had been making the end-products of military material, and not of the vast majority of industrial concerns, which had been producing goods as badly needed in peace as in war. While the expectation was justified that some retrenchment would be necessary in plants switching from tanks to civilian cars, there was no cause for undue alarm, because the small manufacturers, employing all except 20 per cent of the labor, were free to begin civilian production with only a minimum amount of retooling. The small manufacturer, as I have said, was prepared for peace. He had figured out how to change quickly to something that was in great demand. Confronted with an overwhelming desire for consumer goods accumulated over a four-year period of scarcity, he knew that he could find ready purchasers for as much as he could possibly turn out, provided prices were held within reason. His very existence in a mass-production economy was proof that he could act faster than his more cumbersome competitors. No one was more conscious than he that full employment and increased buying power mean a new era of prosperity for the United States; and having been handicapped throughout the war by the shortage of skilled labor, he was ready to take on more men as fast as they were released from war jobs and had returned from their long-awaited vacations. Anxious to expand, he failed to share the government's concern over impending unemployment. Basing its scare philosophy on the sudden termination of large numbers of strictly wartime jobs, the government failed to consider that there were also large numbers of strictly wartime workers. The women put aside their welding torches to keep house for their returning husbands, the youngsters went back to school, and the aged retired on their savings. Instead of widespread unemployment, labor remained as scarce as ever. Across the way from our plant, for example, there was a typical war industry, a shell-fuse factory. One week after peace was declared it had been converted to the manufacture of electric transformers, with several hundred women laid off in the process. We tried to hire those women at the same rate of pay which they had been receiving, and we did not get a single one. They were not unemployed; they had done their bit for the war and had returned to their jobs at home. According to the ministers of fear, peace meant less money in our pockets, fewer sales, and a corresponding drop in production and jobs. As soon as the government raised the specter of unemployment and loss of buying power, the opportunists in the upper brackets of organized labor sprung forward with their economic cure-all: the 52-for-40 theory. At the outset, there was no publicized talk of raising wages above wartime standards; the plan was merely to compensate workers for their loss of overtime pay. According to the pseudo-economists, the only way to maintain purchasing power in the face of continued high living costs and a threatened decrease in man-hours of work was to have industry keep take-home pay at a wartime level. The idea was not new. The NRA had been based on the same principle of artificially stimulating business through the creation of more spending money. But in 1933 there was an overabundance of consumer goods, and the nation's purchasing power was too low to make further production profitable. The year 1933 was a depression year, with more workers than work and a dearth of uninvested capital. By no stretch of imagination could late 1945 be compared with 1933. Post-war conditions went to the opposite extreme -- we had a scarcity of goods, unparalleled purchasing power, a shortage of labor, and capital going begging. Yet Washington, too frenzied to be critical, endorsed the self-interested plan of union leaders to apply depression measures to an inflationary period. 4Supposing for the moment that reconversion had resulted in unemployment and loss of buying power, would an immediate increase in wage rates have alleviated the situation? Raising the cost of labor certainly would not have made it easier for industry to take on more men. Creating more spending money would not have decreased the cost of living, when there was already a dearth of goods on the market. The first step in any case would have to be increased production. A ready supply of consumer goods would have brought the cost of living within reason, rebuilt purchasing power without false floors under wages, and required in healthy sequence further expansion of production and job opportunities. The average war worker knew that there had to be a return to normal working time and wages, and he had the right to expect that living costs also would return to normal. It was not his idea that a man should work only forty hours and be paid for fifty two -- or at any similar something-for-nothing ratio. Immediately after V-J Day the average worker was ready to knuckle down and produce the civilian goods which meant prosperity for everyone, but that was before a few men used the government's indecision as a wedge to gouge industry. Had the government turned its unemployment scare into a constructive campaign to induce labor to make a few sacrifices during the reconversion period, there would have been no labor crisis. We small manufacturers can testify that the common man was not on the rampage when peace was first declared. He was uncertain about his job, cautious in the face of Washington's grim picture of peace, and willing to help industry get started on the “mobilization for abundance” program. We small manufacturers should know, because many of us signed contracts which called for no wage increases. A strong plea for the loyalty of working people, so effectively maintained by morale-building programs during the war, would have wiped out the first signs of dissension. But the Administration could not decide whether it was confronted with inflation or deflation, hesitated, and lost control to the big union men, who were ready for peace on V-J Day. The 52-for40 campaign worked out this way in actuality. The man who during the war earned $52 for 48 hours of labor (a dollar an hour for 40 hours and time-and-one-half thereafter) was supposedly going to be cut to a standard $40 for 40 hours. The big corporations were urged to make up for the loss of overtime by raising the hourly rate to $1.30, which would mean paying $52 for 40 hours of work. But the small manufacturer, still forced by the labor shortage to work his men 48 and more hours a week, would have been trapped in the position of having to pay $67.70 for 48 man-hours of work, or substantially more than during the war. And the small manufacturer has to pay the going rate, or else. The specific demand for an extra 30 cents on the dollar in plants where cutbacks had already occurred grew rapidly into a general demand throughout industry for 16 to 20 per cent wage increases. No consideration was given the small manufacturers who stood to suffer the most. The talk centered always on the big industrialists and their wartime profits. President Truman opened the floodgates of dissatisfaction, and strikes spread to plants where formerly there had been unanimity of purpose, a common desire among employers and employees to get going on a peaceful basis. Instead of more take-home pay in the nation's pockets, as much as $12,000,000 a day was lost in wrangling. With people already paying too much for too little, the government went a step further in its thinking and permitted price increases in industries which could not otherwise afford to raise wages. Having pledged themselves to help the worker get more for his money, the Federal planners compromised their position further devaluating the purchasing power of his dollar bill. They compromised on raising higher prices to make industry agree to higher wages, but they failed to consider that many manufacturers do not benefit from charging more for their products. The prices on some consumer goods have their economic limitations, and fewer customers are no compensation for an increased cost of production. Speaking as one of the small manufacturers, I must say that we are sick and tired of Federal “assistance.” We won our share of the war despite the bureaucrats, and we will fight as hard for the peace, but industry needs a free hand, not still more helping hands. We do not want premium payments for increased production, guaranteed markets, government absorption of undue risks, priorities for equipment, and allocation of materials. Difficult as it may be for expediters to believe this, their plans invariably waste the small manufacturer's precious time. The large corporations may have the clerical staff and legal counsel necessary to fill out questionnaires in quadruplicate, but the manager of a small plant is too busy in the shops to spend long hours on front-office paper work. The small manufacturers had their fill, during the war, of Federal plans to relieve emergency situations. A Smaller War Plants Corporation was set up to render us emergency financial aid. To borrow fifty thousand dollars, it took five thousand dollars' worth of legal aid, clerical work, time, long-distance calls, and trips to Washington. And then it was five or six months before the money was actually received. The small manufacturers, whose production is most needed, would rather take their chances on the open market, where speed and ingenuity pay off, than engage in paper warfare with better-equipped opponents. When we need spare parts, we need them at once and not at the end of a five-week exchange of correspondence with Washington. We have better luck with junk yards than with priorities. |