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Inefficient Efficiency

ISSUE:  Summer 1938

Akentucky mountaineer spat over the fence and remarked: “Ford ruined us.” Ford, the shining flight of American efficiency, before whose name even the hairy Bolshevik has bowed in admiration. The words of an unlettered mountaineer will bear thinking over, for there is often a peculiar wisdom in a mind that has not known statistics or the deceptive lure of newspaper headlines. We Americans have had a childlike pride in our efficiency, but of late, under the heavy blows of circumstance, a few simple minds are beginning to wonder what efficiency is for. Certainly we are not efficient at the job of making ourselves prosperous and happy.

American scientists and engineers have done a noble job of labor saving. Each in his own line, the inventors, the research men, the personnel managers, the factory superintendents, have marched ahead, overcoming one difficulty after another, building patiently and successfully the methods for making more goods with less work. They have done their work; it is not their fault that their work is washed away by economic tides that rise from sources beyond their knowledge.

Somewhere in the national picture there should be an understanding of the overhead efficiency or inefficiency of the whole system in which the engineers build their machines. Someone besides a simple mountaineer needs to observe that while industries improve their methods, industry as a whole flourishes only for a few years and then withers away, leaving the fine new machines idle and the personnel management with no one to manage. Why should Americans who are thrifty and have saved up a little money so often find themselves destitute? Why should factories stand unused? Why should a great oil field have twenty times as many expensive wells as are necessary for getting out the oil? Why should ten million workers go on for years without producing any valuable thing whatever?

The United States as a producing organization is about as efficient as a factory that has half its machines broken down and half its workers playing pinochle. How does it happen that a poor farmer, whose father made a bare living with a mule, can buy a tractor from Mr. Ford and raise his efficiency to the point where the sheriff takes the farm? There is an island on the Maine coast that supported a fine stone house in the old primitive days when lobster fishermen tended their traps in a dory, standing up and rowing patiently from one trap to the next. But now, in an age of motor boats and ten traps to a buoy, the house is falling to ruin, the farm has grown up to weeds, and the fisherman grows poorer year by year. It doesn’t make sense.

At the World Power Conference in Washington in 1936, the American representatives of the power companies recounted with well-justified pride how they are saving coal in the making of electricity. Before the War it took seven pounds of coal to make a kilowatt-hour of current. Now it is being done in the best plants with less than one pound. They stated with considerable truth that in this spectacular improvement of generating machinery they had made a notable contribution to the conservation of natural resources. But when the president of the Pittsburgh Coal Company testified before the Senate Committee on Unemployment and Relief in January, 1938, he said that the growing efficiency in the use of coal was one cause of the collapse of the mining industry. Mines are operated only a day or two a week, leaving men and machinery idle the rest of the time. The only way to reduce this waste seems to be to consolidate the ownership, close down the least efficient mines, and put the men on relief. But when the mines are closed down, they cave in after a while and millions of tons of coal are put beyond human reach. Efficiency in the use of coal has helped to waste labor and coal at the mines.

All these contradictions and inconsistencies are merely illustrations of the fact that in our loose-jointed economic system a saving in one place often creates a loss somewhere else. In itself this fact is not surprising or even particularly disturbing. Ours is not a planned economy, and there is no General Economic Staff to be saddled with the blame for minor maladjustments. The real trouble is that the maladjustments are not minor. They lead to the general breakdown of the whole system, with an over-all inefficiency that sometimes involves an admitted loss of half the productive capacity of the nation, and concealed losses that may reach to half the remainder. That is not a small matter, but what is to be done about it? This country is not so impressed with the success of the Russian experiment as to want a planned economy of the Communist type. But we surely need to find out what is wrong with our efficiency and do something to reduce our losses.

As an engineer, I am convinced that high efficiency in each factory and each operation is desirable in itself. The overhead losses are not caused by improved technology but by our failure to fit technology into the picture. We cannot obtain our highest total production by refusing to use the best methods and the best workers. Nor, on the other hand, can we let the best machines and workers do all the work and support millions of others in idleness. The solution must be to use the best for all it is worth and then to use the remaining productive resources and labor for all they are worth.

There must be serious and deep-seated reasons for the inability of American business to produce—reasons that go beyond any local fault or mismanagement of business itself. The Hoover Commission, immediately after the War, accused business management of gross inefficiency and intolerable waste, but much of the technical incompetence of 1920 has since been remedied. On the other hand, improvements in methods of controlling prices and production have led to national waste on an increasing scale. Large-scale business is better able than in the past to restrict production when profits disappear, and therefore avoid going bankrupt. But bankruptcy, in the old-fashioned way, used to clear the ground for recovery and prosperity. The classical system of capitalism was innocent of industrial birth-control, and had no effective way of killing its little pigs to hold up the price. It had to cut prices and thereby clear itself of inefficient concerns and capital deadwood. In the present century, however, business has learned to protect itself more effectively against a collapse of prices. The young harvesters and steel billets, strangled in the General Manager’s office, do not squeal like those pigs of sorrowful memory, but the effect is the same. Industry has learned to create scarcity, which in the national sense means over-all inefficiency.

Following the lead of business and moved by the same natural motives, labor unions have learned to lay fewer bricks, and to lobby against railroad consolidation, so as to protect wage rates and jobs at the expense of production. The unions are no more to be blamed than the business men; they are driven by the pains of free competition to seek protection in organized restraint of trade. The action is natural, but it leads to scarcity and national poverty.

The organization of industry and labor left the farmers out on a limb. They were forced to sell in a market that had no regard for their cost of production, and to buy in a market that made no allowance for their buying power. Farmers were forced to adopt the principle of scarcity, and to co-operate under the A. A. A. to prevent production in an effort to protect prices. All that business men have to say at the Rotary Club about the absurdity of labor-union rules and of plowing cotton under is true so far as it goes. It is also true of well-organized industry, and industry started it.

The present picture is not encouraging. Industry, labor, and agriculture are already organized, not completely, but enough to indicate the direction of progress. Each is getting ready to do its part to prevent production, in a mad race to grab a larger share of a shrinking total income. If this goes on, like three snakes swallowing one another tail first, these three organized powers will eat one another up and the capitalist system of free enterprise will have committed suicide.

Looking back over history it is hard to see how this unhappy development could have been prevented. The antitrust laws were thrown in the way, but the pressure of events overrode the feeble powers of the law. When J. P. Morgan formed the United States Steel Corporation at the beginning of this century, it was clear that the legal dike was broken. The holding company spelled the death of old-fashioned capitalism. We are now seeing only the working out of that hardening of the arteries of trade, of which the elder Morgan was not the cause but one of the unconscious agents.

No person or set of persons can be blamed for the growing organization of scarcity. The elder Morgan devoted his life to saving business from the pains and losses of competition, not knowing that in breaking down the law of supply and demand he was helping to bring his own world to an end. If he had never lived, other leaders of finance would have done much the same work. The causes of this development were in the business and financial systems, but the cure could not come except from outside. The power to overcome these forces of paralysis lies only in national sovereignty, and that power is slow-growing.

The most probable result of trusts, holding companies, concentrations of capital funds, labor unions, and crop control programs, in a country with weak democratic government, is of course a Fascist or Communist revolution. The concentration of power to prevent production must lead to some kind of radical change. One of the contending powers will seize the government, or a demagogue rising from among the people, as in Germany and Italy, will seize both political and economic power. In our country, however, there is sure to be a strong democratic resistance to any simple and easy solution that requires the sacrifice of liberty. So long as the form of democracy remains, there is a chance to make capitalism work in spite of its hardened arteries.

In order to understand what we need to do, we shall have to go down to the fundamentals and take a new look at the relative value of different kinds of efficiency.

Underlying our complicated system of industry and trade is still the ancient and simple agricultural cycle of plant and animal life, respectfully spoken of, even today, as the grass roots. Although the simple farm and village community life has a low mechanical efficiency, long hours of labor, and small or moderate returns, it has one healthy and essential quality that we need to cultivate now. It is efficient as a social organism; it does not waste either material or human resources on any such scale as we find in modern business.

In a self-contained farming community, not vitally concerned with cash crops and commerce, the physical materials of the soil go around in a closed circle. The plants take minerals out of the soil. Human beings and their animal stock eat the plants and build some of the minerals into their own bodies. The materials are not concentrated into any small area, but are in the long run given back to the soil in much the same scattered condition as they were at the beginning. The material cycle is complete and can go on for thousands of years.

The human cycle also is a closed one. Children are born and brought up in a familiar world to which their minds are fitted by ancestry and training. They grow to maturity, hand along their habits and customs to their own children, and die, having produced as much as they ate and leaving the world no worse than they found it, perhaps even better for a new stone fence or a row of apple trees. We must remember that this idealized picture of peaceful country life is far more ancient and more deeply embedded in our racial tradition than the pioneer habit of the past three centuries or than the superficial excitement of the age of jazz and swing. Although we cannot go back to that mythical golden age, the values that are enshrined in that legend are still potent in our hearts, and they can supply a standard for measuring the effects of new plans and proposals.

When the stream of trade breaks into the closed circle of rural life, there is a rise in mechanical efficiency and a loss in the efficiency of balance. Machine-made clothing and packaged food are cheaper than the homemade articles, and the trader soon runs the local shoemaker and the local housewife out of their ancestral jobs. The raw produce of the farms is sold to the outside world for money to buy cheap goods from outside, and there is a profit for both the farmer and the trader in the exchange. The standard of living goes up.

The industrial centers flourish; they draw the workers away from the rural village. The shoemaker and the miller disappear from the village; instead, their sons are working in shoe factory and flour mill far away in the city. Everyone seems to be better off because the power to produce is greatly increased by mass production.

But the material and human circles are broken. The minerals of the land are carried to distant places. The young people go away to live in strange towns where there is a market for their hands but none for the intangible values of their intimate adjustment to the life of their home land. Here is where the subtle unseen loss of values begins, the birthright is sold for a mess of pottage, the inherited balance of nature is broken down. If we are to live without the age-old balance of nature, we are forced to find or create a new balance of our own.

The realization of our disastrous venture into the magic world of technology and commerce has come only recently, because for centuries the scale of action had been small and the mass of solid peasant life too large to be overthrown. But now the vast and growing destruction of material resources, and the confusion and nervous breakdown of human beings, warn us to look for a new adjustment. No clear-cut guaranteed plan for salvation can be expected at this early stage, but a number of likely avenues of approach are visible and seem to be worth exploring.

One principle of national efficiency seems to be reasonably clear: that if the second- and third-rate workers are excluded entirely from production, their modest contribution to the commonwealth is totally lost. Here the common idea of efficiency runs head-on into the idea of national efficiency. Ten first-class workers with modern equipment may have more productive power than a thousand ignorant and sickly unemployables, but the clumsiness and laziness of incompetents, however irritating to normal people, is not a good reason for refusing to find work for them. In the old-fashioned farming community even the half-wit was given odd jobs to do and at least was not a total loss—and he was not so likely to turn into a dangerous criminal as he is in the city. Our national community, in which money is the life blood of economic activity, is only slowly learning that it is cheaper to pay good money to employ the lame, the halt, and the blind, the moron and the drug addict, the inexperienced youth and the slow-moving older man, than to cast them out of the shining temple of technology to live as parasites on the charity of the successful few. The rewards and the honors will always go to the swift and the strong—not even Russia dares to try equality of reward—but there must be enough consolation prizes to keep the laggards doing their lesser part. Otherwise the total production of wealth is disastrously cut down, and strong and weak are lost together.

Work relief is a beginning in the salvage of the unfortunate and the second-rate workers. What if some of the W. P. A. workers lean on their shovels? That shows merely that an organization has been set up to extract some little useful work even out of men who are too weak or too lazy to do a full day’s hard labor. By the way, try spading your garden for eight hours under the eye of a candid camera. Because the vast majority of W. P. A. workers are entirely normal, the actual total work done is well over ninety per cent of the corresponding production on a private job. The principle to keep in mind at this point, however, is that to find some use for second-rate labor is a saving, not a waste.

This principle of salvage is beginning to find general acceptance in some of its simpler forms. Work relief is widely accepted as better than direct relief, even though the details of the work-relief program are bitterly criticized. In manufacturing and mining, the principle of utilizing by-products and low-grade ores even at a smaller profit is well established, but their use at a definite loss cannot be expected or imposed on private business unless the public interest is seriously involved. The extension of the principle of salvage to people who can be made useful only at a money loss is naturally more difficult.

Most of our over-all losses are not so simple as the waste of rich gases from old-style beehive coke ovens, or the inability of private business to find a use for inefficient or sickly workers in the industrial towns. A large part of the loss comes from mere centralization of industry, which leaves the surplus agricultural population out of reach of useful employment. Decentralization has been much talked about, and some industries have moved into the country in search of cheap labor, but the usual trend has been away from the open country as well as from the congested cities, into the ring of industrial towns around the metropolitan centers. Here, in the presence of ample supplies of labor and capital, with easy transportation of materials from factory to factory, and with a large class of engineering and managerial talent to draw upon, production is so efficient that a little village factory cannot compete even in its own neighborhood. The improvement of railway, highway, and water transport makes matters worse by letting the cheap goods from the big factories flow into the rural areas at a small transportation cost. The farmer’s wife can buy outside goods at a bargain, without realizing that by doing so she may put her own son out of a job in the village store. The local stores cannot compete with the mail-order houses. The local iron foundry and brick kiln go out of business. Inferior materials or less efficient machinery, in competition with the best, become useless, and the men who worked them become a public burden. It sounds efficient but it is not.

What can the nation do to keep the modern low-cost factories running and yet not waste entirely the resources and manpower in the outlying areas? The answer may take a long time to work out, but at present there seem to be strong reasons for positive action to promote decentralization.

Instead of encouraging or forcing mass production industries to reduce prices, it may be better to content ourselves with penalties on mere size, and with legal protection of small industries against financial interference or invasion of their territory. Chain-store taxes are a move in the latter direction. The effect of special taxation of chain stores is to raise prices and protect local business. It is inefficient in detail but may be profitable in its larger effects. Taxes on corporation incomes, graduated according to size, are established in Federal law, and the differential might well be increased, as for example by exempting all corporations earning less than $25,000 a year.

Action of this kind is directly opposed to the common idea of efficiency, but if it succeeds in promoting village industries it will salvage idle labor and add to the total national production. Why not? Some of the people in rural sections may not be able to keep busy unless they can work at a comparatively low rate of productivity. Therefore they cannot afford the benefit of low prices that keep their own labor out of the market.

Another line of action is a positive redistribution of money to the rural districts by Federal subsidies, old-age pensions, and public works. The difference between distributing the national production by way of cash subsidy and by way of lower prices becomes evident in this connection. If mass-production goods are greatly reduced in price, the poor people in city and country can of course get more for their money, which seems to be an advantage. But some of the country people are by the same process made unproductive. On the other hand, if the mass production industries hold up their prices, pay high wages, and make large profits, their market is more closely confined to their own area and their own workers. The government can tax these high profits as they appear either in the corporation or in personal income, and give some of the money to the country folk.

The effect of subsidies to the farm areas is to supply the people with money that is not wages and does not come in as a part of the cost of labor in their home industries. Although any increase in local prosperity will tend to raise wages, it will also improve education, health, and productive ability, reducing the difference in cost that now prevents so much local industry.

The extent to which measures of these kinds could actually restore local prosperity would depend on the vigor with which they were applied. Such measures are already in existence, and need only a clear understanding of their value to give them added power. As they begin to show visible results—such as the fine stretches of terraced farm land in the Tennessee Valley—the extension of the principle of decentralization is likely to be less and less difficult.

Finally, we may come to a realization of the general necessity of efficient treatment of our whole national system of resources, material, human, and technical. Several features of an efficient national system can be tentatively described.

It would not be “centrally planned” in the Fascist or Communist sense, for various reasons, some sentimental, some technical. The chief technical reason is that the full use of second-rate local resources is most likely to occur under free initiative. Small-scale capitalism would be revived and protected by placing obstacles in the way of large-scale business. The best materials and the best labor would be fully utilized, but the low-grade material and labor would also be fully utilized. Conservation and economical use of resources would be promoted by using national funds to piece out in places where private business, if left to the mercy of the market, is forced to waste in order to pay its expenses of operation. The natural tendency of all productive elements to protect themselves against falling prices by not producing, would be washed out by pumping idle money into the markets through taxation and distribution, in whatever quantities are needed to keep all labor employed.

The total amount of transportation, as compared with production, would be considerably reduced. We shall never go back to self-contained village life until our civilization has passed away. But in the search for national efficiency, we shall find a much greater degree of local self-containment, and a growing tendency to use our products as near their point of origin as circumstances permit. This in itself will reduce the wastage of minerals and of people, and ease the costs of conservation and maintenance.

All these features may appear artificial, as compared with the easy, natural, age-long balance of primitive society. But we have left primitive conditions behind, and it will be a long time before our descendants return to them. Technology and trade are completely artificial, and the only way to get their benefits is to set up a framework in which they will fit without destroying our resources, our people, and our technology and trade as well.

Our first conception of technological efficiency, combined with unlimited waste of material resources and of labor, is too simple to meet the need. It leads to general paralysis and universal poverty. We need now to marry technology to conservation, and get a total efficiency by which the nation as a whole will get as much wealth and freedom as our great resources are able to provide.


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