The spotlight of publicity is playing glaringly upon the cotton mills of the South. Spectacular events have aroused emotions, and sympathy has naturally turned to the men and women whose sufferings have been seen in the raw. Human drama is always more arresting than the underlying principles that explain it. Attention has properly been awakened to the recent experiences of the workmen and the justice or injustice of conditions in the mills or the courtrooms; but there has been little consideration given to the economic circumstances at the bottom of the whole situation. Yet without a lasting prosperity satisfactory wages are impossible.
The textile industry in the South, no less than throughout the whole country, is itself faced with the necessity, of a readjustment that is scarcely less than a life and death struggle. The case of the operators of the mills is not the simple one of a man who puts his hands into well-filled pockets to take out more money to meet an increased wage demand. A mill must be operated at a reasonable profit or it cannot long be operated at all. Any real steps toward a permanent abatement of the troubles in the Southern cotton mills must begin with a study of the economic conditions that surround the network of industrial enterprises that goes to make up the entire textile industry.
In dealing with the wage problem of the textile industry, there is perhaps toe much inclination to regard it as being primarily a matter of Southern concern. It is customary to compare Southern wage rates with New England rates, and to centre attention upon the difference between the two. This difference is sufficiently large to be of importance to mill owners, and has been a deciding factor in the movement of the industry southward. But, all things considered, it is not large enough to be of great importance from the standpoint of the workers’ welfare.
The last report of the Massachusetts State Department of Labor and Industries reveals that in the city of Fall River in September, 1929, the average weekly earnings for the 11,238 factory workers (practically all of whom were employed in cotton mills) were just $17.86. In New Bedford, whose manufacturing industries are likewise chiefly, textile, the average weekly earnings for 13,568 factory workers were $20.74. New Bedford makes a better showing largely because ninety-two per cent of the workers were on a full time basis—an excellent percentage; whereas, in Fall River seventy-eight per cent worked full time during the month.
By way of contrast, the cities of Lynn and Worcester, whose textile operations are unimportant, had average earnings for all factory workers of approximately $30.00 per week, or fifty per cent more than the textile cities! In Worcester, the percentage of full time workers was no greater than in New Bedford.
These figures shout the fact that the wage problem in the cotton mills is national in scope.
Not only are the other major manufacturing industries paying higher wages; they have also been enjoying much higher profits. Cotton mills as a group have been unable to show consistent profits since the post-war inflation period. The majority of them are on the verge of insolvency, and scores of them have gone over the brink. It is doubtful if one in three is paying dividends on common stock.
From 1922 to the autumn of 1929, the securities of other industries were doubling and trebling in value. Textile securities were moving in the opposite direction, and at the end of the period were selling on the average at less than half of their 1923 prices. Especially drastic was the break in New England mill stocks. One can now pick up, for ten and twenty dollars a share, stocks which were selling at prices between one hundred and two hundred dollars a share in 1923.
Of the sixteen hundred mills (approximately) in the country, there are probably less than one hundred whose securities could be purchased as a safe income-producing investment. In this relatively small group are organizations which are exceedingly profitable for special reasons, but their number is too small to alter materially the picture of the industry as a whole.
The yardage output of the industry, has not diminished. New uses for cotton products have more than compensated for short skirts and the increased use of silk. Cotton mills have without great difficulty adapted their looms to the weaving of rayon fabrics, so that the introduction of this material has not been a depressing factor.
Reasons for the failure to attain a widely distributed or stable prosperity are, therefore, clearly not on the surface. One must go deeply into the industry’s structure and practices to gain an adequate view of them.
The textile industry viewed as a whole with respect to all of its processes from the spinning of yarn to the finishing and marketing of the completed products, presents a form of organization which is practically unchanged from that of fifty years ago; while other industries have been forming combinations and mergers of every type, revolutionizing production and marketing methods, and adopting all sorts of devices for the control of output, inventory, and price.
It is still an industry, whose manufacturing units are small, widely scattered, and numerous. Ownership and management are mostly in the hands of local interests. More often than not these local interests are the community’s leading families, socially and economically, with the result that the administration of the mills is frequently affected by considerations of family prestige and community welfare. In time of prosperity with expanding markets and rising prices, these considerations produce no different result from the ordinary profit motive and hence are not important; but in times of depression they become exceedingly important, encouraging the continuance of mill operations at a loss and so aggravating still further the condition of over-production.
It is noteworthy that the great majority of textile units are either in small mill villages, or else concentrated in great textile centres where other industries are relatively unimportant. Wherever there are mills the economic activity, of the entire community is, therefore, mainly dependent upon the mills. Where night work is resorted to, it makes all the more dense the population assemblages dependent upon particular mill units. While this top-heavy relationship between workers and employers encourages low wage levels, and hence lower prices for textile products, at the same time it shoulders upon mill managements a greater responsibility for the livelihood of the workers gathered around them. Local ownership and management is therefore subjected to a pressure for continued operation at times when business judgment and the long run interests of everybody would dictate curtailment.
The difficulties of regulating production schedules are increased by the restricted character of the work which each unit performs. Very rarely does a single enterprise do more than a fractional part of what is required to convert raw cotton into a usable finished product. There is instead a series of industries, the output of one constituting the raw material of the next. No objection to this arrangement could be made, were the means or the disposition present to adapt the operations of the one to the requirements of the other. Unfortunately there is almost never such an adaptation through voluntary, collective effort.
In its stead there is an attitude of conflict between the different groups, each striving to gain advantage over the others without apparent recognition of mutual interests. This economic bushwhacking is engaged in by, spinners, yarn merchants, weaving mills, converters, commission merchants in cloth, wholesalers, garment manufacturers, and the various forms of cooperative buying associations.
Many mills, approximately one-fourth, are exclusively, spinning-mills. Most of the cloth mills do some spinning, a few of them make practically all of their required yarns, and still others produce an excess of yarns which they dispose of in the market. The buying and selling of yarns is accomplished through the agency of yarn merchants. Where buyers and sellers are so numerous such an arrangement is necessary to procure instantaneous execution of orders, and to provide even terms for all parties. Theoretically the prices of yarns should reveal the true relationship between supply and demand for yams and so serve as a guide to mill operations.
In actual practice its function of maintaining an even flow of goods is largely frustrated by speculative, and sometimes unethical, operations. No one questions the value of speculative operations in so far as they are a necessary adjunct to hedging. But in the yarn markets they extend far beyond any such laudable purpose. There we find speculative buying of yarns by merchants, mills, and outsiders always attendant upon rising cotton prices. Hence the curious result of stimulated yarn supply from cotton scarcity. At other times, yarn merchants will sell short in anticipation of being able to force mills to accept orders at a lower price. It is not uncommon for merchants to accumulate orders on their books temporarily rather than pass them on to the mills, hoping thereby to gain a subsequent buying advantage. Thus the yarn market as a whole, instead of reflecting exclusively consumption demand and actual supply, at times becomes an active agent in the concealment of the relationship, and so joins with a number of other influences in producing chaos where there should be order.
A majority of the cloth mills are not equipped to do their own finishing, and so sell their products as “grey goods.” Finishing, which includes such processes as bleaching, dyeing, and printing, is therefore in the hands of another group of specialists. But between the actual finishers and the cloth mills is still another group called the converters. The converters purchase grey goods or semi-finished goods from the mills or commission merchants, determine the style characteristics to be imparted to them, and have the finishers do the actual processing on a price per yard basis.
The converter is the stylist of the industry. He employs designers who are constantly at work on new patterns, colors, and fabric constructions. In anticipation of the changing fashions for an approaching season, he submits his new designs or patterns to the trade and solicits orders. Upon receiving the orders, he supplies the finishers with the base materials to be processed according to specification. If he buys the base materials in advance he assumes a speculative risk. If he ventures to have materials finished ahead of the receipt of orders in expectation that certain designs or patterns are bound to be popular, his position becomes still more speculative. If he delays all contracts until receipt of orders, he runs the danger of finding the mills and the finishers unable to take care of his needs on such short notice. What he actually does is a matter of his individual courage, capital, and acumen. In any case he cannot be regarded as a stabilizing influence. The chances are in favor of his intensifying whatever happens to be the tendency of the moment. If the grey goods market happens to be depressed he will naturally delay his purchase to the last minute to the manifest disadvantage of the cloth mills.
On the other hand, if the cloth market is strong and the outlook for higher prices, he will place his orders well in advance and insist upon early deliveries, thus stimulating still further the tendency toward over-stocking which such a situation always produces.
In their purchase of grey goods, the converters do not ordinarily deal directly with the manufacturing units, but purchase through the agency of commission merchants. Thus between converters and mills there is essentially the same kind of open market arrangement as exists between spinners and weavers. The cloth merchants handle both finished and unfinished goods. Purchasing the converter’s raw materials for him, they likewise sell for him his finished products.
But into the primary cloth markets of which the commission merchants are the foundation and much of the superstructure, come not only the converters, but also the wholesalers who buy, and sell on their own account; the garment manufacturers; the great retail buying organizations, such as the department stores, the chain stores, and the cooperative buying associations; interior decorators; and industrial consumers such as automobile body manufacturers, furniture manufacturers, and those who use fabrics either as raw material or as container material.
Under modern conditions these buyers are powerful, shrewd, highly discriminating and ruthless in their exactions. Yet the average cloth manufacturer never comes in touch with them. Except in a few cases, involving the largest mills, he is satisfied merely to turn over his entire selling accounts and selling responsibility to a selected commission merchant. It is not unusual for a merchant to represent at the same time fifteen or twenty competing mills, and several of the largest commission houses represent from fifty to seventy-five mills.
The prices at which the goods are to be sold are in theory fixed by the mill, but in practice the goods move at prices recommended by the selling agent.
The commission merchant as selling agent is essentially a trader. His prime consideration as a selling agent, in the very nature of the case, cannot be for the long time profits of his many client mills. His major concern is with the immediate activity of the market—his volume of sales. Both his income and his standing in the market are conditioned upon one thing—moving the goods. A fluctuation of one cent a yard, which may mean the difference between profit and loss for the mill, is a matter of relative indifference to the merchant. As a proposition in ethics, he of course dislikes a development which is not favorable to his mills; as a matter of business he must pursue a policy which produces orders for his mills and an income for himself. If he attempted a different policy, as an individual, and proceeded to hold out for better prices from buyers and more conservative production schedules on the part of the mills, he would quickly get for his pains a loss both of buying and selling customers and a speedy disintegration of his business. His only other alternative is to go with the market and become an indistinguishable part of the daily whirligig.
This alternative is frequently made the more urgent by the fact that many mills look to their selling agents for their financing. Goods are sold commonly on a sixty-day credit basis. The mills themselves cannot bear the burden of such credit extensions. Commission merchants serve as a stopgap making the necessary money advances to the mills (with an interest charge) and subtracting the loans from the subsequent collections. Commission merchants also, in times of slack orders, make loans to mills on the security of goods held in stock.
As a result of these credit practices, mills are usually in debt to the selling houses. In the light of its ultimate economic consequences a more vicious method of financing could hardly be conceived. It has the two-fold tendency of putting the mills in a position where they must sell goods, regardless of cost, to meet bills payable, and of putting the merchants in a position where they must insist on such action for their own protection.
At a time of market depression in the industry, when the mills are selling output at cost or below, the necessary advances from the commission houses will approximate one hundred per cent of the selling value of the goods. This destroys the last vestige of market independence which the mills possess and prolongs and deepens the depression. The outcome is a status of hopeless insolvency on the part of the weaker mills. Many of them will be taken over quietly by the commission houses and continued in operation so long as the sales commissions exceed manufacturing losses. Perhaps they will be nursed back into solvency; perhaps they will be dropped upon the bankruptcy courts. In such uncertain status are many mills at the present time.
The wholesaler or jobber comes somewhat beyond the commission merchant in the sequence of processes. His importance in textile distribution has waned in late years; but at the present time he appears to be holding his own. He differs from the commission men in that he buys goods outright and sells from his own stock. His profits are not from commissions, but from the difference between his buying and selling price. Although most of his purchases are made through commission men, he in some cases goes around the open market and buys directly from the mills that are able to supply finished goods. He also buys from converters who have their own selling organizations, when the latter are able or willing to meet his needs more advantageously than can the commission merchants.
His particular function in the scheme of marketing is to provide buyers with goods from stock on short notice and in great variety. Thus a large retail buying organization which at the beginning of the season would place its orders in large volume through commission men, would at a later date place with the wholesalers its supplementary orders which call for varied items in fairly small volume for immediate delivery. The wholesaler is also the preferred source of goods for the many small retailers, garment manufacturers, upholsterers, and interior decorators who have retained their independence as small buying units. They require goods in broken diversified lots and in frequent shipments. This type of business will always persist in sufficient volume to assure the wholesaler an important place in the marketing mechanism of the industry.
The wholesalers’ loss of prestige has come from the recent rapid growth in chain stores, from the formation of buyers’ syndicates, and the increasing size of department stores, mail order houses, and garment manufacturers.
As the buying units have become larger and stronger, their tendency has been to brush aside the wholesalers and to approach the commission merchants and the larger mills directly. This has changed radically the entire aspect of textile goods bargaining. Faced by so formidable an array of buyers who are thoroughly conversant with the weaknesses of the sellers, the commission merchants are neither in the mood nor in the position to resist effectively. They can only pass back to the mills the price ideas of the buyers, and in the present disorganized state of the mills the buyers’ price usually prevails.
Such in the main is the organization of the cotton textile industry. Its many component atoms, widely scattered, and varied in function, achieve coordination, such as it is, through indirection and conflict.
There are other factors beside its lack of unified organization that affect the cotton industry. Adjustments in price, type of product, total output, and stocks on hand can be effected with reasonable exactness and promptness only when disturbing influences are mild in character and slowmoving. But the textile industry, has come to be harassed by influences which are anything but mild and slow-moving. Together, they constitute a perfect carnival of violence and unrestraint.
In the first place the wild gyrations of the raw cotton market are demoralizing to the industry. In 1920-21 the range was from 10 cents to 40 cents a pound. In 1926-27 the range was from 11 cents to 25 cents a pound. It has become customary to expect the high price of any year to be from 40 to 50 per cent greater than its low price, and no surprise is entertained if this range happens to be doubled.
Before the war, fluctuations, measured percentually, were not half so great as they have been since. In the period 1905-13 the mean deviation of monthly cotton prices from the average was only about 10 per cent. For the nine year period 1920-28, the corresponding figure is about 25 per cent, and this was closely approached in every year except one. It is evident that cotton price fluctuations have a disturbing influence more than twice as great as they commonly exercised prior to the war.
The more rapid and violent the fluctuations in the price of cotton, the greater is the difficulty in adjusting proportionally the prices of goods. Trading risks therefore become much greater. A certain degree of protection is afforded the mills and converters by recourse to hedging, but it is not great enough to insure against loss. Great technical skill is required for complete success in hedging operations, and many mills hesitate to make habitual use of them. The inadequacy of the device is well evidenced by the fact that a pronounced decline in the price of cotton invariably diminishes profit margins of most mills during the period of decline; whereas a pronounced rise in the price of cotton invariably increases mill profits for a portion of the period.
A high degree of irregularity in the productive output of the mills is a still greater evil resulting from cotton price fluctuations. If cotton prices begin to rise in anticipation of a relatively small crop, orders for goods at once increase in volume. Retail buyers, industrial consumers, garment manufacturers, converters, and wholesalers hasten to provide for their requirements before prices rise further. The easy inflow of orders, without solicitation or price higgling, works like a tonic on the mills. They, scramble madly to place more contracts for raw cotton. Production schedules are hurried up. Night shifts are thrown into operation. The increased mill activity gives cotton prices another fillip, and the contagion of forward buying spreads still further, with the mills disposed to manufacture to stock, if orders are not adequate to take all output at desired prices.
During this artificial tempest nothing at all is happening in the actual consumption area. If anything, the higher prices of goods will discourage the ultimate consumer into the purchase of less clothing or the use of substitute fabrics. This fact finally dawns upon the various divisions of the industry after shelves and warehouses have become loaded with goods which are not moving. The aftermath of depression is likely to be of longer duration than the period of prosperity, since a readjustment downward is not so easy as the expansion upward. Many mills will not curtail until losses from continued operations become as great as the losses from stoppage.
The violence of production fluctuations, whether they originate in the cotton market or from some other cause, is much intensified by the prevalence of nightwork in the South. Night work is the major elastic element in production capacity. At least fifty per cent of the mills either work at night habitually or are prepared to inaugurate night operations on short notice. This accounts largely for the hair trigger action of the industry, in responding to slightly improved demand and also explains the speedy manner in which market shortages are converted into surpluses.
The fashion changes of recent years have been not less pronounced than the gyrations of raw cotton, and perhaps even more disturbing to the industry. These changes have not been of such a character as to reduce total consumption, but have done their damage by continually forcing changes in the composition of output. It is a mistake to associate the concept of style changes with apparel goods only. Virtually all fabric constructions are now amenable to style changes. Denims, ginghams, osnaburgs are highly susceptible. Overalls, draperies, flour bags, furniture and automobile upholstery, curtain materials, and even sheets and bed spreads have all become extremely sensitive to shifting modes.
Before the war probably eighty, per cent of the output of textile goods was rigidly staple. The other twenty per cent went through its transitions slowly. The upper strata of the population adopted the new modes in one season; they were gradually welcomed by the masses the following season, and probably did not reach the height of their popularity until the third year. The slowest of the mills and converters were able to make adjustments easily and without misgivings.
But new fashions no longer travel gradually. The population of every hamlet keeps fairly abreast of the elite of Fifth Avenue. Moreover, into the picture of style changes has come the characteristic of the ensemble. It involves many elements. Everything that enters into the making of a complete costume, outerwear, underwear, hosiery, hat, shoes, and handbag is simultaneously touched by the new mode. An equally complete transformation is wrought by a new idea in household furnishings, be it for drawing-room or kitchen.
So it has happened that the proportion of “staples” has been sorely whittled down, so that it is now virtually negligible, and no longer constitutes an adequate back log for off-season operations.
Since the disturbing influences of style changes are directed toward the type and design of goods, the danger to mill, converter, jobber, and garment manufacturer lies in the imminent possibility that his chosen design or construction may become unpopular—that a sudden change in public taste may leave him with large stocks of unsold and unsalable goods.
The seasonal nature of the business accentuates these hazards, as it necessitates manufacture and purchase of goods further in advance than would otherwise be the case, and at the same time increases the danger of a carry-over.
No device has been found which effectually reduces the sum total of risk involved in the treacherous whims of fashion. The industry annually suffers from this source a loss running into many millions. All along the line in the industry there is resort to every ingenuity to reduce each man’s particular risk, but it can be done only by transferring it to some one else. The retail buyers meet the problem by delaying orders for style goods as long as possible and then insisting on rush deliveries. The converter does the same thing in his purchase of grey goods, unless the cotton market dictates otherwise, and then at the last minute crowds the finishers.
As the various types of retailers, distributors, processers, and garment manufacturers seek to escape risk in this manner, they add proportionally to the burdens of the mills. Here the large capital invested and the maintenance of the labor force require regularity, of output, if operations are to be efficient and profitable. Yet if such regularity is attained, it means indebtedness and possible over-production.
The problems incident to style changes are not then being met cooperatively by the various factors which compose the industry. Instead of unity of effort, we find cross purposes and antagonisms. There is surely something wrong with the organization of an industry which forces this ruthless competition between groups which perform different functions!
What then can be done basically to improve conditions throughout the industry? Effort at more efficient management on the part of individual enterprises can avail but little in the way of permanent improvement, so long as the present organization of the industry remains intact. The individual who gains in efficiency will profit only so long as he remains a rarity. Adoption of more efficient methods by the majority of enterprises would merely put competition on a lower price level. The savings from lower costs would eventually be translated into nothing more than lower prices. By the same token the utilization of cheaper labor is only of transient advantage. It merely sets in motion a series of new influences which tends to make all wages lower without profiting those who have brought it about.
A more hopeful adjustment is for the individual enterprise to bring within its own control the entire sequence of functions which are performed in the industry. The Pep-perell Mills, the Pacific Mills, the Cannon Mills, and the Cone Mills are units which do much or all of their own converting and selling with gratifying results. Of course they do not escape entirely the adverse influences originating within the unintegrated portions of the industry, since they must sell in competition with units which use the conventional methods.
Moreover, the example which they have set cannot be followed by a majority, of the mills owing to smallness of output and lack of capital. The converting and selling functions can be performed successfully only in connection with great variety and volume.
If integration of functions is ever to be realized, therefore, it apparently must come through the agency of combination. Little, or nothing, would be gained by a combination of spinners only, unless it approached the monopoly point, which would be clearly undesirable. Likewise, nothing would be gained for the industry as a whole by a combination of weavers, if the combination continued to buy its yarns in a competitive market and to dispose of its products as grey goods. Combination to produce stability, and efficiency must embrace all the functions which extend from the purchase of raw cotton to the final disposal of finished product to large retailers, garment manufacturers, industrial consumers, and other large-scale users.
This is not to imply that the entire industry must be organized into a few gigantic units. It is likely that the integration process could achieve the desired ends if it included no more than half of the industry’s output. Through superior production and inventory policies, a readier and more accurate adjustment to style changes, a more competent corps of stylists and designers, the greater volume of good will attendant upon wider and more direct distribution, properly integrated units could speedily set new standards for the industry. The experience of the iron and steel and automobile industries has amply demonstrated what such methods can accomplish.
Of course the price of raw cotton could not be brought under control; neither would there be the power nor the disposition to hamper the course of style changes. But the resulting economic evils could be minimized by, vertical integration within the industry. There would be virtual elimination of the series of speculation centers which the industry houses, and which are the chief enticers to periodic overproduction. And so would cease to exist the market warfare between presumably cooperating groups.
It would be a great mistake to assume that the desired prescription can be filled by the mere formation of great holding companies, with each in control of a random collection of mills, possessed of a converter or two, and show rooms on Worth Street. The purpose of the combination is to establish sensitive and perfectly balanced relationships between all operations; from the first one of buying raw cotton to the last one of selling finished style goods. It must be a structure with a single control station in which are centred the three major types of responsibility; the technical, the economic, and the artistic. No one can be separated from the others without sacrificing all the gain from combination. The requirement is for a complicated, mechanized, mass-producing organization which can supply an ever-changing product to an ever-whimsical consumer, with all the delicacy and precision of the handicraftsman, It will be a complete union of the arts with the sciences.
The financial go-getter who can bring together fifty power companies and launch therefrom a hundred million dollar security issue into the arms of an eager public, or who can organize an investment trust that dazzles Wall Street, would if called upon to apply his wizardry to the textile industry prove an utter “bust.” He would be incapable of envisaging, and still less capable of performing, the functions which would be required of him.
Within the textile industry, there are certain men who can meet the requirements. They cannot succeed without the sympathy of an enlightened public opinion and the active support of their colleagues and competitors. Fair wages for the workmen in the cotton mills and better living conditions in other respects, are bound up with fair profits for the mills. Misunderstanding and hostility are the first barriers then to these in the industry which is America’s most beautiful—and ugliest.