The Economics of Direct Employment*

DURING the last twelve years there has gradually been developed, among the various Town and County Councils and other public authorities, a definite economic policy with regard to the employment of labor. This policy, initiated by the School Board for London in January, 1889,† has been adopted, to a greater or lesser degree, by several hundred local governing bodies throughout the United Kingdom. It has, perhaps, been most completely carried out by the London County Council, where it has been successfully maintained for over ten years, and where it has lately been endorsed and confirmed by a decisive majority at the election of 1898..

The Labor Policy of the London County Council.

The Labor Policy of the London County Council has been intelligently criticized, from the point of view of economic science, mainly under three heads. Instead of "buying its labor in the cheapest market," as it was termed, it has, from the first, striven to adopt as its standard the trade union rate of wages, and to assert a "moral minimum" of earnings below which it was inexpedient that any London citizen should be allowed to sink. Moreover, not content with proceeding on these lines as regards the workmen whom it directly employs, it has sought throughout to secure that all contractors executing its work should adopt the same principle. Finally, it has endeavored, wherever possible, to dispense with the middleman entrepreneur, and to substitute salaried supervision and management directly under public control.

The Fair Wages Movement.

Let us take first what is known as the Fair Wages Movement. After prolonged discussions, repeated at intervals during nine years, it has become the settled policy, (a) to pay, in each trade, the recognized standard rate of wages, (b) to give no adult male workman less than 6d. per hour, and no adult woman less than 18s. per week. Those

* Most of this tract has already been published under the title "The Economic Heresies of the London County Council: a paper read before the Economic Section of the British Association for the Advancement of Science, Oxford, 13th August, 1894, by Sidney Webb, L.C.C."

The London School Board was, in January, 1889, the first public body to adopt the principle of insisting that not less than the recognized standard rates of wages should be paid. See The History of Trade Unionism, and also Industrial Democracy, by Sidney and Beatrice Webb.

"The Standing Orders of the L.C.C.", containing the Fair Wages Clauses, is sold at Is. by P. S. King & Son, Great Smith Street, Westminster. For other places see House of Commons Return, "Urban Sanitary Districts (Conditions of Contracts)," No. 47, 11th February, 1898; 23d. (P. S. King & Son.)

unfamiliar with the actual practice of industrial life at first imagined that the trade union rate of wages meant just whatever rate the trade unions might choose to claim. As a matter of fact the trade union rate of wages is, in every organized trade, a well-understood expression, denoting the actual rate which has been agreed to, more or less explicitly, by representative employers and the trade union executives. What the Council has done has been merely to insert in its own standard list of wages the rate proved, on enquiry, to be actually recognized and adopted by the leading employers in the particular trade within the London district. In the whole of the building trades, for instance, which include seven-eighths of the work done for the Council, the trade union rate of wages has been solemnly agreed to in a formal treaty between the London Building Trades Federation and the London Master Builders' Association. So far as the organized skilled trades are concerned, the Council has not attempted to do more than place itself on a line with the common average of decent employers.

With regard to unskilled labor the case is more difficult. Here, in most cases, no generally recognized trade union rate exists. The Council has accordingly taken the position that it is undesirable, whatever the competition, that any of its employees should receive less than the minimum required for efficient and decent existence. Seeing that Mr. Charles Booth places the actual "poverty line" in London at regular earnings of 21s. per week, it cannot be said that the Council's" moral minimum" of 24s. for men and 18s. for women errs on the side of luxury or extravagance. But, unlike the Council's wage for skilled workmen, it is more than is actually paid by many conscientious employers; and it is undoubtedly above the rate at which the Council could obtain such laborers, if it chose to disregard all other considerations.

The labor policy of the London County Council, whether with regard to skilled or to unskilled labor, may be explained as the deliberate choice of that form of competition which secures the greatest possible efficiency, as compared with the form which secures the greatest apparent cheapness. Public offices may be filled in one of two ways. We may, on the one hand, practically put the places up to auction, taking those candidates who offer to do the work for the lowest wages. Or, on the other hand, we may first fix the emoluments, and then pick the best of the candidates coming forward on those terms. When we want brain-workers of any kind, everyone agrees that the latter policy is the only safe one. We do not appoint as a judge the lawyer who offers to take the place at the lowest rate. No one would think of inviting competitive tenders from clergymen as to the price at which they would fill a vacant bishopric. And a Town or County Council which bought its engineer or its medical officer in the cheapest market would, by common consent, make a very bad bargain. In all these cases we have learnt, by long and painful experience, that there is so much difference between competence and incompetence that we do not dream of seeking to save money by taking the candidate who offers

his services at the lowest rate. Unfortunately, many worthy people who realize this aspect of brainwork, because they belong themselves to the brainworking class, are unconscious that it applies no less forcibly to mechanical labor. They will pay any price for a good architect, but are apt to regard bricklayers and masons as all equally common workmen." The consequence is that, owing to the extraordinary ignorance of the middle and upper class about the actual life of the handicraft trades, it has gradually become accepted as good business that, though you must take all possible trouble in choosing your manager, it is safe and right to buy wage-labor at the lowest market rates. But, as a matter of fact, there is as great a relative difference between one painter or plasterer and another, as there is between one architect or manager and another. If the pressure of competition is shifted from the plane of quality to the plane of cheapness, all economic experience tells us that the result is incompetency, scamped work, the steady demoralization of the craftsman, and all the degradation of sweating. When a man engages a coachman or a gardener he understands this well enough, and never for a moment thinks of hiring the cheapest who presents himself. Even the sharpest-pressed employer does not entrust expensive machinery to the mechanic who offers to take the least wages. The London County Council, realizing it more vividly than some bodies less in touch with the actual facts of industrial life, applies the principle all round. Whether the post to be filled be that of an architect or a carpenter, the wage to be paid is first fixed at a rate sufficient to attract the best class of men in the particular occupation. Then the most competent candidate that can be found is chosen. Competition among the candidates works no less keenly than before; but it is competition tending not to reduce the price, thereby lowering the standard of life throughout the nation, but to enhance efficiency, and thus really to reduce the cost of production.

With regard to the lowlier grades of labor a further consideration enters in. It may be economically permissible, under the present organization of industry, for a private employer to pay wages upon which, as he perfectly well knows, it is impossible for the worker to maintain himself or herself in efficiency. But when a Board of Poor Law Guardians finds itself rescuing from starvation, out of the poor rate, women actually employed by one of its own contractors to make up workhouse clothing, at wages insufficient to keep body and soul together, even the most rigorous economist would admit that something was wrong. The London County Council, responsible as it is for the health of the people of London, declines to use its position as an employer deliberately to degrade that health by paying wages obviously and flagrantly insufficient for maintenance, even if competition drives down wages to that pitch. The economic heretics, in fact, are not the Council, but those who, in flat defiance of Adam

*The Chelsea Board of Guardians was, in 1894, paying its scrubbers Is. 6d. a day, without food, which amounts to a weekly wage of 9s. A day's illness is sufficient to force such a worker to seek relief from the rates, and the Board then finds itself rescuing from starvation its own underpaid workpeople.

Smith, McCulloch, Mill, and Marshall alike, persist in assuming that there is some obligatory "law" that the pressure of competition ought, without interference from man, to be allowed so to act as to degrade the standard of life of the whole community.

The Moralization of the Contractor.

Some critics, however, who do not object to the Council, like a prudent housekeeper or an experienced employer, fixing the wages of its servants at an adequate sum, demur to any interference with the freedom of contractors, and denounce as economically heretical the Council's standing order confining the Council's work to such firms as adopt the standard rate of wages. It is, say such critics, no concern of the Council how a contractor manages his business; and if he can get his workmen at less than the ordinary price of the best men, so much the better for him, and, in the long run, for his customers. The very object of industrial competition, they would add, is to keep the cost of production down to the lowest possible point, and any interference with the contractor's freedom to do his business in his own way tends to increase that cost.

It will, however, be obvious to the economist that these criticisms confuse cost of production with expenses of production. What the community has at heart is a reduction of the cost of production -that is, of the efforts and sacrifices involved in getting the object desired. This is of no concern to the contractor. What he wants is to diminish the expenses of production to himself—that is, the sum which he has to pay for materials and labor. This object he may effect in one of two ways. He may, by skilful management, ingenious invention, or adroit manipulation of business, get the work accomplished with less effort and sacrifice on the part of those concerned, allowing of a reduction of the out-of-pocket payments by himself; or he may, on the other hand, without diminishing the effort and sacrifices, induce those concerned to accept a smaller remuneration for their labor. Either way will equally serve his profit, but either way will not equally serve the community. In the first case, a real economy in the cost of production has been effected, to the gain of all concerned. In the second case, no economy in the cost of production has taken place; but the pressure of competition has been used to depress the standard of life of some of the workers. The one result is a real and permanent advantage to the community; the other is a serious economic calamity bringing far-reaching secondary evils in its train.

Now, many large fortunes have been made by contractors pursuing each of these methods, and the "good business man" doubtless resorts to both of them as opportunity serves. Unfortunately it is much more difficult and toilsome to be perpetually making new inventions, devising fresh labor-saving expedients, or discovering unsuspected economies, than to pare down wages, even at the risk of producing a slight falling-off in quality, provided that the deterioration is not so gross as to cause the actual rejection of the work. It is so hard to spend laborious nights and days in improving

cent. below the standard rate. "Mankind," says Emerson, "is as lazy as it dares to be," and contractors are no exception. It is safe to say that the more you leave it open to a contractor to make a profit, by reducing the expenses of production, the less he will trouble about lowering the cost. So much is this the case that, under a prolonged régime of free and unrestricted competition, the very existence of the alternative has often been forgotten. "Profits," said one capitalist, "are the shavings of wages."

It was in order to put a stop to the constant tendency of contractors to nibble at the current standard wages that the London County Council inserted its celebrated fair wages clauses. These clauses it will be observed, leave open to contractors every chance of profit which comes from reduction of the cost of production. By concentrating the contractor's energy and attention on this point they presumably increase the fierceness of that part of the competitive struggle which promotes the public good. But, just as the Factory Acts, the Mines Regulation Acts, and the Education Acts, "rule out" of industrial competition the cheapness brought about by the overwork of women and children, or the neglect of sanitary precautions, so the London County Council, representing the people of London, declines to take advantage of any cheapness that is got by merely beating down the standard of life of particular sections of the wage-earners. Here, the key-note of the Council's policy is, not the abolition of competition, but the shifting of its plane from mere cheapness to that of industrial efficiency. The speeding up of machinery, the better organization of labor, the greater competency of manager, clerk, or craftsman, are all stimulated and encouraged by the deliberate closing up to the contractor of other means of making profit.*

And just as the Factory Acts have won their way to economic approval, not merely on humanitarian grounds, but as positively conducive to industrial efficiency, so, too, it may confidently be predicted, will the now widely adopted fair wages clauses.t

Municipal Industry.

We come to an altogether different range of criticism when we consider the Council's determination to dispense, wherever possible, with the contractor, and execute its works by engaging a staff of workmen under the supervision of its own salaried officers. This has been fiercely attacked as being palpably and obviously opposed

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* The economist will recall the analagous effect which labor legislation and strong trade unions have had in increasing the efficiency of the Lancashire cotton industry. Compare, too, Mr. Mather's testimony to the beneficent effect upon employers of trade union action in the engineering trade (see Contemporary Review, Vol. LXII., 1892, and S. and B. Webb's Industrial Democracy).

Many local governing bodies have adopted some kind of fair wages clause in their contracts. Particulars of regulations in 218 places are given in Parliamentary Return H. C. 47 of 11 Feb. 1898, "Urban Sanitary Districts (Conditions of Contracts)", 24d. Compare also the House of Commons' unanimous resolutions of 13 Feb. 1891, and 6 March 1893, imposing the principle for Government contracts.