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sent non-replaceable resources. A coal mine, once exhausted, can never be renewed. At present rates of increase in consumption, our coal resources cannot be expected to last more than three generations, and our petroleum resources more than one generation. All of these industries suffer from a wasteful technology of production and from a faulty system of business and of profit making.
Conservation, on both the technical and pecuniary sides, requires the guidance of the State. Private initiative has never given evidence of being adequate to the task of formulating and executing effective conservation policies. Conservation is distinctly an economic function of Government. The policies which Governments have undertaken include education and publicity, fire prevention service, Government ownership of resources with either public operation or leasing to private operators, legislation compelling economical methods of production, regulation of competition, prosecution of fraud, and laboratory research.
Too often a nation boasts of the size of its production, without regard to the effect of volume of output upon exhaustion of resources. Mere size of wealth may be an economic curse, if it is attained by waste and destruction of natural resources themselves. Production which rests upon unnecessary destruction of resources is uneconomical production. A startling part of our production in the past has rested upon this reckless and heedless process of exploitation. The last two decades have in a degree witnessed an awakening to the fact that this type of production is utterly unnecessary and unjustifiable. Production with conservation of basic materials is urgently demanded by every consideration of sound economics.
Coördination of the Specialized Machine Processes.—The mass of specialized machines, specialized laborers, and specialized processes has to be coördinated into a harmonious whole. The individual laborer or the individual machine is useful only when combined with many other laborers and machines, not only in the same plant, but in other plants scattered over the world. A single workshop may draw its materials from the five continents and ship its products around the world. It interlocks with the enterprises from which it receives supplies and the industries to which it turns over its output for further manufacture or for processes of distribution. The single plant is interdependent with that world-wide network of plants engaged in extracting raw materials from the earth, transporting them by land and water, guiding their course by electric and written communication, loading and unloading them at terminals and plants, feeding them into the machines, shipping them out to distributors, and moving them into the hands of consumers. Each step in this series of steps must be correlated with all the rest.
1 Allowance should be made for an electrical revolution in our methods of supplying power. The so-called Giant-Power project, if executed, would provide huge generating stations at waterfalls or coal mines, to transmit energy under high voltages and at great distances. Even if such a project were completed, however, the generating plants would still rely heavily upon coal as an ultimate source of energy. The conservation of coal would remain an urgent necessity.
Each process follows some and precedes others. All parts of the single plant must be articulated with each other, and also with all parts of those other enterprises to which it is related. Coördination within the plant and coördination between plants are alike indispensable to secure the fitting together of the countless technical processes and sub-processes to make a comprehensive, balanced, production system. The team-work of the constituent parts is a compelling necessity.
This technology of coördination involves both physical and pecuniary processes. It is in part a process of moving physical goods, modifying the shape of materials, harnessing energy, manipulating machines. This technique is embraced in the many branches of engineering science. But side by side with this physical technique runs the pecuniary technique of money and prices. This latter technique of the money economy involves all matters of finance, stock markets, private profit, property, ownership, price levels, purchases and sales, business cycles, and the like. In the general scheme of coördination, both engineering and pricing are necessary. In the present chapter, however, we are chiefly concerned with the engineering aspect of the case, and we may leave the pricing technique for consideration in later chapters.
The engineer is the great coördinator of physical processes in the machine technology. The engineer's applied science of organization involves the correlation and administration of countless mechanical and human factors. There are in the United States upwards of 200,000 engineers of one kind and another associated in engineering societies. Twenty-one major societies are united in the Federated American Engineering Societies. Among the constituent societies are the industrial,
, the mechanical, the civil, the electrical, the mining, and the chemical engineers. A large part of management which is not expressly labeled "engineering” has to do nevertheless with matters of an engineering nature. “Management engineering" is a term often used to designate this class of managerial duties. Management involves planning and control of the work of the specialized engineers. Management comprehends so broad a scope of technical problems that it requires the use of scientific methods in formulating and executing its policies. The outcome of this development is modern scientific management. Scientific engineering and scientific management are prime necessities for bringing coherence and order into the machine technology. “The problem which faces modern scientific management," wrote Frederick W. Taylor, “is the daily control and the direction of what at first appears to be an almost uncontrollable multitude of movements of men, of machines, of small implements, of materials, and of parts in process. Scientific management demands that the acts of the men and the movements of all these men and elements shall be regulated according to clearly defined scientific rules and formulæ.” 2
2 See Frank B. Copley, Frederick W. Taylor, Volume I, pp. 358-359. Scientific management has often been called "Taylorism," and Taylor has been called the "father of scientific management.” The principles were originally worked out with
Management and engineering are important because they increase the output from a given amount of labor and capital. They make possible a greater product from a given expenditure of energy. However, the degree of proficiency attained in scientific management varies very widely from plant to plant, and the capacity to turn out increased product differs widely. In spite of the proved possibilities of science in management, most production engineers, consulting engineers, and experts in the science of management agree that the bulk of business today is grossly inefficient. In the judgment of conservative engineers, the average enterprise could readily increase its efficiency from 25 to 50 per cent by the application of known and tried principles and practices of management.
In 1921, Herbert Hoover, as Secretary of Commerce, supervised the appointment of a Committee on the Elimination of Waste, representing the Federated American Engineering Societies. The investigations of this committee were conducted by the aid of a staff of 50 engineers. Their investigations covered directly 1,125 separate plants, divided between the building industry, men's ready-made clothing, boot and shoe manufacture, printing, the metal trades, and textile manufacturing.
Four basic sources of waste and inefficiency were discovered:
1. Low production caused by faulty management of materials, plant, equipment and men;
2. Interrupted production caused by idle men, idle materials, idle plants, idle equipment;
3. Restricted production caused by management or labor;
4. Lost production caused by ill health, physical defects, and industrial accidents.
The responsibility for these sources of inefficiency was attributed by these engineers mainly to the shortcomings of management.
The gist of these shortcomings is the failure to utilize and apply tried and proved principles of management. The conservatism, inertia, and back
primary reference to the workshop, but they are applicable in a broad way to all departments of management and to all industries. Taylor formulated his principles as follows:
“The managers assume the burden of gathering together all of the traditional knowledge which has in the past been possessed by the workmen, and then of classifying, tabulating, and reducing this knowledge to rules, laws and formulæ.” This process involves four major duties.
"First. Development of a science for each element of a man's work, which replaces the old rule-of-thumb method.
“Second. Scientific selection, training, teaching and development of the workman in contrast with the workman's choosing his own work and training himself, as in the past.
“Third. Hearty cooperation with the men so as to insure all of the work being done in accordance with principles of the science which has been developed.
“Fourth. An almost equal division of the work and the responsibility between the management and the workmen, whereby the management take over all the work for which they are better fitted than the workmen." F. W. Taylor, Principles of Scientific Management, p. 36. See also Scientific Management since Taylor, edited by E. E. Hunt.
wardness of management are at fault. The principles and the technique of efficiency, already successfully applied to pioneer and progressive plants, are available but unused. Some indication of the extent of loss and waste from managerial inefficiency is contained in the following detailed findings of the engineers: Faulty planning of material caused labor engaged in shoe production to be idle more than 35 per cent of the time. Faulty planning of work by management caused a loss of one-third during the normal operation of clothing factories. Improper organization of the men's ready-made clothing industry accounted for a loss of 40 per cent in effectiveness. In the printing plants of New York City, less than one-fifth of the plants had any system of cost accounting; the other four-fifths lost money during 1919. The metal trades were operating at about 60 per cent of normal output. Labor turnover was found to be needlessly high, and few factories were taking advantage of any personnel system to reduce the consequent loss. The manufacturing equipment in clothing, printing, and shoe manufacturing was about double the real needs of the country. Seasonal employment meant that in clothing manufacture the worker was idle about 31 per cent of the year, in shoe manufacture 35 per cent, and in building trades 37 per cent. The above illustrations serve to indicate the enormous waste in economic organization, due mainly to the failure of a large proportion of managers to adopt modern science and technology in production."
The technology of coördination of labor is fully as important as that of the division of labor and the standardization of processes. Machinery without scientific coördination realizes only a small fraction of potential output. Productive efficiency requires both machinery and coördination of parts and processes. The great desideratum is maximum output from a given expenditure of effort, and the only way to reach it is by application of the principles of engineering and scientific management to industry.
The Factors in Production.—The three basic factors in production are land, labor, and capital. Land includes all natural resources, crops, minerals, water, air, lumber. Land supplies the raw materials of production, and affords the opportunity for the extractive industries to take the crude gifts of nature out of the earth and make them ready for the processes of manufacture and distribution. Land also serves an economic purpose in providing the location of industry.
Labor includes labor of brain as well as labor of hand. The machine technology has more and more separated manual and mental labor. The mental tasks are specialized, and performed by highly trained engineers, mechanics, and executives. The manual tasks require obedience to the orders and instructions worked out by management. A great part of the labor of the common man is a routine of motions prescribed by minds higher up. Mental labor is no less productive than manual. The two are mutually dependent.
3 Committee Elimination of Waste, Federated American Engineering Societies, Waste in Industry.
Capital includes all articles of value which either are used for further production, as machinery, or are used for gradual consumption, as houses. The most important single form of capital, from the standpoint of physical production, is machinery. In the modern business world, capital is usually expressed in a sum of money. And this form of expression measures not merely tangible capital equipment, but also intangible property values, such as patents, good will, and special privilege.
The three basic factors in production may, then, be stated as follows: First, land, including natural resources and location ; second, labor, including mental as well as manual effort; third, capital, including goods used for the production of further goods, durable articles of consumption, intangible as well as tangible property values, and the money expression of any or all of these factors.
There are three auxiliary factors in production: management, government, and money. Management faces a twofold task, to make goods and to make profit. Management coördinates land, labor, and capital into a going concern, for the production of economic goods and services. Management also coördinates costs and receipts, for the production of dividends and surplus. The physical process and the pecuniary process require coördination in the going business concern. This task of management is just as indispensable a form of labor as the task of the laborer who mines coal or tends machinery. Neither could go on without the other. Management has become highly specialized for the performance of its functions. More and more management is divorced from ownership. Managers work for a salary, and are employed by the owners of the business. The division of labor has reached the point where, in the general run of corporate enterprise, the most that the owners can do efficiently is to own and the most that the managers can do is to manage.
Government is not a burden on industry but is just as indispensable a factor in production as land, labor, or capital. Government is a form of labor. It renders economic services necessary to modern production. By protecting property rights, enforcing contracts, regulating competition, and rendering a wide variety of economic functions, government creates utilities, contributes to the making of physical products, and supports the making of money profits. Government is productive enterprise in the truest sense of the word "productive.
Money is not a superficial phenomenon which exists merely on the surface of production. It is a productive instrument, and just as indispensable to production as raw materials or labor. Indeed, all of the tangible goods of industry are dead and inert until they are fused into a going concern by the agency of money. The course of production is always regulated sharply by the movements of money prices, the maladjustments of money values, the money spread between cost and sales prices, and the amount of money purchasing power in the hands of consumers. We live in a money economy, where physical production goes on only under sufferance of the money powers higher up. All business is animated by the desire to make money profit. Physical pro