Effect of Good Management on Employer and Employee Relationships


By T. C. HANNAH, General Attorney for the Mississippi Central Railroad Company

Delivered Before the Hattiesburg Rotary Club, Hattiesburg, Miss., May 25, 1943

Vital Speeches of the Day, Vol. IX, pp. 593-597

WHEN I announce my subject, "The Effect of Good Management on Employer and Employee Relationships," your minds instinctively and logically inquire about my qualifications to discuss this subject. Responsively, I answer by telling you that, for forty years I have been actively engaged in the practice of law and, from the very first day, professionally, I have been actively associated with men managing businesses. With these business managers, I have tripped the primrose path of success and big profits; and with them I have decadently marched through the valley of the shadow of death. During these forty years, I have administered the last sacrament, and have conducted the final obsequies of many, many business ventures. I have very pleasant recollections of having been connected with business successes by collecting some reasonably good fees; but I have far more vivid recollections of having been connected with business failures by reason of helping to provide pay rolls, in some instances endorsing and paying notes therefor, and, on other occasions, by advancing the funds out of my own bank account. Wherefore, I submit that I am reasonably well qualified to talk on this subject.

There is another and more potent reason, however, why I am prepared to discuss this subject. Everyone knows that there has been a marked change in employer and employee relationships during the past ten years, and these changes are due almost wholly and solely to matters and conditions foreign to these relationships. These extraneous matters have not only seriously affected these relationships, but they have permeated our schools, our colleges and our churches and are threatening the very foundations of our American government. These matters are very near and dear to my heart and, therefore, I am vitally concerned. I am fundamentally a Jeffersonian Democrat—a democrat in that I believe in a government of the people, by the people and for the people, and not a government of bureaucrats, by autocrats and for politicians and office holders. I am Jeffersonian in that I believe the least governed people are the best governed.

It is my definite conviction, from these years of intimate: association with business and business managers, and from a very thoughtful study of this subject, that good management has less influence on employer and employee relationship today than at any time in the history of our country, and that it has less influence today than it will have at any future time in the history of our Country. This condition is not due, in any perceptible extent or degree, to any action or lack of action on the part of either management or employee. It is due, however, as I shall later undertake to point out, to agencies and forces entirely disconnected with these relationships.

We all know that one of the most vital things affecting management and employer and employee relationships is. the labor union. Not the labor union of ten years ago, but the labor union of the "New Deal"—"Forgotten man" philosophers. The C. I. O. Union that tells the tailoring industry it cannot negotiate with individual tailors, and that if a tailoring establishment wants to hire a tailor, the hiring must be done through the Union, and if the tailor is not satisfactory, the employer must not talk to the tailor but to the Union. The labor union that takes over the owners property by means of a sit down strike and holds it by and with the consent and approval of the National Government.

Another factor that has contributed very largely to tearing down the relationship between employer and employee is the fact that the rank and file of the people have quit thinking. We have subordinated our common sense and sound thinking to book learning and college degrees and to Washingtonian and big-city propaganda. The rank and file of our people appear to have become satisfied to accept without question the propaganda of the public officials and politicians in Washington and of the big businessmen in the big cities without ever consulting their own good common sense or bringing their own minds to play on the subject.

We have become a veritable Amos and Andy nation. We use such words as "capital", "capitalist" "profit", "dividends", "social security", "freedom from want", etc., without ever stopping to understand their meaning or significance.

The time has come when we, individually and collectively, if we propose to save ourselves and our country, must go back to thinking—plain ordinary home-spun garden-variety thinking—not educated, college-degree and bureaucratic thinking. There is an old Chinese adage to this effect: "Very ignorant men become very wise by much thinking; very wise men become very ignorant by little thinking." The time has come when we must reverse the order of things by telling the public officers, who are merely our servants, and the politician who would be our servant, what should be done and what must be done instead of letting the public office holders and the politician tell us what is to be done.

So much has been said and written about the "American Way of Life" until we have all been made to believe and understand that the American citizen enjoys rights and privileges far above and beyond those enjoyed by the citizens of any other country in the world, and particularly the right to own, use and enjoy property. We all understand that the American citizen enjoys a higher standard of living and a greater independence than the inhabitants of any other country on the globe.

This "American Way of Life"—these rights and privileges—this high standard of living, are the product of a government that differs from any other government in the world—a government that has fostered and guaranteed a system of free private enterprise—that has enabled employer and employee to work and plan together for their common good.

Prior to the adoption of our Constitution, experiments in governing had swept the full circle from mob to monarch, to democracy, to tyranny, to autocracy, to feudalism and back again. Of these, none had guaranteed "life, liberty and the pursuit of happiness" to the individual. Instead, each brought misery, suffering and oppression. Each characterized a tyranny of persecution and military despotism that ended in the ruination of the ideals and security of man. In no phase of that cycle of experimentation in government were the rights of the individual secure.

Prior to the American Government, the citizens or subjects recognized that the government had all the power and the citizens or subjects only such rights and powers as were granted or delegated by the government. The American Government was projected and established on the opposite theory—that all power and all authority rests in the individual and that the government has only such power and authority as is specially delegated by the individuals. In order that there would never be any controversy about these rights and powers, the first ten amendments to the Constitution were adopted as a part of it, and Article 10 provides—"The powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved to the States respectively, or to the people.

When the Constitution of the United States guaranteed "life, liberty and the pursuit of happiness" it expressly guaranteed the right of free private enterprise and deniedthe right to the Federal Government ever to interfere in any manner whatsoever.

This Constitution guaranteed equality of opportunity—and not equality of reward; and, with this Constitution as the chart and compass, American citizens have built and developed an industrial life and an employer and employee relationship that has been the envy of the industrial world, just as the Constitution has been the envy of the political world.

We have enjoyed this American way of life—these freedoms and high standards of living so long and with so little sacrifice on our part, that we have taken them as a matter of course and have regarded them as a gracious gift from God.

My friends, Almighty God never bestowed the Heavenly Kingdom on mortal man as a gracious and free gift, but we who hold the Christian religion understand and believe that Jesus Christ bore our griefs and carried our sorrows and was wounded for our transgressions and bruised for our iniquities, and finally died on the Cross for our sins that we might finally enjoy the Heavenly Kingdom. Likewise, Almighty God never bestowed the Constitution on the American people as a gracious and free gift, but your forefathers and mine left their homes, families and friends and abandoned a civilized world for a life among savage Indians and the wilds of a new world. Many of these intrepid crusaders lost their lives from cold, hunger, exposure and disease but they were willing to make any sacrifice that we, their descendants, might some day enjoy this American way of life. Do you, fellow Rotarians and friends, realize that out forefathers struggled on this continent for 180 years—or for practically three generations to bring our Constitution into existence, and that it finally took the Revolution to weld and rivet this great document? But for the terrible condition confronting the Colonies, following the Revolution, the Constitution of the United States would never have come into being.

Something has happened to this industrial life and this employer and employee relationship, however, and something is happening to the fundamentals declared and guaranteed by this Constitution.

The chief executive of these United States has used the words "forgotten man" so often and in such a manner as to create the impression and justify the belief on the part of employees generally, that the employer or somebody else has wholly forgotten about the welfare of the employee. The use of the term has been so general as not to specify in what respect the man has been forgotten and does not particularize as to what relief is going to be afforded; but, nevertheless, the term has been used in such a manner as to justify the hope and belief on the part of employees that the employee may look to the government rather than to the employer for equality or reward rather than for equality of opportunity.

The Chief Executive of these United States has so frequently used the words "New Deal" until every employee has been justified in believing that the government is the agency that will revolutionize the relationship between employer and employee.

The Chief Executive of these United States has so generally and so feelingly used the terms "Social Security and "Freedom from want" until employees have been made to feel that they may look to the Federal Government rather than to their employers for the food and clothing necessary to take care of their families.

All of these preachments are predicated on the theory that the old order is all wrong; that instead of the individual being the master and the government the servant, the gov-

ernment should be the master and the individual the servant; that private free enterprise should be banished in favor of governmental operation and that employees should no longer be dependent upon private employment, but may look to the Federal Government with the assurance that they will have full time employment or, in the absence of such employment, that the government will provide food and clothing necessary to take care of their dependents.

It would not be surprising or particularly alarming if only the employees accepted and believed this propaganda, originated and preached by the highest officers of our National Government and the "Washington Brain Trusters," frequently referred to as "ghost writers". We might, with a good deal of complacency, regard it as the job of good management to meet and overcome this propaganda with its own employees. But when we find bankers, lawyers, economists, school teachers and College Professors, embracing, advocating and teaching these Un-American doctrines—doctrines directly opposite to our Constitution—you and I are challenged to buckle on our armor, and go out to battle against these enemies of the American way of life. There may not be much that we can do about the bankers, or about the lawyers or about the economists who are not being supported by our tax dollars, but when it comes to the public servant who is being supported by the taxes that you and I are paying, and who is responsible for carrying out the mandate of the Constitution, there is a good deal that you and I can do about it. Another thing that is equally or more serious is the fact that some of these same people, who are insisting that the fundamental teaching of the Constitution is outmoded and out of date, feel the same way about the fundamental teachings of Almighty God. A few years ago I heard a man who is now teaching in one of our colleges and who is also preaching the paternalism of government, so I am reliably informed, make the statement that we could not expect freshmen and sophomores in college to believe the miracles of the New Testament.

"In vain we call all notions fudge,
And suit our conscience to our dealings;
The Ten Commandments will not budge,
And stealing will continue stealing."

The relationships that existed in days gone by between employers and employees are not going to be restored solely by any activity on the part of management, no matter how good this management be. But good managers must tell employees, and you and I and every other person interested in preserving the American Constitution and the American way of life—must tell the public generally—the meaning of a few of these ordinary words and phrases that we have all been using with such familiarity and without much comprehension of their real meaning.

It has been suggested, and I submit with a good deal of merit, that if employees had a better understanding of the meaning of "capital", "capitalist", "profits", "dividends", etc., we would have fewer strikes. Men frequently strike, not so much because they are dissatisfied with their wages, but because they believe they are not getting a fair share of the profits.

Many employees, as well as others, when they think of the "capital" of a large corporation, visualize money in the bank. It would be very helpful if these employees, in particular, and the public in general, understood that the capital of an industrial corporation is the ground, the buildings, the machinery and tools by which and with which employees work. If these employees understood this fact they would know and understand that capital can never pay wages. If we started paying wages with capital, one employee wouldbe going home with a plank out of a building and another employee with part of an engine or generator and another employee with some vital tools, and thus the plant would soon be dismantled to the point that there would no longer be employment.

Employees and others, should be made to understand that the only thing that can pay wages and the only thing that can pay salaries, is income. Income is that product which results from applying labor to capital—machines, engines, tools, etc. Capital, whether it be money, land, buildings, machinery, tools or whatnot—is absolutely unproductive until labor is applied. Contra, labor is absolutely unproductive and without earning power unless and until applied to capital—that is, to land, machines, tools, etc.

The word "dividend" to many is just exactly the same thing that a red flag is to a bull. This, all because they do not understand what dividends really are. Dividends are the wages that are paid for capital. To be more specific, dividends are the rent that is paid for the machinery and the tools that are bought with what is known as capital. There are approximately 175,000 stockholders of General Motors Corporation, or 37.7% of the stockholders, whose investment is $1000, or less. The money that has been furnished by these stockholders has been used to buy land, to erect buildings, buy machinery and tools, with which the laborers carry on their work. The dividends that are paid to these stockholders represent the rent that is being paid to these stockholders for the machines that they have furnished to be used by these laborers.

Employees and every one else should be told and made to understand, if possible, that no concern has made any "profit" until this wage has been made and paid for this capital. The wage for capital should be an expense item just the same as the wages for labor. If the business concerns throughout the country would accept and act on this principle, business and accounting would be on a sounder basis. It would result in very much less erroneous and misleading publication of big profits. I submit that every business ought to deduct from its earnings a fair dividend—or fair rent, or wage for capital in order to determine whether or not there is a net profit. Management as well as the public should understand that management has not made any profit for the stockholders until a wage, at least equal to the interest rate for money loaned on doubtful security, has been paid.

A capitalist is one who does not pay out as much as he takes in and therefore has something left. It does not matter how small this amount is, the owner is a capitalist. The man who owns an axe or a hoe and uses it is a capitalist and is using capital. By the use of this capital he is able to increase his income.

Everybody recognizes that there can be no income without labor, and that, therefore, labor is entitled to a fair wage. But it is also true that there can be no income without capital, and it, therefore, follows that capital is also entitled to a fair wage. If labor is entitled to receive its wage at regular and fixed intervals, does it not logically follow that capital should receive its wage at regular and fixed intervals?

It is submitted that the attitude of some employees towards "capital", "dividends", etc., would be entirely different if the employee stopped to think that his wages of $3.00, $4.00 or $5.00 a day, are due to the fact that he is operating a powerful machine that has been bought and paid for with "capital"; that his production is not due to his own skill and power, but to the skill and power of this machine.

Fellow Rotarians and friends, it is your duty and my duty to aid and assist good management in educating employees to the fact that only by the assembly, organizationand arrangement of a large number of machines is labor afforded the fullest employment and the best wages; and that this assembly, organization and arrangement of machines is due almost wholly and solely to good management. In other words, that the increased income of the laborer who uses and operates these machines is due not alone to the machines but to the foresight and ability of good management.

The Chief Executive of the United States and his trumpeteers tell us about "Social Security" and "Freedom from Want" with such fervor that many seem to believe they will be fed with manna from heaven, instead of living by the sweat of their faces. These preachments, like all other "New Deal" philosophies, are predicated on paternalistic conceptions—on the idea that the Government is the master and the citizen the servant.

It is a good thing for you to try out some of your own common sense on these soothing platitudes. When you are told that the "Government" is going to provide "Social Security" and "Freedom from Want", you should analyze this statement by substituting your own name for the word "Government", because, after all, the "Government", is just you and me, and all other "yous" and "mes" in the United States. You should also remember, however, that these trumpeteers or racketeers who are preaching "Social Security" and "Freedom from Want" are making a living, spreading this propaganda, and that you and the balance of the American citizens are the ones who are paying the fabulous salaries to these trumpeteers.

The Chief Executive and his trumpeteers, however, have not told you that this "Social Security" and "Freedom from Want" is being offered you in exchange for the freedoms and rights guaranteed to you by the Constitution. Under our Constitution, one does not get rights and freedoms by the passage of laws. Every time the Government passes another law, it takes away another right or freedom of yours.

Let's do a little more analyzing: Social Security is promised you on condition that you will be an employee—a servant, if you please. I appeal to you and every other individual citizen to make your own analysis of Social Security. It is predicated on this theory: Two brothers, John and Jim, grow up and John engages in business for himself. The Federal Government tells him what wages he must pay, how many hours he may work his employees, and then exacts a tax, either from his profits or from the capital, to provide Social Security, but John can never get any benefit from this Social Security because a prerequisite to getting Social Security is to show that one has worked as an employee; but, the Government says to Jim, if you will hire out as an employee and forego the privilege of engaging in business on your own account and, as and when you get out of a job and make affidavit that you have been an employee—a slave if you please—that you are out of a job and cannot get one, the Government will hand over to you the money that has been extracted from John and from other employers and employees. In other words, the advocates of Social Security would oner you this stipend in exchange for your surrender of the right of private free enterprise. During the present war, we have seen the prevailing wage for labor go up by very substantial percentages; and, while there are some private enterprises that have made substantial profits and are, therefore, able to pay an increased wage for the use of capital, there are a great many other private concerns that have found it necessary to reduce the wage paid for capital, particularly because of the very heavy tax exactions. We have also seen things develop, however, to the extent that it a exceedingly hazardous for the smaller capitalist to risk his money is private enterprise.

Your own sound, common sense will tell you that if we, the American people, persist in exacting a tax from capital invested in private enterprise in order to provide social security for employees, the hazard for the small capitalist will simply be too great; and this small investor must, as a matter of self-preservation, hire his money to the Federal Government at the low rate of return he receives and, himself, become an employee to the end that, if, as and when he is unemployed, he may be able to enjoy "Social Security" by showing that he has been an employee, rather than an employer.

If you will fix and keep in mind one fundamental thought, it will greatly aid you in appraising all of this "NEW DEAL" propaganda: When some well-meaning somebody suggests that the Government should always see that every man has the opportunity for some work in times of distress, just substitute your own name in the place of the word, "Government". Just remember that you and I are the Government—and all other "yous and Is".

While the propaganda originated and disseminated by high-ranking officials and politicians is the most persuasive, there are many private individuals and/or organizations of good standing that are diligently spreading Un-American doctrines.

In New York, there is an organization known as the Twentieth Century Fund, and this organization commissioned one Stuart Chase, who bears some reputation as a writer, to make a series of "exploratory reports" on post-war problems. Mr. Chase, in one of his reports, says this: "The Democracies have got to find a permanent way to full employment, and a way to give their citizens a sense of function, of belonging to the community."

Most assuredly, it would be fine if Almighty God had endowed us with the power to provide full time employment for the rest of the world, or for any one individual; but time is the chief commodity that every human being has to market; and the primary problem of every human being is to market profitably enough time to provide support for one's dependents. Some individuals elect to provide their own market for their time by engaging in business on their own account, while others prefer to let someone else provide the market by becoming employees. Sense—managerial ability—and capital—are prime factors in the marketing of time. Without a rather bounteous supply of both sense and capital, there cannot be full time employment. The small farmer provides a typical example. The one-horse—one-crop farmer can profitably market only about 70 to 75 days in growing and harvesting a crop of oats; about 75 to 80 days in growing and harvesting a crop of wheat; about 85 to 90 days in growing and harvesting a crop of corn; and about 105 to 115 days in growing and harvesting a crop of cotton. There is a differential of five to ten days between the one-horse and the two-horse farmer, and a like differential between the tenant and land-owner farmer. The answer to the problem of the farmer lies in a diversified system embracing livestock, hogs, horses, poultry, et cetera. And this requires capital and managerial ability. Would Mr. Chase provide full time employment for these farmers? Suppose Mr. Chase gets the capital with which to provide the cattle, hogs, poultry, et cetera, then from what source is he going to get the managerial ability? Time and sense are God-given talents, and I am still fundamental enough to believe that God has given people talents according to their respective abilities to use them, and I am still fundamental enough to believe that, if Almighty God did not give a man the ability to use these talents, neither the President, Mr. Chase, nor any other human being can give him the ability to use them, for I do not believe even thePresident, Mr. Chase or any other brain-truster is equal to God.

All I ask for myself is equality of opportunity—not equality of reward. What I ask for myself, I demand for the other fellow.

My friends, everything I have said not only bears directly upon employer and employee relationships, but with equal force upon your life and mine. Every thinking person knows that the American way of life—private free enterprise—is on trial at this very moment for its very life; and that our Constitution, providing for three co-ordinate, but equal, departments of Government has been on trial for its life during the whole of the present National Administration. Whether you are satisfied with our Constitution and the freedoms and developments it has brought us, or whether you are a New Dealer, is your responsibility and not mine. The President of Harvard University in a recent article in the Atlantic Monthly appeals for the appearance on the scene of "the American radical." He then proceeds—"Now, what is this American radical to be like—this successor to the men who abolished primogeniture at the founding of the Republic, who with zest destroyed the Bank of the United States in the times of Andrew Jackson? In the first place, he will be obviously more indigenous than our friends the European radicals or even our friends the American reactionaries. He springs from the American soil firm in the belief that every man is as good as his neighbor, if not better, and is entitled to a real chance for a decent living. Instinctively in the early days of the republic, his predecessor supported the ideas of Jefferson, as against the more aristocratic and monarchial conceptions drawn from Europe. No one needs be told that the American radical will be a fanatic believer in equality". I claim the honor of filling this order for "the American radical."

If you happen to be one who believes that our Constitution was bestowed upon the American colonist like God sent the manna from heaven, or that it was designed for a particular time or particular purpose and is now outmoded, may I respectfully submit that you are mistaken. God, Gold and Glory were motivating forces in causing our forefathers to leave a civilized world and families and friends to come to the bleak and barren shores of this new world and face the savage Indians, disease and want. It was in the lives and sacrifices of these men, who, by their mightiness of character, and in sweat, blood and tears, molded in this wilderness a solid foundation for a solid nation, that Constitutionism had its origin. But for 180 years, or practically three generations, they fought at home and abroad to establish, preserve and keep "life, liberty and the pursuit of happiness"; and finally and at last it took the bloody American Revolution to forge, weld and rivet the Constitution of the United States. The triumvirate of God, Gold and Glory motivated our forefathers to spill their blood and lay down their lives to reserve all power to the people. But Gold and Glory have motivated our office-holders, autocrats and bureaucrats in Washington to usurp this power and take it away from the people. These usurpers, as far as I have been able to see, have completely left the God of our forefathers out of their operation. I find no recognition of the right of private property, as declared in the Commandment, "Thou Shalt Not Steal"; I find no trace of the Parable of the Talents; and I find no trace of God's declaration "Is it not lawful for me to do what I will with mine own"; and I find no trace of the teaching, "If any man would not work, neither should he eat." Rotarians and friends, I beg that you do not delude yourselves, for

"To abandon usurped power, to renounce lucrative error are sacrifices which the virtue of individuals has on some occasions offered to truth; but from any society of men, no such effort can be expected. The corruptions of a society, recommended by a common utility and justified by universal practice are viewed by members without shame or horror; and reformation never proceeds from themselves, but is always forced upon them by some foreign hand."

Rotarians and friends, much is being said and written about post-war planning, but I have today presented to you the very first step, for I believe with James B. Conant of Harvard University that—

"Until we settle within the United States our approach to such difficult questions as the relation of management and labor, and the control and ownership of the tools of production; until we square away on a course that will make us both prosperous and free, we shall be irresolute in deciding our foreign policy."

When the Revolution was over, the Colonies were torn by strife from within and harassed by creditors from without, and the Constitution was promulgated and adopted as the Great Charter that has safely guided us through wars and peace for 156 years. In this hour of peril, I plead with you to return to the God and the Constitution of our forefathers and render unto Caesar the things that are Caesar's and unto God the things that are God's.