The Importance of Jobs
JOBS FLOW FROM COMBINATION OF CAPITAL, MANAGEMENT AND OPPORTUNITY
By ALFRED P. SLOAN, Jr., Chairman of General Motors Corporation
Delivered at Annual Dinner Meeting of the Academy of Political Science, New York City, November 15, 1944
Vital Speeches of the Day, Vol. XI, pp. 115-119.
I HIGHLY appreciate the honor of addressing The Academy of Political Science this evening. The subject of my remarks, I fear, is rather prosaic in comparison with the dramatic events of each passing day. There is little glamor in a job. There is little glamor in what makes the wheels of business go around. And often people too little understand and appreciate what makes for the better or worse in the flow of business and its influence on job opportunities. On the contrary, Mr. Welles presents a thesis the drama of which challenges our imagination. There we recognize that the ceiling of exploration is unlimited. We are examining into the possibilities of new relationshipsamong the peoples of the world, and we realize that a solution is essential to the more orderly development of our civilization, even to its continued existence.
So I submit that Mr. Welles and I present this evening in the dramatic and the drab the two most consequential problems that face our civilization in this, perhaps the most critical period of its long evolution. First, the maintenance of PEACE—second, the opportunity to WORK. These problems have NEVER been solved. They return from time to time to challenge our way of life. They even threaten our national existence. They grow both in intensity and complexity with the passing of time. Personally, I have never had any lack of faith in our ability to win the war. I am concerned, and deeply so, with our ability to win the peace. And it is very definitely my conviction that if we do not meet this challenge—the prevention of war, and more particularly jobs for those who want to work—democracy as a political instrumentality and free enterprise as an economic concept, as we have known them in the past, are in grave danger of passing out with the war itself.
You may think I am placing too much importance on this problem of JOBS. I do NOT think so! The problem was developing in the prewar years. It was clear that sooner or later the issue had to be faced. It arose in acute form due to the political attacks on enterprise in the 'thirties.' It was accelerated by national economic policies that limited in large part the essential incentive for the normal development of enterprise with expanding job opportunities. Thus, a synthetic depression involving a continually high state of unemployment followed one in fact. Ten million out of work at the beginning of 1940 was the end result.
Today the cry for opportunity in the postwar era is international in scope. It echoes and re-echoes around the world. It appears in the utterances of the Prime Minister of England, in the pronouncements of the President of the United States. It is reflected in the thinking of the American doughboy who asks: "Am I to have a JOB?" It assumes an important part in the forum of current discussion. It asserted itself recently in a white paper presented by the British Government to the Commons, the opening words of which were:—"The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment after the war." Truly an event in economic history! It is clear that a job for those who are willing to work is a social, economic and political 'must' in the postwar era. It is clear that there is no single problem facing the people of the world today the solution of which means so much to so many. Jobs ARE important!
The first thing we must learn is that JOBS are an end result. They are not a means to an end. They do not just HAPPEN. They do not result from wishful thinking. There are no rabbits in this particular hat. Political promises do not create jobs. And never will. Jobs flow from a combination of capital, management and opportunity. And from nothing else! The catalyst is a prospective profit. Without these ingredients there can be NO jobs in a free economy. The foundation upon which the superstructure of jobs must be built is confidence in the future of enterprise as determined by national economic policy. It NEVER has been otherwise. It NEVER will be. I submit that we should direct greater effort to developing a comprehensive understanding of what must be done to expand job opportunities and where such opportunities lie. And how it must be accomplished. Only in that way can we effectively meet the challenge that we face as we pass from war to peace. Let us put the horse before the cart.
We cannot meet this challenge by adopting panaceas or through the use of mirrors. We have tried all that. It has failed! The problem can be solved permanently only within the structure of sound economic policy. We should profit by past experience. We must do those things that will serve to encourage and stimulate enterprise. We must build a foundation of confidence in its future opportunities. Men cannot plan ahead with confidence if uncertainty exists. Business cannot plan ahead with confidence if it is to be hamstrung by a political leadership which, although it may pay lip service to the cause of free enterprise, believes in something different and acts to prevent the system from effectively working.
The London Economist recently said:—"If liberal democracy is not compatible with full employment, then it is liberal democracy that will go. . . ." If full employment is not achieved under our free enterprise system, then the people will demand something different. And irrespective of the fact that the 'something different' could not possibly offer a solution. It is clear, I believe, that if we fail we shall pass to some form of planned and regimented economy. We shall lose our economic freedom. We shall become dependent upon Government and Government expenditures, with continuous deficit financing attempting to support the economy, expand employment and thus synthetically increase national income. Should this occur, Government would have to operate on a very different and far broader front. Old concepts such as those of public works would be far from sufficient. Government would have to compete with private enterprise in the production of goods and services. This would mean a direct conflict between Government and enterprise along a wide front. It would be inherent in such an approach. And no matter how efficiently enterprise might be conducted, it could not continue to exist. Subsidies and other economic policies would mark the beginning of the end—the end of the American enterprise system as we have known it in the past, the beginning of Government ownership and the socialization of enterprise. It is one approach or the other. The recent elections, by implication, emphasize what has just been said.
Thus, we find that a formula to meet our objective of an expanding economy with increasing job opportunities contains three prime components.
First, a national policy that contemplates two objectives—one, to create incentive and to reestablish the spirit of venture by making constructive effort worth while; the other, to do all things throughout the ramifications of the whole economy that will serve to broaden and strengthen the field of opportunity in which business must operate.
Second, a business policy that recognizes a responsibility far beyond that within itself. One that contemplates the application of economic statesmanship, one that accepts the fact that it is no longer sufficient to limit the horizon of the management of enterprise to the mere production of goods and services. One that gives consideration in the policy phase of its operations to its relationships with the economy as a whole.
Third, aggressive and imaginative leadership in both areas. In the national field a leadership that recognizes the fundamental fact that production is the source of all economic progress and is essential to higher living standards. That America is a nation of business and business people. That those who accomplish more serve the people best. A leadership that will exert its influence and prestige toward futhering such objectives. In the business area a leadership bold, aggressive and imaginative not only in discharging its duty to its individual interests but in doing so also recognizing its broader responsibilities in promoting progress and stability in the economy as a whole.
The application of such a formula would inspire confidencein the long pull position of enterprise. It would expand enormously the future possibilities of American business. It would change the whole aspect of our problem of job opportunities.
If we agree that jobs are important, what should be our program? A comprehensive formula for action is beyond the scope of these few remarks. We can, however, identify a few points of attack. We can examine the possibilities of new reservoirs of job opportunities resulting from the political and economic developments of the war. We can challenge certain conceptions. We can clarify certain popular misunderstandings.
Most discussions relating to job opportunities by implication assume that a high proportion of total employment is in manufacture. We visualize the worker as someone entering the factory gate with a "full dinner pail" as we used to say. It has been estimated that 55 million civilian jobs should be the objective of the postwar era. About 46 million people appear to have been employed gainfully in civilian occupations in 1940—the last year before the economy was greatly changed by the war. If this figure of 55 million is a reasonable objective, it would require about 8 million additional civilian jobs postwar if our concept of high employment is to be achieved. Only 24 per cent of those employed in 1940 or about 11 million were engaged in manufacturing. About 23 per cent or 10 million were in agriculture. A little less than 45 per cent were in the services, such as distribution, transportation, communications, financing, public utilities and the like. And finally about 9 per cent were in the employ of the Government as civilians. The distribution of jobs is in a constant state of flux. It is clear from this record that manufacturing alone can not possibly supply all the additional postwar jobs. Distribution, transportation, construction, communication, banking and all the service trades must contribute their share. It is important, therefore, that we stimulate the establishment of small enterprises not only in manufacturing but in all other lines of activity. That we encourage more people to become employers. That we develop employment opportunities wherever useful services can be performed. That we urge the doughboys coming home from war to seek such opportunities.
There has been a tremendous expansion in the aggregate output of American enterprise brought about by the war. It has been accomplished by full employment, longer hours, expansion of existing plants and a huge investment in new capacity. This is evidenced by the great increase in the index of industrial production. It is reflected in a tremendous expansion in our national income. Part of this expanded industrial production represents guns and another part butter. A very important question of policy here arises. WHAT is to be done with the huge Government investment of something like 15 billion dollars in American enterprise? And what can be expected from it, if converted to purposes of peace, in terms of contributing to higher living standards through providing an additional reservoir of job opportunities?
Any scheme of mass production is designed to a specific objective—the fabrication of a single type of product on a large scale. The tooling, the type of machinery, the layout of the plant, the building structure itself, all are directly related in detail to the articles to be produced. There is little flexibility. All might be described as a production scheme surrounded by an enclosure. To change from the production of one type of thing involves a complete reorganization of facilities. In such a reorganization it might well happen that the plant would be too large or too small or in the wrong location or that the type of structure would not be suitable for the new task from the point of view of an effective end result, or the plant might be uneconomic in some other way. It is certain that the machinery would be unusable to a greater or less degree. It might be said, recognizing the dangers of generalities, that to produce some other product an average plant might require an additional investment of 50 per cent of the original cost. But this additional capital is only part of the problem. There must be the new product and that involves engineering, production, selling and know-how—a going business, in other words.
It has been stated that of this 15 billion dollars of Government investment in American enterprise, 30 per cent in value represents plants involving a cost of over 50 million dollars each. And that only 5 per cent represents plants of less than 1 million dollars in value. Even in industrial America there are few enterprises large enough to support production facilities on this grand scale. And nearly one-third are unsuitable for peacetime use irrespective of their size. We conclude that in all probability this production capacity can contribute only a limited amount towards sustaining our national income and providing job opportunities after the war is over.
It might be thought that the period into which the economy will in all probability soon enter involving the reconversion of industry is of little importance from the standpoint of unemployment because it is a one-time problem, so to speak. The contrary is true. If the problems incident to the transition are not solved effectively and realistically and, most importantly, promptly, on the part of the Government and business, and there should result a prolonged period of unemployment on a large scale, lack of confidence in future opportunities might well develop to the point where the spiral of business activity would turn downward. The direction in which we start after the war is of great significance. Constructive and aggressive planning on a scale demanded by the seriousness of the problem of reconversion is of vital consequence at this time. With the anticipated ending of the war with Germany before that with Japan, there is an opportunity to cushion the shock of the transition. It is important that this be capitalized to the utmost. If we were to contemplate the sudden ending of both wars at the same time, the situation would be serious indeed.
It has been stated that, as a part of the economic and political settlements of the war through the reduction of the barriers restricting world trade, there will be an important expansion in job opportunities within the American economy in the production of goods and services for export. Although this may be true for the shorter term, I think it is highly problematical if the long pull position is considered unless we tax our people to give things away. During the last twenty years there has been a strong trend toward industrialization throughout the world with loss of American exports. All countries are striving to create job opportunities for their people by producing rather than importing. But as the industrialization of the world develops and as more countries increase their efficiency they become bigger and better customers in world markets. Thus we both lose and gain. Whether there are more or fewer jobs in American exports depends upon the balance between these two influences. We can contribute to higher world living standards by seeking profitable opportunities to export our capital and our know-how. This we should do. And by so doing we help ourselves.
From what I have said as to these particular potential reservoirs of additional jobs postwar, it is not to be inferred that our capacity to produce and to employ has not been increased. It has. And in substantial degree. Likewise our know-how has been broadened by the engineering and production experience of the war. Also, technological progresshas been stimulated. All makes possible greater opportunities for the future. But I do want to emphasize the fact that what has been accomplished in the expansion of production and national income, reflecting as it has full employment during the war, has far less bearing than generally appreciated on what will be possible in the peace. Entirely different circumstances will then prevail. Such comparisons are leading us into a false security and a far too optimistic appraisal of future probabilities. To avoid misunderstanding that might well lead to an undesirable reaction, we should encourage a more realistic appraisal of the future possibilities. We are overemphasizing the prospective glories of the postwar world. We are under-emphasizing the price that must be paid for the losses of the war. We are discounting the necessity of hard work. We are too little concerned with the problems we face and the dangers and uncertainties that exist. We must get down out of the stratosphere. We must face the facts.
I have tried to find my way in a realistic manner through the maze of confusion, generalities, uncertainties and optimistic estimates now being advanced and develop some measure of the future possibilities for my own business purposes. The real measure of our living standards is the physical volume of goods and services produced. What is likely to be postwar as compared with prewar? Any estimate must be predicated upon some assumption of employment because only through employment do we create wealth. My conclusion is that, on an assumption of a high state of employment with all that objective demands for its accomplishment, we might obtain a gain of perhaps 25 per cent in our living standards postwar over that of 1940. As a matter of fact, such an achievement would be real progress. It would represent a postwar net national income of about 100 billions in terms of 1935-1939 dollars as compared with 77 billion dollars of the same standard in 1940. Such a postwar national income would be equivalent to 125 billions expressed in 1943 dollars. This would be higher than our national income in 1941 which was by far the highest the country ever enjoyed up to that time. It would also represent less peacetime unemployment than we have had since 1929.
In the field of national policy taxes have a controlling influence on business development. It has been well said that our system of free enterprise begins and ends with the tax structure. Today it is a generally accepted fact that our present tax structure is a hodge-podge of inconsistencies. It has been amended from time to time during recent years by emergency measures based upon expediency, political and otherwise. Its fundamental concept has been social change rather than revenue and the encouragement of enterprise. It has been concerned too much with the raising of money for relief and too little with the elimination of relief by encouraging business development and employment. What is needed is an entirely different concept. One that will reconstruct the spirit of enterprise. We must make it worth while to do things. We cannot solve the problem of 55 million jobs on an "I-win-you lose" type of philosophy. We must start from the beginning with a clean sheet. The new concept should recognize the basic fact that, just as lower prices mean an expanding business volume, lower taxes mean increased dollar revenue through expanding the base of taxation. Double taxes on business should be eliminated. Capital should be free to move from one place to another in the economy. We should encourage the use of the most modern instruments of production.
Existing national policy regarding the relationship of labor and enterprise is manifestly unfair. Both should be treated equally in relation to their responsibilities and privileges. All should support the principle of collective bargaining. Recognizing the great privileges labor is now enjoying, it should assume a corresponding degree of responsibility for its acts. No man should be required to pay for the privilege of having a job. The relationship of labor and management is the most serious cloud on the potential accomplishments of the immediate postwar period and a real danger at a highly critical time. And as to the long pull position the economic consequences of the existing policy of labor leadership of more money for less productivity can only mean higher selling prices, hence reduced business volume and a contraction in job opportunities.
I have referred to economic statesmanship as an essential component in the operating philosophy of the management of American enterprise. Economic statesmanship contemplates first arid above all a recognition of the prime importance of technology. That is the motivating center of all REAL progress. It recognizes the economic significance of wage rates as affecting both selling prices and purchasing power. Business must have customers. It recognizes that search applies to all the functional activities of enterprise and must NOT be limited to the physical sciences. It must search for progress in such areas as distribution, labor relations, organization and management technique. It must be directed to the creation of new and useful things. It must find ways to sell existing products at lower prices.
Industry should be decentralized. Plants in more places should be the objective. The result is a better balanced local economy, hence a better balanced national economy. Management must respect the economic formula that production equals consumption plus savings. Surpluses must not be permitted to become static. They must be actively reemployed in either consumption or production.
Management must recognize that savings in cost will stimulate the economy most through a reduction in selling prices. Management should know that any arrangement that limits competition through the maintenance of prices, restriction of production, markets or product development, or in any other way, is prejudicial to the cause of free enterprise. Free enterprise cannot exist in an atmosphere of monopoly. In its relationships overseas, as at home, management should recognize the stimulating benefits of competition. Cartels should be outlawed. Price policy—one of the most important economic functions of management—should be based upon a constant overhead determined by a realistic estimate of available capacity. Incentive as applied to capital is recognized. But incentive applies equally to management and to all concerned in enterprise. Men are not created equal in their willingness to accomplish or their capacity to do so.
WHAT is the end result of all this in terms of the probable economic events of the postwar period? And why?
It is a generally accepted belief that after the period of reconversion we shall enter a period of high industrial activity. There will exist a shortage of consumer durable and semi-durable goods. Capital goods in large volume will be needed not only for new production but to offset the obsolescence accumulated during the war. There will in all likelihood be substantial and insistent demands from other countries for goods and equipment to re-establish their economy after the ravages of the war. Inventories must be replaced. Hence an enormous demand is in process of being created along the whole economic front for goods and services and must be satisfied to bring our standard of living up to prewar levels.
There exists a large bank of purchasing power in the hands of both the consumer and business. Reserves for depreciation and obsolescence are available. War bonds have been accumulated in large volume. Indebtedness has been liquidated. The reservoir of instalment purchasing has been replenished. Savings bank deposits reflect the accumulated savings of the people.
History shows that after all wars there has followed a period of great industrial activity. The pattern varies only in magnitude and duration. The economic forces prevailing on this occasion are far-reaching and more powerful than ever before existed. Industry is completely converted. The length of the war is a factor. Industrial capacity has been greatly expanded. But there are potential dangers. The forces leading to inflation cannot be ignored. The transition period from war to peace is highly critical. There are many other uncertainties.
It must be recognized that the immediate postwar picture I have presented is synthetic in its origin. It is not based upon an economic balance of consumption with production. To formulate business policy upon such a set of circumstances would be far from realistic. The fields of business opportunity must always be appraised for its long-term as well as its short-term possibilities. And likewise as to whether the underlying factors are sound and likely to be permanent or synthetic or political in character.
Such is the picture of the economy after reconversion is completed in the early years of the postwar period as I visualize it. Now, and finally, what should the management of American enterprise do? I believe there is both an opportunity and a responsibility.
An opportunity to establish our national income on a substantially higher level than prewar standards and on a basis insuring a sound advancement in our living standards with expanding job opportunities. A responsibility to take the initiative and assume a sane risk to insure a greater over-all utilization of our expanded economic resources, materials, manpower and productive capacity.
This concept is based upon both conviction and faith. Conviction as to the fundamental validity of the opportunity and as to the reasonableness of the desire that establishes its objectives. Faith that the economic panaceas—the "rabbit-out-of-the-hat" approach to the problems of the national economy—will have died with the war; that our people, as a result of the war, have found an inspiration in an opportunity to do something worth while and to work for the things they want. I believe the "something-for-nothing" philosophy has passed. This change is certain to reflect itself in new and different national economic policies that will broaden the field of business opportunity. Perhaps my faith may not be justified by future events. As a matter of fact, to be frank with you and honest to my own convictions, this faith has been somewhat shaken by current events. Without such a basically different approach, however, any such effort could but end in failure. It is because of that faith to which my associates in General Motors subscribe that we have adopted as our concept of General Motors postwar a program which contemplates an investment something in excess of 500 million dollars. To an important degree that is an investment in job opportunities. And it expresses in concrete terms our faith in the future of American enterprise.
There can be no real ending in accomplishment so long as scientific research continues to move forward and at an accelerating rate. We are just beginning to understand the marvels that nature has made available to us. The real problem is to so manage our affairs as to make the possible possible. That is where we fail. And we should in directing our effort strive to capitalize these marvelous opportunities that are right within our reach in terms of constantly advancing living standards, the end objective of all economic progress with more things for more people and job opportunities for all.