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Lewis Corey

The Decline of American Capitalism

PART SIX
Concentration of Income and Wealth

CHAPTER XVIII
The Multiplication of Stockholders

THE concentration of income has strong roots in the concentration of stock ownership, the most characteristic form of property in modern capitalist society. In the ballyhoo of Niraism, of state capitalism, there is nothing about “democratizing” corporate ownership and thus realizing “industrial democracy,” a new social order. Yet this was the heart of the “economic revolution” proclaimed by the pre-1929 “new capitalism,” and the only one of the older claims which does not reappear in the new ballyhoo. It was all very simple: corporate ownership was being democratized by the multiplication of stockholders; the stockholdings of large investors, of the capitalists, had decreased, were still decreasing, and would continue to decrease; in the redistribution of stock ownership the wage-workers, because of their increasingly higher wages and larger share of the national income, were the largest beneficiaries. Workers were becoming capitalists, the capitalists becoming workers. Consequently: “There is no doubt whatever that American labor is headed toward the control of American industry.” [1] This was a prophecy made in 1926; where now are labor’s stockholdings and control of industry?

The multiplication of stockholders is an indisputable fact. But it was, and is, grossly misunderstood and exaggerated. Thus, in 1929, the President’s Committee on Recent Economic Changes stated that “the number of shareholders in the country’s business enterprises has grown from about 2,000,000 to 17,000,000.” [2] The statement implied individual stockholders, although the figures mean only book stockholders, whose names may appear scores of times in the lists of as many corporations. Book stockholders multiplied to a truly great extent, from 4,400,000 in 1900 to 18,000,000 in 1928. The greatest upward movement took place during and shortly after the World War; book stockholders increased an average of 12% yearly in 1917-20, 6.2% in 1920-23, and 4.5% in 1923-28. [3] The smallest rate of growth was in the period after 1923, when the prophets of the “new capitalism” were insisting that corporate ownership was being rapidly “democratized.” And book stockholders multiply more rapidly than individual stockholders. If each of 3,000,000 small investors owns one share of stock worth $100 in various corporations, they figure as 3,000,000 book stockholders; if 100,000 large investors each owns $300,000 worth of stock distributed over thirty corporations, they also figure as 3,000,000 book stockholders, although their total holdings are $30,000 million as against the $300 million of the other group. According to a statistician of the United States income-tax bureau, there were, in 1927, not more than 3,300,000 individual stockholders, who received dividends ranging from $5 to $15,000,000. The distribution was:

• In the group with net incomes over $5,000, there were 516,000 stockholders, who received $3,762 million in dividends.
• In the group with net incomes below $5,000, there were 484,000 stockholders, who received $493 million in dividends.
• In the group of over 40,000,000 persons gainfully occupied, not filing income-tax reports, there were 2,300,000 stockholders, who received $45,000,000 in dividends. [4]

By 1928, the number of stockholders had probably grown to 3,750,000, compared with 1,250,000 in 1900. This was a substantial increase, but its significance was more absolute than relative. For the increase in stockholders, corresponding with that in corporate enterprise, was not much larger than the increase in the number of persons gainfully occupied, and was smaller than the increase in production and corporate wealth. Thus the multiplication of stockholders does not mean more “democratic” ownership of industry. Its real meaning lies in the important class-economic changes in capitalist production, in the development from small-scale to large-scale industry and from the older capitalism to monopoly. The multiplication of stockholders is interlocked both with the upswing and the decline of capitalism.

Capitalist production moves inexorably toward large-scale industry, with capital needs beyond the resources of individual capitalists. Corporations become increasingly ascendant, combining small scattered capitals into one enterprise. Small corporations merge into larger, and these merge into monopolist combinations, which use the capital resources of multitudes of stockholders. Ownership, management, and control are separated. This is a fundamental change in the forms of capitalist property, once wholly individual: impersonal, corporate property becomes dominant. According to one bourgeois economist:

“Most fundamental of all, the position of ownership has changed from that of an active to that of a passive agent. In place of actual physical properties over which the owner could exercise direction and for which he was responsible, the owner now holds a piece of paper representing a set of rights and expectations with respect to an enterprise ... He bears no responsibility for the enterprise or its physical property. It has often been said that the owner of a horse is responsible. If the horse lives he must feed it. If the horse dies he must bury it. No such responsibility attaches to a share of stock ... The value of an individual’s wealth is coming to depend on forces outside himself and his own efforts. Instead, its value is determined on the one hand by the actions of the individuals in command of the enterprise – individuals over whom the typical owner has no control; and on the other hand, by the actions of others in a sensitive and often capricious market.” [5]

The implications, which the economist does not draw, are clear: capitalist property is no longer private property in the full sense of the term; it is social property, expressing an objective socialization of production, while ownership rights and claims remain individual. Thus modern capitalist property is wholly parasitic. The antagonism between social property and individual appropriation aggravates all the maladjustments and disturbances of capitalist production. It also conditions, in its class-economic aspects, the possibility of and the struggle for a new social order [1*] ...

The multiplication of stockholders, because of the transformation of individual productive property into corporate property, is a characteristic expression of the upswing of capitalism. Independent capitalists, where they are not totally wiped out, become stockholders in the corporations which absorb their enterprises. Individuals who formerly might have been independent enterprisers become, under the new conditions, officers or supervisory and technical employees of corporations, in which they may acquire stock. The number of these employees is greatly augmented by monopoly capitalism. Another source of stockholders are the merchandising and advertising employees and professional workers, and all sorts of other middle class elements which have money to invest. Underlying these developments was the upward movement in production, the increasing accumulation of capital, and the multiplication of capital claims, making possible more widespread ownership of stock.

This multiplication of stockholders is also identified with large-scale industry’s increasingly greater capital requirements, not only absolute but relative, as capital investment rises more than production and profits. The fall in the rate of profit augments the investment of capital, and there is a drive to get capital anywhere, anyhow (including the small savings of workers, in the form of institutional investment). One aspect of the growth of monopoly is the “recapitalization” of corporate combinations, which is successful only if their stock is absorbed by a multitude of stockholders. At the same time, efforts to overcome the fall in the rate of profit involve the plundering of stockholders. There is a great turnover among small stockholders. Large corporations augment their profits at the expense of the smaller. Small stockholders are plundered by promoters and financial capitalists, who unload securities upon the gullibles and expropriate small investors in corporate reorganizations. A large part of the profits of holding companies come from plundering the stockholders of underlying corporations. The pressure of surplus capital results in the organization of many fly-by-night concerns, and more stockholders. Finally, the high-pressure salesmanship of investment bankers and brokers swells the stockholding multitudes.

These developments do not, however, break down the monopoly of ownership. For corporate ownership is concentrated in the upper bourgeoisie. But the character of this class changes. “It is now composed primarily of financial capitalists, whose resources are invested in scores of enterprises, none of which they own but all of which they control. Their capital, unlike that of the industrial capitalist, is not bound up directly with production; a mass of paper rights and claims upon production and income, it migrates from enterprise to enterprise, in line with business conditions, the prospects of profit, and the needs of speculation. The Rockefeller interests, originally associated wholly with Standard Oil, came to include hundreds of industrial, utility, and financial corporations throughout the world. But though the financial capitalists seldom own any large part of a corporation’s stock, they control its destiny, while management is the function of hired employees: the more stockholders there are in an enterprise, the more ownership is separated from control, the easier it is for a minority to usurp control. And this control by a financial clique ruthlessly tramples upon both the stockholders and rival minority cliques. This was an early accompaniment of the growth of large corporations. A classic illustration was the meeting, in 1902, of the stockholders of the Metropolitan Street Railway Company of New York City. The chairman of the meeting was P.A.B. Widener, millionaire capitalist, director in the United States Steel Corporation and other affiliated enterprises of the House of Morgan. The meeting went on in this manner:

WIDENER: The tellers will now take the vote.

STOCKHOLDER: We wish a discussion of the matter. Let us discuss it before we vote for it.

WIDENER: Well, you can vote for it and discuss it afterward.

STOCKHOLDER [amazed, incredulously]: Do you mean to say that we must vote and then discuss?

ANOTHER STOCKHOLDER: You wish us to be executed first, then tried, is that it? We object to voting before discussion.

WIDENER [bored, smilingly]: Well, sir, you may withhold your vote until after the discussion. The Chair orders that the vote shall be taken. [It is.]

These methods have not changed in essentials; they are merely more formal, more labyrinthine, smeared with the holy oil of “service.” In fact, stockholders to-day are even more helpless, because of their increasing numbers, the greater size of corporations, and greater use of holding company devices. The financial oligarchy has tightened its control. And this oligarchy is merely interested in the production of profits and speculation, in the plunder of corporations and their stockholders, including stockholders of the upper bourgeoisie itself; for in this the oligarchy knows no class brothers or sisters. Thus it increases its share of profits, of the surplus value produced by labor, in spite of the tendency of the rate of profit to fall. The separation of management and control by the multiplication of stockholders, arising out of the progressive socialization of production, the transformation of individual property into social corporate property, becomes a means for the intensification of capitalist plunder and capitalist disorganization ...

There was no decrease in the stockholdings of the upper bourgeoisie (Table III). On the contrary, dividends received by incomes of $10,000 up were 140% higher in 1929 than in 1917; the slight falling tendency in the early post-war years was reversed after 1921. At the same time the upper bourgeoisie, especially the rentiers in this class, invested heavily in tax-exempt government bonds, amounting to $5,373 million in 1929 [6], in addition to more millions invested in foreign securities. Statistically, however, the share in dividends of the upper bourgeoisie was a trifle smaller than in the pre-war years. But this was only apparent, not real. For the dividends reported by incomes of $10,000 up is not the total they receive; they are underreported to evade the surtax. Stockholdings are distributed among other members of the family, in the form of gifts, the creation of trusts, or partnerships. (These partnerships, although clearly a tax-dodging device, have been declared legal by the courts.) This part of the dividends of incomes of $10,000 up are reported in the lower brackets. According to a statistician of the income-tax bureau, there were, in 1924, in the income groups below $2,500, 200,000 stockholders who received dividends either from inheritances or trusts. [7] Another tax-dodging device is the personal holding or investment company (one banker maintained six such companies!) [8], which receives dividends, reinvests them, and avoids the surtax. Such dividends appear as part of intercorporate dividends, but are really received by the upper bourgeoisie. Increasing tax-dodging created a fictitious relative decrease in the dividends and stockholdings of the upper bourgeoisie.

There were fluctuations in the share of dividends received by the intermediate and upper bourgeoisie, mainly because of temporary shifts in income from one class to the other. But the movement was definitely upward, if for no other reason than because these two classes increased numerically more than the total of gainfully occupied persons. The most significant gains, from a class angle, were scored by the intermediate bourgeoisie, especially those with incomes of $5,000 to $10,000. This is because the most important part of this class is composed of officers and managerial employees in corporate industry; they steadily augment their ownership of stock (often received as a bonus) in the corporations which employ them, and are encouraged to do so by their financial masters to make them more “loyal.” In the middle class as a whole, stockholdings were increased by employee stock ownership, by the drive of public utilities to sell stock to customers (to create “reserves” of public opinion against immediate government regulation and possible government ownership), by the stimulation of get-rich-quick appetites.

The workers made some small gains in stock ownership, but they were absolute, not relative. And their share was insignificant: corporate ownership is a monopoly of the bourgeoisie (Table IV). The working class, wage and clerical, while 68.5% of the gainfully occupied, owned only $750 million of corporate stock, an insignificant stake of 1.2%. The bourgeoisie, only 15.9% of the gainfully occupied, owned $61,137 million, a monopoly stake in corporate ownership of 97.8%. Of this, the largest share was owned by the upper bourgeoisie, 0.8% of the gainfully occupied: $48,322 million, or 77.3%. That is, however, a minimum; their real share was at least 80%. For a part of the dividends received by the lower income brackets appear there only because of the tax-dodging devices of the upper bourgeoisie; another part was reported by individuals with gross incomes over $5,000, but no net income; and a third part is credited to intercorporate dividends, because of the use of personal investment companies. The share of the lower and, particularly, the intermediate bourgeoisie was substantial. It was the middle class which scored real gains, not the workers; and this was admitted by one bourgeois writer in an unguarded moment: “Labor makes an absolute, not a relative gain in corporate ownership. What we really have is a vast middle class rather than a proletarian movement.” [9]

Employee stock ownership was also essentially a middle class movement, in spite of some of its specific labor aspects. Two claims were made: that employee stock ownership is peculiarly American, and that it favors the workers. Both claims were false. Employee stock ownership exists in all highly industrial nations. In England, where the movement started and employee stockholdings were relatively as large, if not larger, than in the United States, 503,400 stockholders, many of them employees, owned stock in eighteen corporations; in one chemical concern, employees owned 643,000 shares, 5% of the total. [10] Owen D. Young, chairman of the Board of the General Electric Company, an affiliate of the House of Morgan, said this of employee stock ownership: “Labor will be the employer and capital will be the commodity.” [11] But not only were employee stockholdings very limited, they were concentrated in managerial and supervisory employees and a small upper layer of highly skilled workers.

Employee stock ownership was limited, both in value and in scope. In 1928, 1,000,000 employees owned not much more than $1,000 million in stock, or 1.6% of all stock owned by individuals. Not more than 400 out of 450,000 active corporations promoted employee ownership, which was most general in the larger, monopolist combinations. Nearly one-half of all employee stockholdings were in twenty-four corporations; the amount was $426 million, or 5% of the total stock. In thirteen of the largest corporations, employee ownership averaged only 4%. While in some companies fairly large numbers of employees owned stock, that was exceptional; the average of participants was below 15% of the total number of employees. Not only was participation concentrated in a small group of employees; concentration of ownership existed within the employee stockholders, one-third of whom owned one-half of all employee stock. [12] Nor was there any development toward employee control. Employee stock ownership plans usually make no provision for employee stockholder representation; in a few corporations, meetings of employee stockholders were held and they elected a member of the board of directors, but this was extremely rare. And employee stockholders, a small minority, have even less say in corporate affairs than the majority absentee stockholders; control is vested in the officers and their masters, the financial oligarchy.

Small as employee stock ownership was, it was still smaller in terms of working class participation. Employees comprise all individuals working for a corporation other than officers and directors. Stock ownership was concentrated among the non-worker employees – the managerial, supervisory, and selling staffs. This is confirmed by the National Industrial Conference Board: “It is clear that corporate stock ownership by employees up to the present has been, for the most part, an ownership by the superior employees.” [13] General Motors, with few stockholders among the mass of its employees, organized in 1923 a Managers Securities Company, whose shareholders were exclusively the higher employees; the company’s ownership of stock, on which General Motors paid “bonus” dividends, created 100 millionaires. [14] Such plans, according to the Journal of Commerce, “hold out the possibility of arousing cooperative efforts in a way that may, under favorable conditions, be superior to any other.” [15] Thus, from its most important angle, employee stock ownership is a means of making management “more loyal” by enlarging its stake in a particular corporation; it is also, by the same token, a means of domination over labor.

Where employee stock ownership includes workers, it is an aspect of the struggle against labor, waged by management and its financial overlords. In general, the corporations with employee ownership plans are the ones most bitterly opposed to trade unions (United States Steel, Standard Oil, General Motors, Goodyear Tire and Rubber); where unions do exist, as in the case of the Pennsylvania Railroad, management wages an open or surreptitious war against unionism. Employee stock ownership is interlocked with company unions, spy systems, and “welfare” schemes, all aimed to prevent unionism and independent action by the workers. This purpose was clearly evident in the earliest exponents of the movement. An American economist, Nicholas Paine Gilman, said in 1889: “When this privilege [stock ownership] is accorded by a prosperous firm, the workmen generally show themselves eager to become capitalists on a small scale, and they indulge thereafter in very little denunciation of the class which they have entered.” (Gilman claimed that employee ownership “tends to make the establishment a purely cooperative one in time.” [16] Where, forty-five years later, are these “cooperative establishments”?) And the same idea of “moderating” labor discontent was expressed, in 1926, in the theory that employee stock ownership develops, against the independence and insurgency of unionism, a group of workers who are “better satisfied, more efficient and dependable; are not primarily reformers, belong to the non-insurgent type, have no essential quarrel with corporations and employers as such, nor with the industrial system as such.” [17]

The upsurge of labor militancy in the strikes of 1877 led the employers to consider the problem of “harmony” between labor and capital. It aroused new interest in profit-sharing, and it gave birth to the idea of employee stock ownership. The idea was thus formulated, in 1878, by Abram S. Hewitt [2*], millionaire iron and steel capitalist, who became a director of the United States Steel Corporation upon its formation in 1901:

“The harmony of capital and labor will be brought about by joint ownership in the instruments of production, and what are called ‘trusts’ merely afford the machinery by which such ownership can be distributed among the workmen ... By abstinence, which is the parent of capital, the workmen can acquire sufficient wealth so that in a generation the whole capital invested in industrial undertakings might be transferred to the wage-earning class.” [18]

In a generation! ...

Harmony between labor and capital was also the purpose of profit-sharing. But it was an expression of small-scale industry, where larger output could be secured by stimulating the interest of the individual worker: the “father” of profit-sharing was a French employer of painters, of craftsmen. Where larger output depends primarily upon the machine and not the worker, the scope of profit-sharing is limited. This was recognized, in 1889, by Gilman, himself an advocate of profit-sharing:

“A matter of first importance, however, is the nature of the occupation in which the system of profit-sharing is applied. Theory and experience harmonize here in declaring that if the employee is to create an extra fund of profits, which shall at least provide his bonus, the business must be such that increased industry, skill, care, or economy will tell upon the result ... The manufacture of cotton and woollen goods will occur as being a comparatively unpromising field for this new system. The value of the plant is great, the working capital is large, machinery plays the chief part, and much of the labor employed is unskilled, save in a very narrow line. The market is variable, and the balance sheet is determined more by the skill of the management than by the quality of the manual labor employed.” [19]

Hence many employers in England and the United States adopted the plan of paying “shared” profits in company stock. Eventually profit-sharing was abandoned in favor of selling stock to employees. It was both more effective and cost little. Employee ownership is intended primarily for the managerial and supervisory personnel, where profit-sharing was primarily for workers. But there is still the problem of making workers more “efficient,” “dependable,” and “loyal.” While the tempo of efficiency for the mass of workers is set by the machinery and apparatus in use, the “key” workers must be considered. Moreover, excessive labor turnover is bad for efficiency, while strikes are fatal to the yield of profits on the masses of capital in modern industry. Capitalist industry resorts to employee stock ownership for the “key” workers and “welfare” for the mass of workers.

Stock ownership for “key” workers is involved with a neglected aspect of scientific management: the insistence of Taylorism, not wholly a matter of “time and motion,” that a definite proportion of workers must be put “on the side of management.” In Taylor’s own words: “The work which under the old type of management practically all was done by the workmen, under the new is divided into two great divisions, and one of these divisions is deliberately handed over to those on management’s side ... A machine shop, which, for instance, is doing an intricate business, will have one man on management’s side to every three workmen.” [20] From a slightly different angle, the same idea was urged by another efficiency engineer, H.L. Gantt: “The [theory] is coming to be discredited that in order to get low costs the expense of the supervising force must be small compared to that of those who are actually performing the physical labor ... The increasing productivity of our automatic machinery requires little direct labor, but quite a good deal of supervision.” [21] Industry’s supervisory employees were greatly augmented. While wage-workers in manufactures, transportation, and mining rose from 9,982,000 in 1910 to 12,757,000 in 1920, supervisory employees rose much more, from 495,169 to 823,513. [22] This change in the organization of labor was accelerated, after 1920, by more intensive automatization and rationalization. Supervisory employees, including “key” workers, are represented among employee stockholders. So, also, is a small group of the older and better-paid workers.

For the mass of workers there is the cruder “welfare” work, company unions, and other measures, which involve a brutal mixture of calculated benevolence, espionage, and terrorism to prevent unionism and strikes, to maintain “loyalty.” (According to one estimate, the costs, in 1927, of the welfare work of 514 corporations was only 1% of the payrolls. [23] The costs of strikes are infinitely greater.) Thus capitalism attempts to strengthen its dictatorship over labor. For welfare work is itself a form of struggle against the workers ...

The functional distribution of stock ownership is in line, of course, with the exploiting relations of capitalist production. It was roughly as follows in 1929:

• Absentee stockholders, 87%.
• Officers and directors, 11.5%. [3*]
• Managerial and merchandising employees and employees “on the side of management” (supervisory employees, “key” workers), 1%. [4*]
• Mass of workers, 0.5%.

The “new” liberals, like the old, insist on stressing the “constructive” aspects of capitalist development, not their class significance, contradictions, and antagonisms. Clearly large-scale industry, the multiplication of stockholders, and the separation of ownership and management arise out of the constructive, objective socialization of production. This, the historical function of capitalism, is the basis of socialism. But the socialization of production, itself a negation of private property and the capitalist relations of production, means both the possibility of new progress and a reaction against progress. For, while the older social-economic relations persist, it means more exploitation of labor (and the farmers), monopoly capitalism, imperialism, economic decline, mass disemployment, and war. But these conditions the “new” liberals overlook, or else consider them “independent” categories, not understanding the dialectical unity of capitalist development. So they stress the “constructive” aspect of the separation of ownership and management: the appearance of an “independent” class of management. This class is to introduce a “new spirit” in industry, compact of devotion to the interests of employees and consumers, disregarding the rights of property and stockholders. The idea has thus been formulated by Prof. Sumner H. Slichter, a “new” liberal and an institutional economist, who is entangled in all the contradictions of the “older” and the “newer” economics:

“The voice of property owners in the control of industry seems to be diminishing ... through the growth of state intervention, of trade unionism, and, probably most important of all, of professional management which is more or less independent of control by investors ... Mere private ownership of capital ... is not capitalism. Capitalism is the control of policies by private property owners ... To the tendency of management to become independent of ownership there is no check in sight. It may be objected that the shift in power from owners to managers represents no real change in the control of industry, that professional managers are guided essentially by the same pecuniary standards which business owners accept. This, however, is true in part only, because professional management develops standards of its own to which it tends to adhere even in violation of investors. By influencing these professional standards, the public has an excellent opportunity to affect the conduct of industry.” [24]

This is simple, all too simple.

State intervention is in the interest of the capitalist class. It ends in fascism, a reaction against all progressive forces.

Trade unionism, unless it moves toward larger revolutionary objectives, is increasingly subordinated by state capitalism and finally suppressed by fascism.

These two forces do not move “smoothly” toward a “new” social order. They move, in the epoch of capitalist decline, toward an explosion of class-economic contradictions and antagonisms: revolution or reaction.

The merely functional, not class, analysis of management is insufficient. From the functional angle, “professional management” is a progressive development, an expression of the socialization of production, one of the elements of socialism. From the class angle, professional management is thwarted to serve property interests; it is a hireling of the financial oligarchy. Slichter himself says: “They [professional managers] are not free men. They are not neutral, hired to serve all interests alike. They are employed by stockholders to promote the interests of stockholders.” But still: “They must be neutrals – equally the servants of the owners of capital, wage-earners, and consumers.” [25] The eternal simplicity of the “new” liberals! Always they indulge in wish-fulfillments, to evade the need of struggle. Higher wages, social legislation, protection of the consumer, employee stock ownership, all the older reforms, and the newer: they are still urged, while capitalist decline and reaction prepare to annihilate all reform.

For the separation of ownership and management does not mean that capitalism is “not capitalism” any more, in the sense of any basic change in class relations. It simply separates the functions of exploitation and management, formerly combined in the lordly person of the capitalist himself, now become an absentee or financial capitalist. Feudalism was still feudalism when the nobility became a class of absentee landlords and courtiers, while management was made a function of underlings. Feudalism was not transformed by the “professional spirit” and “independent standards” of the nobility’s managerial employees; it was undermined by social-economic development and overthrown by the revolutionary class struggle of the bourgeoisie.

A ruling class, when it comes to power, combines constructive and exploiting functions. The bourgeoisie was not merely an exploiter of the workers. It performed the historical task of overthrowing feudalism, and it organized a new, more progressive mode of production. The early industrial capitalist combined the functions of ownership and management, of exploitation and labor. Now, however, the industrial capitalist is an anachronism, and nowhere more so than in the United States, where large-scale industry and the multiplication of stockholders are most highly developed. Stockholders own, but they do not manage. Management does not own, but it manages as employees. The financial capitalists are merely exploiters; they control, and have a monopoly share in ownership, but they perform no useful social function. Thus ownership becomes more wholly parasitic, control more wholly predatory. A new social order thunders at the gates of history.

Neither management nor stockholders control industry; control is usurped by the financial oligarchy and its institutional mechanism, the great banks. Of whom is management composed? It is under control of the higher administrative officers and directors, many of them major or minor financial capitalists, most of them plundering their corporations, and all of them dependent upon the financial oligarchy. Upon them the real management, the lower officers and managerial and supervisory employees, is dependent. This dependence, moreover, is not only objective; for the ideology and practices of management are still dominated by the social relations of capitalist production. Nor is management independent of the stockholders; its most important elements are themselves stockholders. From a functional angle, except in so far as its work is simply to increase profits by exploitation both of the workers and of commercial opportunities, professional management is a step toward socialism; it develops the arts and some of the relations of the socialist economic order. From a class angle, management is to-day partly a privileged caste, beneficiaries in varying measure of the subjection and exploitation of the workers. (The lower layers are, however, increasingly exploited, particularly under the conditions of capitalist decline; they are possible allies of the workers.) It is management which uses all means in its power – company unions, espionage, blacklists, “yellow dog” contracts, violence – to suppress the workers; management, not its financial masters, is on the firing line in the minor civil wars of strikes.

The significance of hired managers is not a discovery of the “new” liberals. It was observed by the bourgeois economist, Ure, in the 1830’s. On this subject, Marx wrote:

“The labor of superintendence and management will naturally be required whenever the direct process of production assumes the form of a combined social process, and does not rest on the isolated labor of independent producers. It has, however, a double nature. On the one side, all labors, in which many individuals cooperate, necessarily require for the connection and unity of the process one commanding will, and this performs a function, which does not refer to fragmentary operations, but to the combined labor of the workshop, in the same way as does that of a director of an orchestra. This is a kind of productive labor, which must be performed in every mode of production requiring a combination of labors. On the other side, quite apart from any commercial department, this labor of superintendence necessarily arises in all modes of production which are based on the antagonism between the worker as a direct producer and the owner of the means of production. To the extent that this antagonism becomes pronounced, the role played by superintendence increases in importance. Hence it reaches its maximum in the slave system. But it is indispensable also under the capitalist mode of production, since the process of production is at the same time the process by which the capitalist consumes the labor power of the laborer. In like manner, the labor of superintendence and universal interference by the government in despotic states comprises both the performance of the common operations arising from the nature of all communities, and the specific function arising from the antagonism between the government and the mass of the people ... The labor of superintendence and management arising out of the antagonistic character and rule of capital over labor, which all modes of production based on class antagonisms have in common with the capitalist mode, is directly and inseparably connected, also under the capitalist system, with those productive functions which all combined social labor assigns to individuals as their special tasks. The wages of an epitropos, or régisseur, as he used to be called in feudal France, are entirely differentiated from the profit and assume the form of wages for skilled labor ... That not the industrial capitalist but the industrial managers are ‘the soul of our industrial system’ has already been remarked by Ure ... To the extent that the labor of the capitalist is not the purely capitalist one arising from the process of production and ceasing with capital itself, that it is not limited to the function of exploiting the labor of others, that it rather arises from the social form of the labor process as a combination and cooperation of many for the purpose of bringing about a common result, to that extent it is just as independent of capital as that form itself, as soon as it has burst its capitalist shell ... Compared to the money [financial] capitalist the industrial capitalist is a worker, but a working capitalist, an exploiter of the labor of others ... The wages of superintendence appear completely separated from the profits of enterprise in the cooperative workshops as well as in capitalist stock companies ... Stock companies in general have a tendency to separate this labor of management as a function more and more from the ownership of capital. Only the functionary remains and the capitalist disappears from the process of production as a superfluous person.” [26]

Once the capitalist combined the functions of exploitation and management; in his typical modern form, he merely exploits. But management still performs both the function of managing and exploiting. They can be separated, however, as they were separated in the person of the capitalist. Where, however, economic development was enough in the one case, in the other a revolutionary social transformation is necessary. In the Soviet Union the capitalist was annihilated and management was deprived of its exploiting aspects. Management is now wholly a functional task, merely a form of productive social labor ...

The multiplication of stockholders, and the separation of ownership, management, and control, are identified with increasing economic instability and the decline of capitalism. Concentration of the ownership of stock, of wealth and income, provides the sinews of speculation. Because of control by the financial oligarchy, corporate industry becomes increasingly irresponsible, adventurous, speculative, and unstable. Capitalism is no longer capitalism in the old sense, it is rotten-ripe for change; but capitalist relations persist, thwart and resist social change, react against progress, and produce economic decline, new maladjustments and disturbances. [5*] Yet these sinister conditions arise out of essentially progressive developments capable of becoming the basis of a new social order, in which man, the worker, masters society, nature, and himself.

 
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Footnotes

1*. Corporate property involves: “An enormous expansion of the scale of production and enterprises, which were impossible for individual capitals ... Capital, which rests on a socialized mode of production and presupposes a social concentration of means of production and labor powers, is here directly endowed with the form of social capital as distinguished from private capital, and its enterprises assume the form of social enterprises as distinguished from individual enterprises. It is the abolition of capital as private property within the boundaries of capitalist production itself. Transformation of the actually functioning capitalist into a mere manager, an administrator of other people’s capital, and of the owners of capital into mere owners, mere money capitalists ... Total profit is henceforth received only in the form of interest, that is, in the form of mere compensation of the ownership of capital, which is now separated from its function in the actual process of production, in the same way in which this function, in the person of the manager, is separated from the ownership of capital. The profit now presents itself as a mere appropriation of the surplus labor of others, arising from the transformation of means of production into capital, that is, from its alienation from its actual producers, from its antagonism as another’s property opposed to the individuals actually at work in production, from the manager down to the laborer ... The function of management is separated from the ownership of capital, and labor, of course, is entirely separated from the ownership of means of production and surplus labor. This result of the highest development of capitalist production is a necessary transition to the reconversion of capital into the property of the producers, no longer as the private property of individual producers, but as common property, as social property outright.” Karl Marx, Capital, v.III, pp.516-17.

2*. Hewitt, who might be called the “father” of employee stock ownership, and who influenced its adoption (along with other “welfare” practices) by the United States Steel Corporation, encouraged the crushing of the steel workers’ strike in 1901, and urged “stern repression” of the coal miners’ strike in 1902. He was an enthusiastic exponent of philanthropy, to which he gave a conscious class purpose. “The rich,” said Hewitt, “in contributing are but building for their own protection. If they neglect so to build, barbarism, anarchy, and plunder will be the inevitable result.” See New York Times, November 26, 1900; August 26, 1902.

3*. The Federal Trade Commission estimated in 1922 that officers and directors owned 10.7% of the common stock and 5.8% of the preferred in the corporations employing them. Federal Trade Commission, National Wealth and Income, p.159.

4*. The total ownership of stock by higher employees, officers, and directors is, of course, much greater, for they may own stock in other corporations. But that is an absentee, not an employee ownership.

5*. Depression wipes out most of the holdings of small stockholders. Where they are trying to get a job or slightly raise their wages, with the lower living standards and mass disemployment of capitalist decline, workers are not likely to aspire to become stockholders. Hence the ballyhoo of state capitalism does not include the idea of realizing “industrial democracy” by making the workers stockholders and capitalists!

Notes

1. F.P. Stockbridge, The New Capitalism, Saturday Evening Post, November 6, 1926, p.226.

2. National Bureau of Economic Research, Recent Economic Changes, 2 vols. (1929), v.I, p.xii.

3. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (1933). p.56.

4. Joseph S. McCoy, Sources of Prosperity, American Bankers Association Journal, January 1930, p.703.

5. Berle and Means, Modern Corporation, pp.66-67.

6. Bureau of Internal Revenue, Statistics of Income, 1929, p.21.

7. Joseph S. McCoy, The US Legion of Capitalists, American Bankers Association Journal, February 1927, p.626.

8. H.M. Graves, Gaps in the Tax Fence, New Republic, January 31, 1934, p.329.

9. Albert W. Atwood, The New Ownership, Saturday Evening Post, February 13, 1926, p.122.

10. Robert F. Foerster, Employee Stock Ownership, Encyclopedia of the Social Sciences, v.V (1931), p.506.

11. B.C. Forbes, Labor to Become Capital, Forbes, December 1, 1927, p.9.

12. New York Times, October 28, 1928; R.F. Foerster and Else H. Dietel, Employee Stock Ownership in the United States (1926), pp.62-64.

13. Editorial, Manufacturing Industries, January, 1929, p.65.

14. New York Times, April 5, 1929.

15. Editorial, New York Journal of Commerce, April 19, 1929.

16. Nicholas Paine Gilman, Profit-Sharing (1889), pp.109, 265.

17. Foerster and Dietel, Employee Stock Ownership, p.90.

18. Abram S. Hewitt, The Mutual Relations of Capital and Labor (1878), p.17.

19. Gilman, Profit-Sharing, p.394.

20. Frank Barkley Copley, Frederick. W. Taylor, 2 vols. (1916), v.I, p.16.

21. H.L. Gantt, Industrial Leadership (1916), pp.65, 67.

22. Computed from material on occupations in Statistical Abstract, 1926.

23. Abraham Epstein, Outwitting Unionism, New Republic, April 6, 1927, p.193.

24. Sumner H. Slichter, Modern Economic Society (1931), pp.81-82.

25. Slichter, Modern Economic Society, pp.83-84, 887.

26. Karl Marx, Capital, v.III, pp.451-52, 454-56.

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Last updated on 29.9.2007