The New Zealand Railways Magazine, Volume 2, Issue 5 (September 1, 1927)
Railway Economics. — Relation Between Plant And Personnel. — Mr. Samuel O. Dunn, Editor of the Railway Age, is one of the foremost thinkers on transportation problems. In an address before the Mechanical Division of the American Railway Association at Montreal recently, he dealt comprehensively with the broad relation of output to remuneration, and the general effect of mechanical improvements on the incidence of employment. The following are some extracts, applicable in the main to New Zealand…
Relation Between Plant And Personnel.
Mr. Samuel O. Dunn, Editor of the Railway Age, is one of the foremost thinkers on transportation problems. In an address before the Mechanical Division of the American Railway Association at Montreal recently, he dealt comprehensively with the broad relation of output to remuneration, and the general effect of mechanical improvements on the incidence of employment. The following are some extracts, applicable in the main to New Zealand conditions.
When we use the word “railroad” we usually refer merely to the physical plant; but a railroad actually consists of both a plant and a personnel. These two parts of a railroad are complementary and interdependent to such a degree that there is hardly an important problem of management the solution of which does not involve changes affecting both of them. The physical property and personnel constantly react upon and determine each other.
It is my belief, based upon what I take to be incontrovertible evidence, that in the long run on the railroads and in every other largescale industry it never has been and never will be the owners of capital and the managers of industry, but that it always has been and always will be those who work for wages, who have got and will get the great bulk of all the tangible and intangible benefits resulting from every increase in the output of industry per man hour of labour employed and paid for, and that, therefore, it is the employee and not the employer who should be the more anxious to see efficiency in every branch of production increased by every means possible.
The best available measures of the physical capacity of the railroads are the tractive power of their locomotives and the tonnage capacity of their freight cars. Total locomotive tractive power per employee in 1906 was 817 pounds, and in 1926 it was 1,445 pounds, an increase of 77 per cent. Total freight car capacity per employee in 1906 was thirty-nine tons, and in 1926 it was fifty-nine tons, an increase of 51 per cent. It may reasonably be assumed that these increases are typical of increases in capacity that were made in all parts of the railway plant; and they were accomplished, of course, by the investment of capital. The average investment per employee in 1906 was $8,088, and in 1926 it was $12,991, an increase of 61 per cent.
Increase in Operating Revenue.
The increase in the total operating revenues of the railroads per employee between 1906 and 1926 was from $1,540 to $3,571, or 132 per cent. This was due to the average increase of 58 per cent. in the output of transportation per employee and to average advances in freight and passenger rates of 47 per cent. Now, how did the employees of the railroads and the capital invested in them share between them the benefits resulting from the increase in total earnings due to both increased output and advances in rates? If the employees had shared only in proportion to the increase in output per employee and the advances in rates, the increase in their average annual compensation would have been 132 per cent., but in fact the average annual compensation per employee increased from $596 in 1906 to $1,656 in 1926, or 177 per cent. Net operating income is the return earned on the capital invested in the industry, and it amounted in 1906 to $480 per employee. If it had increased during the last twenty years as much in proportion per employee as did the average wage paid, or 177 per cent., it would have amounted in 1926 to $1,330 per employee. If it had increased only as much in proportion as the average operating revenue per employee, or 132 per cent., it would have amounted in 1926 to $1,108 per employee. It actually was in 1926 only $682 per employee, an increase since 1906 of only 42 per cent. Since the increase in investment per employee was 61 per cent. and the increase in net operating income per employee only 42 per cent., it follows that there was a decline in the average return earned upon each dollar of capital invested. Average return upon investment in 1906 was 5.9 per cent.; in 1926, only 5.3 per cent.
Now let us summarise and consider the significance of these facts. There was during these twenty years a large increase in the amount of transportation that the railroads could and did produce per employee-in other words, a great improvement in the railway plant and in the efficiency with which it was used by its organised personnel, including both management and employees. This increase in railway page 23 capacity and average output per employee would not have been possible without the increase of almost $5,000 that took place in the amount of capital invested in the industry per employee. If there had been no advance in rates, the increase in the total operating revenues of the railroads per employee would have been relatively the same as in the output of traffic units per employee-namely, 58 per cent. On account of the depreciation in the value of money, however, there were advances in rates which, together with the increase in output of transportation, resulted in an increase in total operating revenues per employee of 132 per cent.
Not only did capital not receive relatively more of the benefit of this increase in the total operating revenues earned than the employees, but the exact opposite was true-the employees received relatively much more of it than capital, for the increase in the net operating income received by capital per man employed was only 42 per cent., while the increase in the average wage paid per employee was 177 per cent. Not only did the employees receive this increase in their average annual wage, but in addition they received meantime a reduction of probably 25 per cent. in the number of hours they worked to get their annual wage. The increase in the number of dollars they received was so much greater in proportion than the decline in the value of each dollar that the purchasing power of their average annual wage increased about 60 per cent., or fully in proportion to the increase in railway output per employee, while the average income per dollar of capital declined.
Profits for Employees.
These facts show beyond all question that during the last twenty years the employees of the railroads have received far greater benefits from the improvements in the properties and in their operation than those who, by the investment of capital in them, have made these improvements possible. Twenty years ago the employees as a whole received an income from the industry 24 per cent. greater than the income received by capital, while last year the employees received 140 per cent. more than capital. Probably in most other industries the increase in the income of employees has not been so much greater in proportion than the increase in the income of capital as it has been in the railway industry, because the railroads have been subject to a special form of regulation directed mainly at limiting the return received by the capital invested in them. But in practically all other industries wages have increased much more in proportion than the income from invested capital.
In other words, the facts demonstrate, as I indicated earlier in this address, that under our present industrial system it is the employee, not the employer, who gets the lion's share of the increase in income and purchasing power resulting from large and wise investment of capital, good management and sane co-operation between employers and employees to intensify industrial efficiency. During most of the period reviewed the difficulty of raising capital for the railway industry constantly increased because of excessively restrictive regulation of the return upon it. Undoubtedly if the percentage of return allowed to be earned had been larger the amount of capital invested would have been larger, resulting in improvements in facilities that would have effected still greater savings of labour, fuel and materials, thereby making possible even higher wages for employees or lower rates for the public.
Other Benefits to Employees.
In addition to the increase in the purchasing power of their wages and reductions in their page 24 hours of work, railway employees have been benefited in other ways by the improvements in the plants and in operation. Their work has been made safer. In 1906 one employee in each 387 was killed accidentally; in 1916 only one in each 631; and in 1925 only one in each 1,118. The amount of physical exertion required to do the work has been reduced in many ways. Stokers have been widely introduced on locomotives and in power plants. Pneumatic and electric tools in shops have reduced the amount of manual labour required. Section crews now go to and from their work on motor cars instead of hand-cars. Ashes and cinders are handled by mechanical conveyors instead of manual labour. To a large extent coal is dumped into locomotives by machinery instead of with a shovel. Likewise the shoveling of sand into locomotives has been superseded by the mere pulling of a handle. Much hard labour in shops is saved by autogenous welding and in tracks by the tie tampers. The buildings in which employees work are better lighted and ventilated. Good toilets and lavatories are provided. Pits are heated by steam heated coils. All these improvements have been effected partly or wholly by the investment of capital, and, while most of them have been introduced to increase efficiency and save expenses, they have had incidentally the effect of reducing the amount of back-breaking labour required from employees and of making their work more pleasant and healthful.
It is hardly necessary to say that a large production per employee in the railway and other industries does not result in proportionately high, or even proportionately higher, wages merely because of a generous disposition of employers to pay high wages. Nor are advances in wages mainly due to the organised pressure of employees for them, because without increases in average output per employee there would soon be no source from which the means of paying higher “real wages”-that is, wages of greater purchasing power-could be derived. Increased production per employee results in increased average real wages per employee because of the operation of economic laws over which neither employers nor employees have much influence. Increased production will not increase the prosperity of industries without increased consumption of the products of industry, and since those who work for wages constitute the largest single class of consumers, they must, if industry is to prosper, be paid wages high enough to enable them to increase their consumption as production increases. Obviously, however, high production must precede and thereby make possible the wages of greater purchasing power required to enable the employees to become larger buyers and consumers of necessaries, comforts and luxuries.
No Reduction in Employees.
Almost every increase in railway efficiency that has been accomplished has reduced the number of hours of human labour required to produce a given number of ton miles and passenger miles, but this has never actually resulted, excepting temporarily, in a reduction of the total number of employees. There was a large increase in their number during and immediately following the war, owing to the general introduction of the 8-hour day and other causes, and a correspondingly large reduction as a result of the industrial depression and the increase in the efficiency of operation which followed the return of the railroads to private management. In 1926, however, the number of employees of the Class I railroads of the United States was larger than in any other year in history, excepting the war years and in 1923, when it was affected by the results of the shop employees' strike of 1922.
Excepting under abnormal conditions increases in railway output per employee, resulting from page 25 more efficient operation, have been offset by increases in the total amount of traffic to be handled. There would have been a much larger increase in traffic, and consequently in the number of employees required, within recent years, if so much freight and passenger business had not been diverted from the railroads to other means of transportation, the effectiveness of which in competing with the railroads has been mainly due to government expenditures on highways and waterways.
The relations between a railroad and its employees are primarily business relations. The railroad hires every man on its payroll for its own business purposes, and every man on the payroll hires to it to get as much wages as he can. Therefore, when the management proposes to the employees that they shall do certain things to increase efficiency it is reasonably to be expected that the employees will want to know how they will be benefited by doing these things, just as when the employees ask for higher wages they should reasonably expect that the managements will ask what the employees are doing or intend to do, or what conditions exist, to justify paying them more. There is a valid reason that the management can always give why employees should support them in every practicable way increasing efficiency, and this is the one I have tried to illustrate by the citation of facts of railway economic history-namely, that in the long run much the greater part of the benefits of every form of increased efficiency in transportation and production go to the workers in the form of better and safer working conditions and of wages that will increase their purchasing power. It is because labour generally does not know this that we often find it harmfully antagonistic to more efficient machinery and methods.
What Railway Efficiency is.
The true definition of railway efficiency from the standpoint of both management and employees is the largest practicable productions of ton miles and passenger miles in proportion to the number of man-hours and of tons of fuel and materials used in rendering railway service. Broadly speaking, there are two ways of increaseing efficiency as thus defined. The first is by the investment of capital in the innumerable ways by which labour, fuel and materials can be saved. In order that all the capital may be raised that can be effectively employed for these purposes, it is necessary that each railroad shall earn an amount of net return that will make it an attractive concern in which to invest capital. And in their own selfish interest the employees should always support the managements in their efforts to keep total earnings high enough and operating expenses and taxes low enough to produce an adequate net return on capital. Capital consists simply of the tools with which the personnel works, whether they be small tools in shops or such great tools as locomotives. The better these tools are, the larger, if they are skilfully used, will be the output of transportation per employee, and, if freight and passenger rates are reasonably regulated, the larger also the total railway earnings per employee out of which the average wages per employee must be paid.
The second important means of increasing efficiency is that of so organising the personnel, and of obtaining such co-operation among all the classes and individuals composing it, that the physical facilities provided by capital will be used with the greatest practical skill.
The needed organisation and co-operation of the entire personnel can never be fully attained until labour in general has the right idea regarding its own true interest. It will never have this right idea until it is given it by education. The resistance that has been offered in the past, and is offered now, to so many efforts of management to increase efficiency through improvements in plant, promotion according to merit and the payment of wages according to merit and the payment of wages according to the work done, will continue. Great exertions will have to be made to overcome it, and it will be overcome with only incomplete success as long as so many working men continue to believe that improvements in plants, in organisations and in methods are intended and adapted mainly or solely to enable capital to get more profits by making part of the employees do more work and throwing the rest out of their jobs.page break