Fabian Tract No. 8-+. 


THE ECONOMICS OF DIRECT 
EMPLOYMENT. 


WITH AN Accou:n oF THE FAm WAGES PoLicY. 

P ususHED AND SoLD BY 

'fHE FABIAN SOCIETY. 

SEC0:-10 EDITION. REVISED. 

. PRICE ONE PENNY. 

LONDON: 

THE FABIAN Soc i ETY, 3 CJ.EJ\tENT's b:-~, STiiAxo, 'N.C. 
FEBRUARY 1900 



Th Ec nom1 of Dir ct En1 lo) 111 nt* 



3 

unfamiliar with the actual practice of industrial life at first imagined 
that the trade union rate of wages meant just whatever rate the trade 
unions might choose to claim. As a matter of fact the trade union 
rate of wages is, in every organized trade, a well-understood expression, 
denoting the actual rate which has been agreed to, more 
or less explicitly, by representative employers and the trade union 
executives. \Vhat the Council has done has been merely to insert 
in its own standard list of wages the rate proved, on enquiry, to be 
actually recognized and adopted by the leading employers in the 
particular trade within the London district. In the whole of the 
building trades, for instance, which include seven-eighths of the 
work done for the Council, the trade union rate of wages has been 
solemnly agreed to in a formal treaty between the London Building 
Trades Federation and the London Master Builders' Association. 
So far as the organized skilled trades are concerned, the Council has 
not attempted to do more than place itself on a line with the 
common average of decent employers. 

With regard to unskilled labor the case is more difficult. Here, 
in most cases, no generally recognized trade union rate exists. The 
Council has accordingly taken the position that it is undesirable, 
whatever the competition, that any of its employees should receive 
less than the minimum required for efficient and decent existence. 
Seeing that Mr. Charles Booth places the actual "poverty line" in 
London at regular ear~ings of 2 rs. per week, it cannot be said that 
the Council's" moral minimum'' of 24s. for men and r8s. for women 
errs on the side of luxury or extravagance. But, unlike the Council's 
wage for skilled workmen, it is more than is actually paid by manyconscientious employers; and it is undoubtedly above the rate at 
which the Council could obtain such laborers, if it chose to disregard 
all other considerations. 

The labor policy of the London County Council, whether with 
regard to skilled or to unskilled labor, may be explained as the 
deliberate choice of that form of competition which secures the 
greatest possible efficiency, as compared with the form which secures 
the greatest apparent cheapness. Public offices may be filled in one 
of two ways. We may, on the one hand, practically put the places 
up to auction, taking those candidates who offer to do the work for 
the lowest wages. Or, on the other hand, we may first fix the 
emoluments, and then pick the best of the candidates coming forward 
on those terms. When we want brain-workers of any kind, 
everyone agrees that the latter policy is the only safe one. VVe do 
not appoint as a judge the lawyer who offers to take the place at the 
lowest rate. No one would think of inviting competitive tenders 
from clergymen as to the price at which they would fill a vacant 
bishopric. And a Town or County Council which bought its 
engineer or its medical officer in the cheapest market would, by 
common consent make a very bad bargain. In all these cases we 
have learnt, by l~no-and painful experience, that there is so much 
difference between "'competence and incompetence that we do not 
dream of seeking to save money by taking the candidate who offers 


hi en·ic at th lowe; t rate. 
who r liz~: thi a p ct of hrainwork h 
to th hrainworking cl:t . ar 


5 


Smith,, McCulloch! Mill, and Marshall alike, persist in assuming that 
there IS some obligatory "law" that the pressure of competitionought, without interference from man, to be allowed so to act as to 
degrade the standard of life of the whole community. 

The Moralization of the Contractor. 

Some critics, however, who do not object to the Council, like a 
prudent housekeeper or an experienced employer, fixing the wagesof its servants at an adequate sum, demur to any interference with 
the freedom of contractors, and denounce as economically heretical 
the Council'.s standing order confining the Council's work to such 
firms as adopt the standard rate of wages. It is, say such critics, no 
concern of the Council how a contractor manages his business ; 
and if he can get his workmen at less than the ordinary price of the 
best men, so much the better for him, and, in the long run, for his 
customers. The very object of industrial competition, they would 
add, is to keep the cost of production down to the lowest possible 
point, and any interference with the contractor's freedom to do his 
business in his own way tends to increase that cost. 

It will, however, be obvious to the economist that these criticisms 
confuse cost of production with expenses of production. What 
the community has at heart is a reduction of the cost of production 
-that is, of the efforts and sacrifices involved in getting the objectdesired. This is of no concern to the contractor. What he wants 
is to diminish the expenses of production to himself-that is, the 
sum which he has to pay for materials and labor. This object he 
may effect in one of two ways. He may, by skilful management,
ingenious invention, or adroit manipulation of business, get the 
work accomplished with less effort and sacrifice on the part of those 
concerned, allowing of a reduction of the out-of-pocket payments 
by himself; or he may, on the other hand, without diminishing the 
effort and sacrifices, induce those concerned to accept a smaller remuneration 
for their labor. Either way will equally serve his profit, 
but either way will not equally serve the community. In the first 
case, a real economy in the cost of production has been effected, to 
the gain of all concerned. In the second case, no economy in the 
cost of production has taken place ; but the pressure of competitionhas been used to depress the standard of life of some of the workers. 
The one result is a real and permanent advantage to the community 
; the other is a serious economic calamity bringing far-reaching 
secondary evils in its train. 

Now, many large fortunes have been made by contractors pursuing 
each of these methods, and the "good business man" doubtless 
resorts to both of them as opportunity serves. Unfortunately it is 
much more difficult and toilsome to be perpetually making new 
inYentions, de,·ising fresh labor-saving expedients, or discovering 
unsuspected economies, than to pare down wages, even at the risk 
of producing a slight falling-off in quality, provided that the deterioration 
is not so gross as to cause the actual rejection of the 
work. It is so hard to spend laborious nights and days in improving 


6 


pro ·ss 'H. I l is so ·as Lo nnd w rkIll •n 

\V '0111 ' Loan ;,lllog •Lh ·r dil'G·r •nL l.lllP,' or riti i m when Wlol 

011 id ·1 tit· ouu ·it'· d •t ·rmination lo di~p ·n · ·, whcr '' ·r pos~ihl •, 
with th · n 11l1 ~~ ·tor, :wd >..;,c ·ut · its work~ by ·ng.1ging a staiT of 
\VOl k11l ' 11 Ulld ·r lh' sup •rvi~ion ol il~ OWll sal:tri ·d om •>rs. This 
has b · ·n li '1 ··I r alt.t ·k ·d as b •iug palp~1bl • and ob\'iously oppo ·cd 

• rb' '<'<1 11111\li l will ICt';< \l the ,\11.1\.lf:'\111 Cfll'<'l wh ich \.th<11 legis\.ttinu ,li1J 
, ln1111-( l!.tdt• union . h.tY • ktJ in inn ',IHin,.: tht• dliricm·y of th • L.IIH'ashill' n1llon 
indn u · (\mqlill<', ton, \1. i\l.tthct' lc. tin1nn • lo the henchrcnt dTI.'ct upon em 
ph>y<'l nf 11 a de uni'"' ,ll tio" iu th · cngincct in~ot tt ,tdt• (s '<' <>Ill<'Ill/><""' I' Rtt'lttt>, 
Vol. I \II, t Xq•, .unl ~.·""'H. \V •hh' !llrlll•l'''" nmwu<l(i'. 
\ l.1n • hw.d !i'"'<'ll>in~ot hodic~ h.1ve .tdoptc<l M11HC kind ('If fe~it \1 ,\gcs cl.tu ~c in 
thdt <'<>nlt.l<'i . l'.utirnl." . ,,r tc~o:ul.ttiou. in • '~ pi.> <'<" .11c ~o:i v •n in l'.uli.<nH''''·"Y 
!'t•l n<ll II C. 17 <>l 11 Ft h. 1:;q:;, "lJ,b,tn ~.tnil.ll\' l)i l1irls ( ·,,llditions nl \ m· 
lt.tcl ) ",' ,1, ('''"'1'·" • .d•<> th · llnu«c ,,r Cnmlll<'i" ' un.uunwus tesnluti cms of 1.1 
Ft•h, 1 ~< 11,u1el h \L11d1 1 ~< , imp<' in!:' th • ptim·ipl• lot l;<H'<ltllll ent n lllll.l<'ls . 


7 


to political economy and business experience. It is worth while to 

place on record the facts. 

. Constructive work was not undertaken at first, but labor was 
hrre~ to clean the bridges* and to repair the Council offices, t at a 
consr~er~ble saving compared with contract prices. The first pieceof bulldmg work was executed by the Main Drainage Committee at 
£536 below the lowest tender of £z,I88. But the case which 
finally convinced three out of every four members of the Council 
of the desirability of executing their own works was the York Road 
Sewer. The engineer estimated the cost at £7,ooo, and tenders 
were invited in the usual manner. Only two were sent in, one for 
£II,588, and the other for £II,6o8. The Council determined to 
do the work itself, with the result that a net saving of£4,477 was 
made.t 

This remarkable result naturally created a sensation in the contracting 
world, and attempts were made to impugn the engineer's 
figures. In his crushing reply he pointed out that the contractors 
had reckoned out their tenders at absurdly high prices in nearly 
every detail, charging, for instance, 6os. and 70s. respectively percubic yard of brickwork and cement, whereas the work was done at 
39s. It is clear from the other particulars given, and from facts 
notorious at the time, that an agreement had been come to among 
contractors not to compete with one another for this job, in order to 
induce the Council to abandon its fair wages clause. The Council 
preferred to abandon the contractor.§ 

The outcome was the establishment, in the spring of 1893, 
of a Works Department to execute works required by the other 
committees in precisely the same manner as a contractor. The 
Works Department stands to the other committees of the Council 
exactly in the same relation as if it were an independent contractor. 
When a committee has any work to execute, the Council's architect 
and engineer prepare the plans and make an estimate, without anyreference to the Works Department. Then the Council decides 
whether the work shall be done with or without a contractor. 
Sometimes it decides to put the work up to tender, a course which 
enables it to see whether the estimates of the architect and engineer 
are trustworthy guides. The Works Department may say that it is 
not prepared to do the work, either because it is not satisfied with 
the specifications and estimates, or because it has no convenience for 
doing work at that particular site, or of that particular kind. In 
that case the job is put up to tender and done by a contractor. 

The accounts of the Works Department are kept distinct from 
those of other departments of the Council. The Finance Committee 
sees that it is debited with the interest and sinking fund on all the 
capital it uses ; that full allowance is made to cover depreciation and 
renewals ; that a complete stocktaking is regularly carried out byindependent officers ; and that all outgoings and maintenance 

• Minutes, October 18th, 1892, pp. 900-1. t Minutes, June 27th, 1893, p. 683, 
t Minutes, October 17th, 1893. 
§ See the fuller particulars in Minutes of October 31st, 1893, pp. 1063-5. 

8 


charges are properly spread over the various works done. The 
accounts are elaborately checked by the Council's Controller, as well 
as by the Local Government Board's Auditor. 

The Works Department has now been at work for over six 
years, during which it has executed over £I,ooo,ooo worth of work ot 
the most varied character-sewer construction, the making of roads, 
building houses of every kind, erecting bridges, carrying out of 
every sort of repairing and decorating jobs, and an innumerable 
array of miscellaneous operations. \Vhether, and to what extent, 
this work has been done cheaper than it would have been done by 
contractors is a matter of hot controversy.* The Progressives assert 
that, even with all the disadvantages of starting a new business, and 
struggling with "wreckers" inside the Council, the whole £I,ooo,ooo 
worth of work has, taken as a whole, and including the "jobbing 
work," been executed at just about what the contractors would have 
charged. The Moderates declare that it has cost more ; but even 
they do not put the excess at more than about 5 per cent. on the 
whole of the architect's estimate-an excess which any one accustomed 
to builders' bills will think amazingly low. But no sound 
judgment on the policy of dispensing with the contractor can be 
formed on statistics of this kind, extending over so brief a period. 
We must take a wider sweep, and see what inferences can be drawn 
from other experience. 

It is usually assumed by the Council's critics that its policy of 
eliminating the contractor is an unparalleled innovation, unknown 
outside London. A little knowledge of the action of local governing 
bodies elsewhere would preYent this mistake. It is, of course, 
unnecessary to remind the reader that Birmingham, dominated by 
the strictest sect of the Individualists, has municipalized its water 
and its gas, which are in London still left to private enterprise. 
\Vhat is not so well known is that the Town Council dispenses with 
the contractor whenever it can, each committee getting much of 
its own work done by its own directly employed staff. The Public 
Works Committee, which looks after the thoroughfares, and the 
Health Committee, which is responsible for sanitation, have not onlyentirely eliminated the contractor from the cleaning and repairing of 
the streets and the removal of refuse, but even from the laying down 
of granite paving and flagging, once a most profitable item of his 
business. The Gas Committee is not content with employing hundreds 
of men to make gas, but also keeps its own staff of carpenters,
bricklayers, blacksmiths, tinmen, painters, fitters, etc., to execute its 
numerous works. The Improvements Committee, like the Estates 
Committee, has its own carpenters, fitters, bricklayers, paperhangers,
plasterers and zincworkers,t whilst the Water Committee, besides a 
regular staff of mechanics of all kinds, is now actually engaged in 

* See The T?·utlt about the Wm·ks Depm·tmmt of the London County Council. 
(London Reform Union.) The year ended 30th September, 1899, shows a "profit"
of £I0,36S on completed works estimated at £79,270 (Minutes, November 1899). 
t Return of Hours of Labor, Wages, etc. (Appendix to Birmingham General 
Purposes Committee's Report, July 25th, 1893). See Appendix II., p. 18. 


9 

constructing several huge dams and reservoirs near Rhayader, two 
tunnels and various water towers and syphons, together with workmen 
's dwellings to accommodate a thousand people, stables, stores, 
workshops, a public hall and recreation room, a school, two hospitals,
and a public-house-all without the intervention of a contractor. 
The construction of all the buildings on the works is being carried 
out by the workmen of the Corporation, under the superintendenceof the resident engineer and his assistant. The timber and other 
material is being purchased by tender. "This method," reports the 
Water Committee," of using material supplied by contract, and constructing 
by the direct employees of the Corporation, the Committee 
consider, under the circumstances of the case, to be the most economical, 
as well as calculated to secure the best results." But this is not 
all. The Water Committee, finding that the village would have beer, 
has decided also in this matter to dispense with any entrej7'eneztr,
and has ''resolved that a canteen shall be established in the village," 
out of the capital of the Birmingham citizens, and "that the personmanaging it shall have no interest whatever in the quantity sold." • 

And if we turn to Li\·erpool we learn that "almost all the city 
engineer's work is done by men directly employed by the Corporation.... 
The construction of sewers is now done entirely by the 
Corporation themselves.... They had such a cruel experience of 
doing the work of sewering by contractors that they have given it 
up."t It appears that in the old days, when the contractors agreedand charged for two courses of brickwork, no amount of inspection 
sufficed to prevent them putting in one only. "What happened 
was this : that whenever the Inspector came round, or the Clerk of 
Works, to watch the contractors, they found the two rings of brickwork 
going on very well ; as soon as the Inspector went away .... 
the second ring of brickwork was left out ... and so the sewer gotweak. . . . You could trace the visits of the Inspector by the 
double rings" which were found here and there at intervals when 
the sewers were subsequently uncovt:red for repairs. t 

This evidence from Liverpool is especially interesting in connection 
with what has recently been discovered at Manchester. The 
Auditor's report, published in r 896, exposes a precisely similar fraud 
in connection with the thirty-five miles of new sewers now under construction. 
This work was let to thirty-four different contractors, who 
had already received over £6oo,ooo for their work. The new citysurveyor, finding that the work had been scamped, had "street after 
street taken up at great expense, and such an exposure was made of 
fraud and deceit as I," writes the auditor, ''have never before seen. 
The men who built these sewers in a tunnel neyer dreamed that 
their rascality would be discovered." The chief method adopted, 
was, as at Liverpool, leaving out one ring of brickwork, except when 
the Corporation Inspector was signalled as being about to descend 
the shaft. Then the workmen hastily put on a second row of bricks 

* Report of the Birmingham Water Committee, presented February 6th, r8g.;. 
+Evidence of the Deputy Town Clerk of Liverpool before the Unification of 
London Commission, p. 328 of C-7.;93-I. t Ibid, p. 328. 


10 

at that spot. The frequency of the Inspector's visits to each bit of 
work were found marked by this extra ring of bricks, here and there, 
instead of along the whole length of the sewer.* 

Nor are these Councils in any way exceptional in their steady 
progress towards the elimination of the contractor. In the earlydays of municipal activity practically everything was let out to a 
contractor. Nowadays every large municipality, even if it does not 
possess any separate ' Works Department, has a staff of mechanics 
and artizans in regular municipal employment, and every day exe.
cutes many important works and services by its own workmen, which 
were formerly let by tender to the lowest bidder. 

Nor is it in municipal boroughs alone that we see the change in 
policy. Nothing was more common a few years ago than for highway 
authorities to get their roads kept in order by contractors. An 
interesting return obtained in 1892 by the County Surveyors' Societyshows that this practice has been almost entirely abandoned in favor 
-of direct employment of labor by the county surveyor. Only in one 
or two counties out of thirty-five furnishing particulars does the old 
custom linger. The county surveyor for Gloucestershire indignantly.denied an allegation that he favored the contract system. "It does 
not commend itself to me in any way," he writes, "and encourages a 
low form of sweating. My own experience of road-contracting is 
that it does very well for five years, then the roads go to pieces, and 
you have to spend all your previous savings to put them to rights."t 

When we thus find even the County Councils in rural districts 
giving up the contractor, it ceases to be surprising that the Town 
Council of Manchester, in the city of Cobden and Bright, now 
manufactures its own bass-brooms, or even that the ultra-conservative 
Commissioners of Sewers of the City of London, actually set the 
County Council an example by manufacturing their own cartsJ 
The superiority of direct municipal employment, under salaried 
supervision, to the system of letting out works to contractors has, 
in fact, been slowly borne in on the best municipal authorities all 
over the country by their own administrative experience, quiteirrespective of social or political theories. 

Integration of Processes. 
Business men, not so very long ago, would haYe argued that this 
policy of including all kinds of industrial processes under one 
administration was contrary to the lessons of business experience. 
The last generation of captains of industry believed in each undertaking 
sticking closely to its own special trade, and contractingwith similarly specialized undertakings for all subsidiary parts of the 
business. "Never make anything yourself that you can buy elsewhere" 
was a common industrial maxim. The last thirty years 

• Report of the Citizens' Auditor of the City of Manchester for 1895· 
t Particulars if Manaf{emmt if Main Roads in England and Wales, a reportcompiled for the County Surveyors' Society, by Mr. Heslop, County Surveyor for 
Norfolk. See Buzlder , March 19th and 26th, 1892. 

t Statement of the Commissioners of Sewers, presented to the Royal Commission 
on London Unification. 


II 

have changed it to "Never buy from anyone else what you can 
manufacture for yourself." 

The most familiar instance of this revolution of policy is seen in 
the English railway companies. Once a railway company was an 
association for getting a railway made, and running trains on it. 
An able essay written by Mr. Herbert Spencer forty years ago, 
protested strongly against any extension of a railway company's 
scope. Nowadays an up-to-date railway company runs docks, canals, 
ferries, steamships and hotels of its own, and carries on, besides, 
innumerable subsidiary businesses, and manufactures every conceivable 
kind of article, entirely by its own operatives, working 
under its own salaried staff. The directors of the London and 
North-Western Railway Company, for instance, with a comprehensiveness 
that would have staggered George Stephenson, lay it down 
as an axiom that the company "should be dependent on the outside 
world for as few as possible of the necessaries of life." The manager 
at the company's great workshop-town of Crewe, "can think of 
nothing of importance that is imported in a manufactured ~tate, 
except copper tubes for locomotive boilers." "As we pass from shop 
to shop, here may be seen a steel canal boat in process of construction 
(for the company, it must be remembered, is a great canal 
proprietor) ; there, a lattice-work bridge is being fitted together.
Further on, hydraulic pumps, cranes, and capstans crowd a huge 
shed. In another place, chains of all sorts and sizes, from cables to 
harness traces, are being forged by the ton ; close by, coal-scuttles 
and lamps are being turned out by the hundred. In all the works 
there is no stranger sight than a corner in the carpenters' shop, 
where two men are constantly employed making artificial limbs. 
Some two years back (that is, about I 88s) the company embarked 
on this branch u~ manufacture, and undertook to supply legs and 
arms of the most finished workmanship to any man who lost his 
own in their service." • 

Nothing indeed is too small or too great for the North-Western 
to manufacture for itself. Crewe turns out a new locomotive engine 
every five days, and you may watch the company's own rails beingrolled in its own steel works. At Wolverton, Mr. Acworth recounts 
how he "came upon a man engaged in etching. designs upon the 
plates of ground glass that were to form the wmdows of lavatory 
compartments, and was told that the company had recently found 
that it could do this work for itself at half the price it had formerlypaid" (pp. 6o-r). Since r88r the North-Western has been steadily 
eliminating the privately owned waggon. For over twenty yearsthe companies have managed their own collection and delivery 
business. Nearly every company, too, now builds its own carriages.
The Midland Railway prints its own tickets; whilst the Great 
Eastern goes a step further, and executes in its Stratford works 
nearly the whole of its own printing, including its gorgeous colored 
posters and pictorial advertisements. "In the printing works the 

• The Railwa)'S of England, by W. M. Acworth. London: 188g, p. 59· 

12 

company keeps about I 10 persons constantly employed, and is 
understood to save a good deal of money by doing so."'' 

But the Midland has tried another experiment. At tbe greatTrent stores are between three and four hundred thousand empty 
corn sacks, which the company furnishes for the conveyance of the 
corn from the farmer to the miller. H ere, too, the contractor 
formerly existed and made a profit, until, a few years ago, the 
business was undertaken by the Company itself. 

In every branch of railway management, in short, the elimination 
of the independent entrepreneur or contractor is being rapidly 
effected. It was impossible that this example, set by undertakingsin many respects analagous to municipal departments, should have 
no influence on the business men who rule our Town Councils. 

But although railway directors cannot be supposed to haYe been 
bitten by the tarantula of Collectivism, everyone will not be convinced 
by their remarkable change of policy. They resemble the 
members of a Town-emrncil in not working for their own personal 
profit, and may, it is urged, therefore be indifferent whether their 
ambitious excursions into manufacturing industry actually pay their 
way. It is, therefore, interesting to find exactly the same revolution 
of business policy in large private undertakings. No better instance 
could be adduced than the history of a certain world-renowned firm 
of shipbuilders, whose rapid and continued expansion is one of the 
marvels of modern industry.

Twenty years ago this firm constructed in their own yard little 

more than the hulls of the vessels, contracting for all the thousand 

and one articles of equipment with numerous other manufacturing 

firms which specialized in these directions. Nowadays, this same 

shipbuilding firm manufactures every one of these articles-from 

triple-expansion engines down to the brass handles of the cabin 

lockers-in its own works ; and turns out its vessels from keel to 

topmast entirely of its own construction. Instead of employing

only shipwrights and platers, that firm now engages men of several 

hundred separate trades, who work under the salaried management 

of different heads of departments.

The following letter gives some of the dates and particulars of 

this industrial evolution :


Letter from an eminent Shipbuilding Firm as to datu of Progressive Absorption of 
Subsidimy Processes. 

I have yours of nth inst., and have much pleasure in giving you the information 

you ask for respecting certain subsidiary work previously done for us by sub


contractors but now carried out within our own works. 

In 1879 we began to rig the ships built by us. 

In the same year we began to build lifeboats. 

In I 88o we commenced plumbing work on board our ships, and to make our own 

sails. 

In r88r we opened an upholstery department to carry out that branch of work 

ourselves. 

In r88z we opened an electric light department.

It was in r88o that we started our engine works, all the engines for vessels 

constructed by us up till then having been made in outside engine works. And e\'en 

* The Railwap of England, by W. M. Acworth, p. 416. 

13 

after we opened the engine works certr.in subsidiuy machinery was obtained from 
outside which we now construct ourselves. 

For instance, in 1885, we first built crank shafts for main engines. In 1887 we 
began to manufacture manganese bronze propeller blades. In I 890 we be"'an to 
make circulating pumps and engines, duplex pumps, steam steering engin;s, and 
brass sidelights for ships, and in the same year our smith work gradually merged into 
general forge work. 

The history of great engineering establishments shows the same 
tendency. The progress of the largest firm in the United Kingdom 
shows how, during the present generation, business has been added 
to business, until the firm has become one of the largest in the 
world, mining its own ore, making its own pig-iron, smelting its own 
steel, building its own ships, erecting its own engines, constructingits own tools, and executing innumerable subsidiary works in everydirection. 

And, turning to quite another industry, we may cite the 
experience of a Birmingham manufacturer of metal goods, whose 
business has distanced all his rivals, and is now the largest and most 
prosperous in the trade. Thirty years ago he was completely under 
the dominion of the then prevalent idea of specialization. Everything 
required in his business which did not come strictly within the 
limited sphere of his own specialties he obtained by contract from 
other firms. Gradually his ideas changed, more and more of the 
subsidiary work was done in his own factory. He began to make 
his own tools and machines. He commenced to repair, and then to 
construct his own engines. When additions to his works were 
required, he picked his own clerk of the works, bought his own 
bricks, and engaged his own artizans. Year by year he has found 
himself becoming less and less dependent on outside contractors, 
until the other day he started making in his own essentially metal 
factory even the wooden hogsheads and paper boxes in which his 
goods were packed. And he himself attributes the continued 
profitableness of his business, and its very rapid expansion duringtimes when his competitors have often been working at a loss, 
mainly to this progressive elimination of the contractor and subsidiary 
entrepreueur. The following memorandum describes these 
changes in his business :-· 

Memorandum by a Hardwm·e lllanufactzwer, describing the Subsidiary Opn·ations 
now wzde1·taken by his ji1·m. 

I find that some time at the latter end of 1870 we fir;t began to manufacture 
goods that we had previously bought from other manufacturers. These goods were 
ch:efly unfinished work that was required to complete the various articles that we sold. 
In some cases I made the change because I thought I could make a better article, 
and possibly a cheaper one. B~t the important advantage was in obtaining quickdeliveries, and, therefore, prompt execution of orders. Since that date we have boughtless and less outside, and at the present time we make almost everything that we 
require.

About r868 we began to do all our own repairs to machinery, plant, and buildings, 
and employed carpenters, fitters, machinemen, bricklayers, slaters, and painters.

In 1879 we began to make and design all the machinery that we required, and to 
erect new buildings. For some eight years earlier than this I had designed all 
machinery, and had it made either in Birmingham or Manchester. Thi; alteration 
was made chiefly because the machines were special, and l did not want them used 
by competitors in my trade. 


In 1884 we built large carpenters' fitting and erecting shops, to enable us to 
equip ourselves a large factory we were then putting up. These shops employed 
some 100 hands, who for the last ten years have been fully employed. 

In 1886 we began to make all the hogsheads (used for packing), packingcases, paper boxes, and everything that is required for the delivery of goods to our 
customers \Ve even make what is called wood wool, a substitute for straw. This 
department is a very large one, and uses up small forests of timber. This development 
has greatly facilitated the quick delivery of our goods, and has prevented a 
great waste caused by breakage in transit. 

Space forbids any further multiplication of instances, or we might 
recount how one of the leading London publishers has lately become 
his own bookbinder, whilst another well-known firm combines in a 
single undertaking every stage of book-production, from the hiringof the author at fixed wages down to the sale of the volume by 
travelling pedlars. Or we might cite the colossal manufacturer of 
boots, buying his own hides in America, or his own gutta-percha in 
Borneo, and vending his wares, on the other hand, in his own retail 
shops all over the kingdom.

Economic criticism of the London County Council has perhaps 
suffered by the fact that this integration of processes, or union, 
under a ingle management, of many separate businesses, has 
hitherto scarcely attracted economic attention. It is, of course, by 
no means the same as the oft-described elimination of the small 
busine s in competition with the large. The tendency, in fact, is 
frequently the other way-a large specialized business becomes 
superseded because it customers begin to do the work for themselves, 
each of them in a much smaller way than the single separate 
factory. Thus an old-established firm of " finishers" of certain 
textile manufactures have described how, during the past thirty 
years, they have one by one lost their best customers, not to anyrivals in the "fini bing'' trade, but because the manufacturers were 
steadily tending to do their own "finishing." The essential feature 
of the change is the substitution of salaried work and management 
for the entreprmeur laboring for his own profit. Business men have 
apparently di covered. contrary to ordinary economic opinion, that 
the economically .most advantageous form of industrial organizationis that in which the stimulus and temptation of profit is confined to 
as few of the actual workers as possible. So far is it, indeed, from 
being true that the hope of profit-making is the best or the chief 
stimulus to industrial efficiency that, from the medireval master 
craftsman down to the modern captain of industry, the proportion of 
the population who work for profit has been steadily diminishing. 
The remarkable growth in the numbers of men directly employedby municipalities and other public bodies is, in fact, paralleled by an 
exactly similar growth in the numbers of men directly employed at 
salaries and wage by priyate establishments. The elimination of 
the contractor or ubsidiary e1ltrepre1leur is the dominant fact in 
modern indu try.

It is al o to be noticed that the tendency 1s to shift the 
direction of industry from the producer to the consumer. The 
manufacturer who e business requires a steady supply of raw 


IS 


material, particular kinds of tools, engines and buildings adapted to 
his processes, or packages ready at the very moment his wares are 
finished, finds that it is more convenient, less liable to mistake or 
delay, and, in the truest sense, more economical for him, as the consumer, 
to obtain all these things by his own directly employedstaff, than to rely upon the competition of producing entrepreneurs 
or specialized firms. And thus, as the manufacturer absorbs the 
separate producers of the wares he consumes, he must not be surprised 
when the public, the ultimate consumers of the wares he 
produces, themselves apply the lesson, and, through their elected 
representatives, finally absorb him."' 

Why is the elimination of the subsidiary mtrepreueur more 
practical now than it was in the last generation ? It would take too 
long to examine the fundamental causes and conditions of this 
change in industrial organization. Most changes in social structure 
depend, in the long run, upon individual character ; possibly there 
has been a growth in the number of men who can be trusted to 
work efficiently and honestly as salaried managers instead of for 
their own personal profit. Possibly, too, as industrial organization 
becomes more complex, the advantage to the consumer in directlycontrolling the production of every article he requires, becomes 
more apparent. All improvements in social organization, too-
steam, telegraph, the free use of the printing press, and now the 
telephone-facilitate the massing of workmen under single generalsof industry, able efficiently to control larger and more heterogeneousand more complex industrial armies than could be managed by the 
captains of the past generation. Finally, as regards the substitution 
of the collective for the individual management of industry, it is 
evident that this will have been rendered increasingly practicable by

the perfecting of democratic organization.

All these and other influences are but fragmentary suggestions 
towards the explanation of a change in industry of which the policy 
of public authorities in getting rid of the contractor is but one out 
of many manifestations. Formerly the best business management 
was that which itself managed least. Nowadays the best business 
management is that which can safely and efficiently administer most. 
The integration of producti\·e processes under direct control of the 
consumers may or may not be economic heresy; the business history 
of England for the past thirty years indicates that it is industrial 
orthodoxy. 

*Compare the steady expansion of co-operation by associations of consumers-
see The Co-Ope~·ative A-fovement in Gnat B1'l'lain. By Beatrice Potter (London, r8gr).
The substitution, as the director of industry, of the consumer for the producer usuallyimplies a clear economic gain in saving one of the processes of checking or examining.
l\lr. Herbert Spencer has himself described how the Admiralty was driven to set upits own flour mills, because it cost too much to maintain the necessary ~crutiny of 
e1·ery sack of flour delivered by the contractors. The London County Council found 
that it involved no more of the time and attention of their architect and engineer 
actually to supervize work done by the Council's own foreman and mechanics than to 
keep the necessary close watch upon the contractor and his manager, who were 
anxious, not to make their men build well, but only quickly. 


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