James F. Lincoln: Industrial Peacemaker
Government Intervention in the Workplace Victimizes All Americans
APRIL 01, 1999 by DANIEL HAGER
Daniel Hager is a freelance writer in Lansing, Michigan.
The dichotomy between labor and management does not actually exist. Enlightened self-interest eliminates contentious factionalism in employment relations. Unfortunately, government has intervened in the workplace to convert it into a battleground and to institutionalize coercive conduct that is akin to warfare. The victims are consumers and the entire American economy.
Those were the views of an industrialist named James F. Lincoln. He applied what he termed “incentive management” in building the Lincoln Electric Co. of Cleveland, Ohio, into the world’s largest manufacturer of arc-welding equipment. Lincoln Electric was a provider of top-quality products at prices that undercut the competition. Nevertheless, it paid its workers at about twice the average wages in the overall industrial sector and weathered the New Deal.
Lincoln, who died in 1965 at the age of 82 and hence was spared the Great Society’s additional hamstringing of employers, was as harsh on “ultraconservative” industrialists who saw workers as adversaries as he was on misguided government. His management philosophy combined the Golden Rule with athletic metaphors. As he explained in his 1961 book, A New Approach to Industrial Economics, application of the Golden Rule leads to the type of cooperation that characterizes successful athletic teams, where the coaches and players are not antagonists but all pull together for the common goal of victory.
Everyone’s a Manager
In any organization everybody actually embraces both management and labor functions: “All are managers when they operate a machine, an assembly line, a broom, or a punch press, or when they manage the financial, economic, and social activities of the company. All also are labor. Some operate machines, some operate assembly lines, some operate brooms, and some operate the activities with government, with sellers, with buyers, and with the public. There can be no dividing line drawn between them. All are essential to the business and are complementary in their work.”
Lincoln learned about individual development and voluntary cooperative accomplishment while studying electrical engineering and playing football at Ohio State University, where he captained the undefeated 1906 team. The next year, he became a salesman at the small struggling electrical company managed by his brother, John C. Lincoln, a better engineer than businessman. In 1914 at age 31, James Lincoln moved up to general manager of Lincoln Electric and later became president. He solicited employees for advice believing that no one person can know everything and that others have much to contribute.
Development of employees’ talents became his goal, based on the foundation that “freedom of the individual is essential. Freedom means responsibility. It means opportunity. It means pride in ourselves and the place that we have created for ourselves in the world. No free man ever allowed himself to infringe on the rights of others.”
His strategies excluded production speedups and even conventional profit-sharing plans, which depend on too many factors beyond the control of individuals to provide them incentives. The New York Times obituary quoted Lincoln’s core policy: “There is no limit to the production capacity of a human being. The worker who is assured the fruits of his labor will find a thousand and one ways to increase production.” The workers themselves devised methods to improve productivity and reduce costs and benefited directly from their efforts.
The system of rewarded innovation worked so well that the labor required to produce a 200-amp welding machine dropped from about 113 hours in 1921 to about 16 in 1944. The selling price fell from $1,500 to $200. Between 1932 and 1943 worker productivity increased almost 13 times. Wholesale prices of manufactured goods rose more than 40 percent over that span, but prices of Lincoln’s arc welders were cut in half or more.
Lincoln said that “The goal of an organization must be this—to make a better and better product to be sold at a lower and lower price. Profit cannot be the goal. Profit must be the by-product.” His company paid liberal dividends throughout the Depression and laid off no workers. Work stoppages were inconceivable, even in the post-World War II era when strikes by organized labor became an everyday occurrence. Lincoln Electric’s productivity per worker and annual worker compensation were about double the entire manufacturing sector following the war.
Sued by the Government
During the New Deal, when corporate taxes were high and personal income taxes still low, the federal government sued Lincoln Electric on grounds it paid its employees too well. The case dragged on through the war years. Lincoln asked if the firm would have been sued if it had twice as many employees producing equal output at half the pay. When he was told no, he countered that the “crime” for which he was being fined was that he had freed up 2,500 people to work in the war effort elsewhere.
Government interference crimps productivity and creates poverty, as further exemplified by the Wagner Act, Lincoln noted. He described collective bargaining as “civil war.” In contrast to incentive management’s cooperation, under the Wagner Act “government sets up on one side of a table a group of people called ‘management,’ on the other side a group of people called ‘labor,’ orders them to fight until one or the other gives in and signs a contract dictated by the winner. . . . The fact that a conflict is forced by the philosophy of collective bargaining dooms the result to failure. . . . Cooperation is killed in the struggle and progress of the company is stopped. There has never been any collective-bargaining fight that did not end with higher cost of production. There has never been a collective-bargaining fight that did not result in a loss to the consumer.”
A coercion-free operation that respects all its individuals reduces costs and prices, and thereby benefits consumers, including workers. The worker who wins in a collective-bargaining war may benefit temporarily but soon needs higher wages again because lack of productivity reduces his own purchasing power. Those outside the direct scope of the bargaining war are the real victims: “Here, as is always true in war, the civilian population is overrun and suffers more than the armed forces involved in actual combat. There is no protection for the innocent bystanders in war or in the Wagner Act. . . . As the costs of the standard of living go up and jobs decrease, as they must, unrest is sure to develop. Those at the bottom of the economic ladder suffer first. Shortly thereafter, all are involved. Government then steps in, as it must under the present philosophy of government, as a provider of a standard of living for the unfortunate. This still further upsets the eco-nomic machine, and we have still higher costs because of the increased taxes and governmental interference. There are hence still fewer jobs, more government help to the needy, and hence still more need.”
“The essential for success is cooperation,” he wrote. An orphanage can efficiently feed, clothe, and house children and may even exceed parents’ abilities in those respects. But it does not succeed in rearing children as well as the home does because “the essential that is left out is the friendly cooperation that is obtained in the successful family. This cooperation cannot be commanded, it must be spontaneous. It cannot be a matter of law, it must be a matter of desire.”
Lincoln foresaw in 1946 that government-mandated coercion in the labor arena would deteriorate American manufacturing competitiveness and price the nation out of significant world markets. In his last two books he acknowledged the intellectual debt he owed to Rose Wilder Lane and Dr. Frank Halliday Ferris. His company has remained successful by continuing to adhere to his principles, despite the obstacle of ever-greater encroachment of government into workplace relations.