TRUST BOGEY.
NVHEN, some eighteen months ago, the country was . in the throes of a Trust panic, anybody who dared to doubt the desire and ability of American capitalists to buy up anything and everything, from Westminster Abbey to the Bank of England, was looked upon as deaf and blind to the signs of the times. Notwithstanding the determina- tion of the country to make a bogey out of the Trusts, we ventured to predict that the dangers believed to be threatened by those combinations would prove to be greatly exaggerated, and that the schemes for taking action against them were not only impracticable but unnecessary. For thus refusing to indulge in the luxury of panic we were held to be willing to betray our national industries to the Americans. Yet our policy of " sitting tight " and allowing the Trusts to blow over has, we venture to think, been shown to be the i right one. Instead of the Trusts proving a danger to the nation, they have only proved dangerous to their shareholders. The creation of gigantic Combines with which no one could; possibly compete has turned out a delusion. In this country, though there has been a certain tendency to big businesses, the Trust or Combine in the American sense has not been able to make any headway. The air of England has never been, and is not now, favourable to the growth of monopolies, and as long as we maintain the policy of the open market, a market, that is, free from any Protective legislation, it will continue so. The Trust, though it grows so big and looks so strong, is in reality a very delicate plant, and requires the shelter of a tariff wall. Except behind such an artificial protection, it never attains to any great height or strength.
But even behind a high tariff wall the Trust does not' prove a really vigorous growth. It spreads quickly, it is true, but its roots are not strong, it harbours parasites, and it soon becomes exhausted. Even in America, where the Trust was first produced, and where all the condi- tions for its growth are most favourable, it does not succeed in the way expected of it. Mr. Maurice Low's recent interesting statement in the Morning Post on American Trusts shows this conclusively. This able student and critic of American affairs exposes with great clearness the weakness of the system. When Mr. Maurice Low speaks of "the alarming position" of the American Trust, he gives good warrant for his words. " The dividends," he tells us, " on the common stock of two hundred and fifteen of the great combinations does not exceed 1 z per cent. per year. The reason for this state of affairs is simple enough. The principle of the trust—the theoretical basis on which it is founded—is fundamentally sound and correct as an economic law, but the method of its application is as vicious as reckless and dishonest finance has ever witnessed. The principle is that it is cheaper to carry on operations in wholesale rather than in retail ; that a manufacturing concern handling a product of a thousand tons a day can effect greater econo- mies than one whose product is only a hundred tons. Theoretically this is true—speaking generally—but, un- fortunately, no allowance is made for the greater efficiency which always follows from direct and personal manage- ment as opposed to remote and impersonal super- vision, or the extravagance that inevitably results when men think in millions rather than in thousands." As he goes on to point out, an individual proprietor keeps a watchful eye on all expenses, because he knows that every penny saved or made goes into his own pocket, while every penny lost comes out of it. The alternatives of good fortune and ruin are so near to him that he realises them to the full. "But," Mr. Low continues, "let this concern be amalgamated into a trust and see what happens. The general management of the trust is vested in the hands of an unwieldy board which sits a thousand miles from the scene of operations, while the factory is placed in charge; of a salaried manager. The members of the board, or at least many of them, are not practical men. Instead of being practical manufacturers of iron and steel or what-' ever else the trust makes, they are bankers or merchants, insurance men or railway directors, selected as the repro- - sentatives of a particular ' interest,' and because that interest had to be conciliated or its financial assistance ' was necessary to form the trust. Such a management as, I have described instead of being economical becomes in practice extremely costly." Mr. Low goes on to make a vigorous attack on the want of morality displayed by the promoters of the Trusts. Here, however, we do not desire to follow him. We do not, indeed, think it at all neces sary to assume that the Trust promoters were so much wiser than the rest of the community. On the other hand, we think they fully shared the Trust madness, and honestly believed-in the wealth they were creating on paper. They were the victims of a paradox quite as much as were the shareholders. It is easy enough to see- how quick, eager minds were led into the two capital delusions of the Trust mania. The first was the abstract belief in the advantages of bigness, and the notion that the bigger a business is the cheaper it: is to, manage. If ten busi- nesses employ a hundred directors and occupy ten offices, why not put them into one office under , ten directors and save the expense, of ninety directors and nine offices P The second delusion, s founded on the first. It is as follows. If each of the ten businesses is worth so much to buy individually, it will be wise to give a good deal more than ten times that amount for them collectively, because when they, are amalgamated so much will be saved by the Impelled by this delusion, the Trust promoter fir• st imagined a profit to be obtained hereafter, and then capitalised it, and added it to the, price which he was-will- ing to pay for the ten businesses purchased together. To put it in another way : the man who desired to create.a Trust found that the businesses already in the trade would not sell except at very high prices,—i.e., prices higher than their profits justified. The ordinary man. would on this say, " Well, then, we can't deal.' Not so the Trust creator. 'Attracted by the hypothetic,* profit that is supposed, to flow .fromnmalgamation, he was willing to offer an enhancedprice, and to capitalise the hypothesis at once,—say at twenty years' purchase. Hence came the watering of the stock which has taken place in so many instances. It was not in any sense fraudulent, but was due to the belief in the economic soundness of the. Trust principle. In a world of pure reason—i.e., in a mechanical world—this belief would bailie been reasonable enough. It is only false because it ignores the essential conditions of human nature and the fact that the world is not a piece of machinery. Ten businesses are by no means always, though they are sometimes, run cheaper when they are amalgamated. Very often they cost more to run when amalgamated. The reason is that the human brain has limitations. There is a unit of super- vision which cannot be passed. For example, it has, we believe, been found in those most admirably managed in- stitutions, the Rowton Houses, that the size of a house which can be efficiently run by a single manager is one of about eight hundred beds. There is, therefore, waste in having houses with less than eight hundred beds. Beyond that limit, however, efficiency is sacrificed by having only one man to supervise. The job is too big for him. Having two men to supervise nine hundred is also waste. Therefore eight hundred beds is the unit of economic management. In the same way, in shipping, in steel, in railways, in the beef and in the leather business there is a unit of economic management which it is wasteful to exceed. It may be difficult to discover it, but it exists. The fact, that it exists is, indeed, evidenced by the want of trading success shown by the Trusts. To put the situation shortly, the Trust promoters ignored human nature, and they and those who believed in them are paying the penalty. They raised money on the hypothesis that a man, or even a committee of men, who could supervise fifty ships could equally well run three hundred. They have found out their mistake, and they must now grope about, with infinite pain to the owners of stocks watered on an abstract theory, to find the unit of economy. When they have found it they will probably find also that they will be paying as much in salaries and offices as were the old companies and firma whom they bought out At such vast prices.
There is yet another reason why the Trusts do not succeed in business as much as was expected. They ignore the healthy side of competition. COmpetition is the anti- septic of business. Where there is no competition. a business will wither and decay. It is not worth men's while, or at any rate they do not realise that it is, to put their backs into their work unless they have the fear of competition before their eyes. If they see rivals at their doors they become efficient. If they are protected from rivalry they tend to become obese. In this fact, however, is curiously to be found the ultimate salvation of the Trusts. On all sides we hear of competing businesses that have grown up in spite of the Trusts, and to the astonishment of people who imagined a monopoly had been created. These competitors may in the end drive the Trusts into more efficient _ways, and turn them from capital-logged monopolies into reasonably healthy, even unwieldy and overweighted, businesses.
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