THE FAILURE OF STATE SOCIALISM.
THE first Report issued by the Select Committee on National YY Expenditure during the present Session—the third since the Committee came into existence—deals exclusively with the Ministry of Munitions. It is a Report which ought to be studied carefully by all these- who wish to see what State Socialism means in practice. Whether it was possible to avoid a large measure of State Socialism in view of the exigencies of the war is a point which. need not for the present be debated. The important point is to notice that, whether the measure of State Socialism in which we have indulged was or was not necessary, the experiment has proved the complete failure of State Socialism as a method of conducting the industries of the country.
Before dealing with the facts which the Committee bring to light it is worth while to point out that the creation of the Ministry of Munitions was to an appreciable extent due to political rather than national considerations. In the early months of 1915 Lord Kitchener, realizing the importance of an adequate and rapid supply of munitions and the necessity for a better organization of the manufacturing industries concerned with that.supply; made plans for calling into being, to deal with these problems, a. semi-voluntary organization composed of leading manufacturers. At this stage Mr. Lloyd George inter- vened and, scrapping to a large extent Lord. gitchener's pro- posals, created the Ministry of Munitions, of . whish.he himself became. Minister. That Ministry, it will be remembered, in the early weeks. of its existence obtained, through .the ignorance of the public, credit for the production of large quantities of shells which healin fact been ordered by Lord Kitchener several months previously. How. far the. Ministry of Munitions has really effected anything which could not have been better effected by private agencies under semi-voluntary control, it is impossible to say. Alt we know-is that a gigantic Ministry has been created, and endowed with power to regulate and administer, in the words-of this Report, practically the whole engineering- and chemical industries of the country." It is further described' as " a great buying, and incidentally-selling; concern, probably the largest institution of the kind that the world has ever seen." It has now been in existence nearly three years, and no one can-read this Report without coming to the conclusion that in many essential& it has completely failed.
Briefly, the charge made by the Committee is that the Ministry-of Munitions has-allowed, its action to be dictated by one of the three- branches into which it is divided—namely, the Supply Branch—regardless- of considerations of economy. The excuse of -the Supply Branch is that its business is to speed up production, and it. tends to, regard the Finance and Con- tracts Branches, which are concerned with costs and economy; as obstacles to itrwork. The effect- of this attitude in a great commercial concern such as the Ministry of Munitions will he more fully appreciated when it is added that the Supply Branch itself necessarily consists of a number of separate departments, dealing with. separate classes of production. There are separate departments for " explosives, aeronautic supplies, gun manufacture, gauges, stampings, and forging's," also for various raw materials, machines, tools, mechanical transport, and such common services as factory construction, railways, and stores." In addition, the Supply Branch deals with the regulation of wages, with the housing of munition workers,, with. their training, their exemption from military service, and more generally with their " welfare." A mul- titude of departments is therefore essential. But if the whole organization- is to be effective, it is equally essential that the activities of these various departments should be co-ordinated. The Committee find that they are not co-ordinated. Various co-ordinating Councils have indeed been created from time to time, but in practice the different depart- ments still appear to do practically what they please. They are guided by a quality best defined as the departmental • conscience"—the conscience which tells the members of a department to think of their own department before every- thing else. Each department is solely concerned in obtaining the largest share of any available material or output for itself ; no department has any inducement to reduce its claims because, " in order to be sure of obtaining the minimum requirement, each one will naturally ask for the maximum."
This charge is repeated again and again throughout the present Report with various alterations of detail. It suffi- ciently explains why the multitudinous departments of the Supply Branch object to any control either by the Contracts Branch or by the Finance Branch of the Ministry. In theory, the business of the Supply Departments is to discover new sources of, supply, to investigate possibilities of extension and to consider the capacity of the firms that are taking contracts, without discussing financial details with them. For the effective discharge of those duties -the. Supply Departments have very properly been composed largely of technical men with a special knowledge of the manufacture with which they are concerned. But the moment it is realized that these Supply Departments in practice do interfere with financial details it will be seen what dangers result. They are set out with admirable lucidity in the Report of the Select Com- mittee :- "Production is still the main purpose of the Supply Branch, and the man who is forcing on production is the last man to whom the settlement of price should be entrusted. Not only is he anxious to tempt the manufacturers to produce, but he is also eager to prevent their. services from being, engaged by another department. More- over, in a few cases the heads of the departments, and in most cases some of the responsible officers of the department, are drawn from the firms whose industries they control. Even where this is not the case it is not improbable that officers of the departments will, through knowledge gained or connections formed in their official capacity, find their way after the war into firms with whose industry they have dealt."
The Report goes on next to deal with the efforts made by the Contracts Branch to reach better results, and shows how various attempts at improvement have failed. For example, it is often. impossible in advance to estimate what the cost of a particular manufacture will be, and the Contracts Branch has attempted. to meet this difficulty by postponing settle- ment of price until production is complete, or nearly so, guaranteeing, to the manufacturer the whole of his coat plus a percentage. or a fixed sure for his- profit. At once the evil emerges that the manufacturer is no longer interested in keeping his costs down. On the contrary, he is tempted to adopt expensive methods of manufacture, to engage an un- necessarily large staff, and to pay unnecessarily high rates for labour. Some attempt has been. made to deal with these evils by the. establishment of a Technical Costing Branch, and the Committee speak highly of the work already done by this branch, and urge that it should be extended, and should undertake work for other Departments of the Government, including the Admiralty. Meanwhile, however, the Committee place on record their opinion that the efforts of the. Contracts Branch to limit profits to a standard figure have largely been a failure. The Contracts Branch aims at allowing a maximum of 10 per cent. :— " Investigation of actual instances shows, however, that while this may be the aim held before the Contracts Officers in their negotiations, it, scarcely represents actual practice, and in the end, whatever may be the desire of the Contracts Department, the result is that now, as formerly, the price is only arrived at by bargaining, in which costs, if ascertained, certainly provide an argument, but the ultimate conclusion largely depends upon the urgency of the demand and the sufficiency of the supply."
That is to say that, in spite of this gigantic organization, with a Minister drawing £5,000-a year at the head of it, the State in a limited market has to fall back upon bargaining with manufacturers who know that-they hold the Government in their grip. That would not matter if there were in existence a universally high standard of civic honour ; but though it is undoubtedly true that some manufacturers since the outbreak of the war have been voluntarily working for low rates of profit, or even no profit at all, from patriotic motives, it cannot be said that this has been the general rule. Moreover, the spectacle of some manufacturers making, with the apparent approval of the Ministry of Munitions, enormous profits, almost inevitably drives other manufacturers to bring them- selves down to the same level of civic dishonour. Among the examples given of high profits is the case of a firm which in the year 1917 made a profit of 340 per cent. on the capital as standing in the books of the company. Another firm asked £17 per ton for a certain product, stating that the real cost of manufacture was £22 10s., but that it was willing to work at a low price for the Government because it was making a big profit out of the general public. Investigation showed that the actual cost of production was about £13. Meanwhile, however, another department of the Ministry had contracted to be supplied with the same commodity from the same firm at a price between £19 and £20. Nor is there any evidence that the Ministry has effectively discouraged these exorbitant demands. On the contrary, a case is given where an enor- mously high profit was taken into account as a basis for negotiations. Nor must it be imagined, as Socialist agitators are fond of asserting, that the failure of civic morality is to be found in the employing class alone. It is notorious that the work-people in munition factories throughout the kingdom have been constantly clamouring for higher wages, often professing that additional payment was necessary in view of the higher cost of living, while at the same time obviously adopting a more expensive type of living than they had ever known in peace.
The picture presented in this Report is not a pretty one. But it is the kind of portrait which human nature is apt to paint of itself under such conditions. One of the strongest motives in human nature is self-interest. It can be overcome on occasion by high emotional morality, such as that which leads a soldier to risk his life for his country ; but there is practically nothing powerful enough to overcome it in the ordinary humdrum business of civilian life. For that reason methods of industrial organization which are based upon the assumption that all men will work at their highest efficiency and lowest cost for the benefit of the State are bound to break down. Yet it is only on that hypothesis that State Socialism is a defensible proposition.
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