<h2>CHAPTER 56</h2>
<h3>PUBLIC POLICY AS TO CONTROL OF INDUSTRY</h3>
<h4>§ I. STATE REGULATION OF CORPORATE INDUSTRY</h4>
<div class="sidenote">The social problems of corporations</div>
<p>1. <i>The great increase of late in the number of industries under
corporate control has brought new problems of social regulation.</i>
Inventions, machinery, better transportation, better communication,
widening markets, have united to favor large-scale production, and this
in turn to multiply corporations. Corporate organization makes possible
greater massing of capital, greater stability of policy, and (because
not dependent on a single life) greater permanence than does individual
ownership. With these advantages the corporation brings also new social
problems. The relations in corporate business are more complex than
those in individual enterprise. The ordinary stockholder cannot have
personal knowledge of the business or exercise personal supervision over
his investment. The corporate official controls chiefly not his own
wealth, but the wealth of others. When men deal personally with each
other their sympathies are more appealed to. But, as noted in the case
of the railroad, the corporate official at best seeks to satisfy his
employers, often to the detriment both of the employes and of the
public. Corporations are "soulless" because they permit less of the
close personal relation that makes for morality. At various points in
these later chapters on the relation of the state to industry, mention
has been made of the measures society has taken to regulate corporate
industry. The purpose now is to survey the field more systematically and
to see the extent<span class="pagenum"><SPAN name="Page_545" id="Page_545">[Pg 545]</SPAN></span> of this regulation, the difficulties arising, and the
principles involved.</p>
<div class="sidenote">Examples of public control of corporate industry</div>
<p>2. <i>Numerous laws and commissions recently have been established to
provide public regulation of industry.</i> The Interstate Commerce
Commission is the most prominent of the agencies for regulating
corporate industry, as the railroad problem is the most prominent of the
corporation questions. But before the advent of the railroad, banks had
been recognized as having an exceptional public character. Not only
stockholders, investors, depositors, and note-holders, but a large part
of the public suffers losses by the failure of banks. As investigation
by the various interested persons is quite impossible, the state through
its agents inspects the books of the bank in a manner not thought of in
the case of ordinary private business. The bank commission is the eye of
the public, safeguarding the public welfare. State inspection of
insurance companies, a later kind of corporate enterprise, grew out of a
similar need. Insurance to provide for sickness, old age, or death is
socially desirable and is possible in an equitable way only by the
association of a large number of policy-holders. But inspection of the
business by each policy-holder being impossible, regulation and control
through some public agency is needed. The tax commissions now found in a
majority of the states have been created principally to deal with
corporations. In California, a debris commission regulates the relations
between the farmers and the miners using hydraulic processes. A number
of states have mining commissions, harbor commissions, labor
commissions, boards of arbitration, and other similar bodies. The
increase of these public agencies to regulate corporate industry has
lately been condemned by some as a useless multiplication of state
machinery. Doubtless some commissions have, through improper influences,
been needlessly created; others having important duties have been
intrusted to incompetent political appointees. But most of these
commissions are needed, though at first their work may be ineffective.</p>
<p><span class="pagenum"><SPAN name="Page_546" id="Page_546">[Pg 546]</SPAN></span></p>
<div class="sidenote">Helplessness of the small investor</div>
<p>3. <i>There is a strong and increasing demand for publicity in the
business of the ordinary corporation, as a protection to investors.</i> The
law has looked upon corporations, with few exceptions, as private
businesses, having the right to keep every detail of their management
secret from their rivals. The inner management, therefore, has been
closely hidden from most of the stockholders, who, in the economic
analysis, are in the main the enterprisers. More and more the business
and capital of the country has thus come into the control of the few.
The ordinary investor in corporate stock "buys a pig in a poke" and
trusts to the integrity of officers working behind closed doors,
responsible to no one, too often speculating in the stock of their own
companies. The unearned gains thus secured have tainted with dishonesty
many a large fortune. No small part of the evil is the closing of the
avenues of safe investment to the small capitalists, giving to a favored
few a measure of monopoly in investments yielding large returns. Only
recently has it been recognized that no large corporation can now be a
private business in the old sense. The evolution of industry has left
investors and shareholders without protection in advance of a wrong, and
usually without legal redress when a wrong has been committed.</p>
<div class="sidenote">Steps toward publicity to protect investors</div>
<p>The demand for some remedy for a condition whose seriousness has been
steadily increasing has not come so much from radical quarters as from
business and financial circles. In England, some of the worst abuses
have been corrected by legislation. In 1900, a bill was drafted at the
suggestion of Theodore Roosevelt, then Governor of New York, which aimed
eventually to make the corporation a quasi-public institution, open to
inspection. The organizers of a company voluntarily accepting the act
were to be personally responsible for the statements in its prospectus;
its issue of stock was to be limited to actual investment and to be
publicly made; its office and records were to be open to inspection.
Though public opinion was not ready for this bill, and it failed of
passage, the bureau of corporations of the new department<span class="pagenum"><SPAN name="Page_547" id="Page_547">[Pg 547]</SPAN></span> of commerce
of the federal government, established in 1903 under President
Roosevelt, may be looked upon as a fruit of this initial attempt.</p>
<div class="sidenote">Broad social grounds for publicity</div>
<p>4. <i>Greater publicity of corporation business is essential in the
interest of the public.</i> With the interests of the investor are usually
united more general public interests; but in many cases the two groups
of interests conflict. Some persons favor control of corporations only
to the degree needed to protect investors, but others place the policy
on broader social grounds. The ability of a manufacturing corporation,
at times, by threats of removal, to coerce unfair terms from the
community, from its employees, and from those who supply it with
materials, has led to the proposal that factories shall be forbidden to
change their location without the consent of the state.</p>
<div class="sidenote">Publicity to insure just prices</div>
<p>Especially does it seem desirable, if it is possible, to preserve the
benefits of competition, by forbidding rates and agreements in restraint
of trade. The old English idea, inherited in our law, is that the
highest price that can be got in an open market, under ordinary
conditions, is in general a just price. The control of any line of
industry by a few corporations makes secret agreement much more easy,
and thus replaces a general market-price by a discriminating rate, the
highest that each individual will bear. A trust's price might still be a
reasonable one if the seller met competition in every market; but it is
not reasonable when opposition is crushed by local and by individual
discriminations. The methods by which this result is obtained shrink
from the public gaze. They include secret agreements with railroad
agents, a system of espionage on the business of competitors, secret
special rates to the competitor's customers, to say nothing more of
corrupt political influence. Publicity in corporation accounts is the
first condition to a public and uniform price. The need thus to develop
potential competition is especially strong where a monopoly in a natural
product exists. A more general recognition of the public nature of
corporations<span class="pagenum"><SPAN name="Page_548" id="Page_548">[Pg 548]</SPAN></span> will lead to further legislation and to the appointment of
corporation commissions, as has been done already in some states.</p>
<h4>§ II. DIFFICULTIES OF PUBLIC CONTROL OF INDUSTRY</h4>
<div class="sidenote">Growing need of social coöperation</div>
<p>1. <i>The progress of industry is compelling greater social contact and
more use of the agencies of government.</i> The numerous exemplifications
of this general statement that have been met in the course of this study
have a common cause. In simple conditions of industry, where most of the
productive energies were given to securing the necessities of life, the
struggle of men was with nature. Social relations then were simple and
crude, such as those of chattel slavery. Now, most men get their
livelihood from their bargains with other men. The relations of men with
nature now are fewer, and less close; the relations of men with men are
more numerous and complex. Efficient coöperation is a factor in
production. Right social relations are more essential to industry than a
fertile soil.</p>
<div class="sidenote">The practical limits of legislative reform</div>
<p>The social institutions of any community are its answer, expressed in
human consciousness and in formal laws, to this difficult problem of
living together. Laws and ways for regulating industry may be good or
bad. The good laws are those in harmony with human nature, giving the
best motives for work and the greatest happiness both in the effort and
in its reward. The merit of laws, therefore, is relative to human
nature; those good for one kind of citizens may be bad for another. Men
cannot be legislated into honesty without limit. The best that is
possible is to enact laws that encourage the best in men as they are. A
dishonest community neither has, nor is capable of choosing, men honest
enough to supervise the others. Society cannot, by any amount of tugging
and pulling on legislative boot-straps, lift itself above its own moral
plane. But though the change in formal law cannot far precede, it may
lag behind and retard,<span class="pagenum"><SPAN name="Page_549" id="Page_549">[Pg 549]</SPAN></span> social progress. Law tardily adjusted to social
needs tempts and corrupts men. A time has never been when a higher
wisdom could not have corrected some ancient grievance, have leveled
some unmerited inequality, and, by making laws as good as men were
capable of administering at the moment, have freed their energies for
further advances. It is only a spirit of moderate expectation that will
not be cast down by the results of legal "reforms." Hence it cannot be
hoped that abuses will not appear in the attempts to regulate private
industry. Fallible men make mistakes and commit injustice, sometimes
greater than that which they are seeking to prevent.</p>
<div class="sidenote">Local selfishness in industrial legislation</div>
<p>2. <i>Legislative interference with industry presents temptations to
community selfishness to misuse social legislation.</i> Community greed is
not more lovely than individual greed. Many a citizen holds up a high
standard for the public official and bewails the corruptions of politics
when the legislator votes for his own interest instead of for his
constituents' interests. Such a citizen rarely reflects that the
responsibility for many legislative abuses comes back to the community
and to the individual voter. Can the water rise higher than its source?
Is it a high conception of a representative's duty that he should
out-talk, outwit, and out-vote his fellow-representatives, to get "a
graft" for the men who elect him? In many communities, the one public
question of importance is tariff legislation in favor of the local
industries. This selfish issue bribes the electorate, and blinds it and
its legislator to every question of the general welfare. A great
industrial commonwealth steeps its public life in corruption when its
voters sell their political birthright for a duty on iron. Many
congressmen are so burdened with the task of securing some public
expenditure in their district to help their constituents that they have
little thought and less interest to give to larger public questions. If
a local improvement will furnish labor and increase the value of
surrounding property, though it is most uneconomic for the general
community,<span class="pagenum"><SPAN name="Page_550" id="Page_550">[Pg 550]</SPAN></span> the representative is expected to labor hard to secure it.
Many citizens see little harm in "log-rolling" by the legislator,—that
is, in his voting for a law without merit in order to get another law
that his constituents want. The guilt of this worst form of bribery
comes back to the community that forces its representatives to such a
course, sinking public morality to a lower level.</p>
<div class="sidenote">Political corruption in industrial legislation</div>
<p>3. <i>The power of the legislature to affect private fortunes presents
strong temptations to public representatives.</i> That the legislator is so
often true to a high standard of public duty, goes to illustrate the
familiar truth that the individual moral code is better than that of
communities. That some individuals betray their trust is less
surprising. The Credit-Mobilier scandal, in connection with legislation
in aid of the Union Pacific Railroad, implicated many congressmen. A few
years ago, in one of the greatest states, it was discovered that an
innocent-looking bill, relating to the rights of property-owners on
streams, practically involved the gift, to a ring of men, of a quarter
of a billion dollars' worth of coal-lands, lying under the navigable
streams, and belonging to the state. Such temptations for wealth-getting
are too great for men selected solely for their ability to obtain
offices and pensions for political supporters, and to secure
class-legislation for reputable citizens. The power of the legislative
bodies to grant franchises and to permit the use of public property to
corporations, constantly gives opportunity for dishonesty and occasion
for scandal in the larger cities. The histories of the granting of
franchises in New York, Philadelphia, Pittsburg, St. Louis, and many
other municipalities, are full of black pages. Public duties are too
heavy for the public integrity. Industrial power has grown faster than
the civic conscience, and somehow the balance must be made even.</p>
<div class="sidenote">Heavy duties of the courts</div>
<p>4. <i>The power of the courts and of executive officers in the
interpreting and executing of laws governing business has become
greater.</i> With closer contact of men there is greater friction in social
relations, and litigation increases.<span class="pagenum"><SPAN name="Page_551" id="Page_551">[Pg 551]</SPAN></span> Fortunes turn on the result of a
civil suit. While juries often are corrupt, yet it is remarkable how
well the courts have kept their integrity in the midst of great
temptations. Professional pride and the noble traditions of the English
judiciary strengthen the individual's character on the bench, not
infrequently transforming a dishonest lawyer into a just judge; but
popular elections, selfish interests, and the social forces of wealth
and ambition make the task at times too heavy.</p>
<div class="sidenote">Integrity needed in public officials</div>
<p>The executive branch of government is necessarily intrusted with great
power, increasing with the extent of social regulation. The Secretary of
the Treasury has discretion as to the sale and purchase of bonds, and
thus can affect the rate of discount and the selling price of
securities. One man's decision, if known in advance, makes possible
fortunes for private pockets. A recognition of the importance of these
facts, which are typical of a great class of facts, must help to develop
a higher sense of public duty. Patriotism has been thought of too
narrowly. The enemies of early society were outside its borders, and the
citizen who traitorously gave them aid was held in abhorrence. Now,
independently, in many quarters is voiced the conviction that the
greatest enemies of society are within its borders, and that political
corruption is the modern form of treason. A higher conception of civic
virtue is required to meet the added tasks of society. Public official
control must be united with private industrial control in a way to
present the fewest temptations to the betrayal of public trust. Now, as
never before, must be felt the wisdom of Emerson's words: "The best
political economy is the care and culture of men."</p>
<h4>§ III. TREND OF POLICY AS TO PUBLIC INDUSTRIAL ACTIVITY</h4>
<div class="sidenote">Recent growth of state socialism</div>
<p>1. <i>There has been a large increase of state socialism in recent years.</i>
The term state socialism, broadly understood, includes all the forms of
public participation in industry<span class="pagenum"><SPAN name="Page_552" id="Page_552">[Pg 552]</SPAN></span> that have been passed in review:
ownership by towns, cities, state, or nation; laws regulating the
freedom of contract; agencies to inspect conditions and to enforce the
laws; commissions to supervise and control corporate industry. From
every direction comes evidence of the increase of state socialism within
the past twenty-five years. To those accustomed to think of the spirit
of the Germanic races as that of individual liberty and enterprise, it
seems remarkable that this increase has been greater among people of
Teutonic origin (Germany, England, America, Australia) than among those
of Latin race. The change seems to be a part of the movement of
democracy, even the measures of Bismarck in Germany having been taken to
ward off the demands of the radical party. The mere name of socialism no
longer frightens the citizens of a free state, and when men of strong
individualistic spirit even claim with pride that they are socialists,
the meaning of that term is becoming very vague indeed.</p>
<div class="sidenote">Varieties of socialism</div>
<p>2. <i>State socialism must not be confused with collectivism, or radical
socialism.</i> The word socialism is so variously defined that the earnest
student sometimes despairs of getting a clear understanding of it. The
thought of socialism ranges from the simplest form of state
interference, such as the support of public schools and public
fire-departments, up to complete public ownership of all industry. It is
well to describe as radical socialists those who would abolish private
property, and would strike at the very root of the existing order of
society. The modern form of radical socialism originated among German
thinkers of the school of Karl Marx, but it has many supporters in other
lands. The typical radical socialist claims to possess the only pure
brand of social reform, disdains any interest in state socialism, and
scoffs at state control as mere temporizing, as not even a single step
toward radical socialism.</p>
<div class="sidenote">Aim of state socialism</div>
<p>The typical state socialist agrees that these measures do not logically
force him toward the extremer view. He is at<span class="pagenum"><SPAN name="Page_553" id="Page_553">[Pg 553]</SPAN></span> heart an individualist,
believing that the motive forces of society are in human character, not
in governmental machinery; but he seeks to prevent some kinds of
competition, to put other kinds on a better basis; "to make the rules of
the game fairer," but not to suppress it. According to this difference
in ultimate plan, men and present measures can in general be classified.
Yet one view sometimes shades into the other in the life-history of a
single individual. Believers in moderate interference sometimes move
toward the extreme, and the most radical thinkers, sometimes with no
less honesty, become, with broadening experience, more and more
moderate. It would be surprising if any one who is thinking and growing
in social philosophy should succeed in so exactly adjusting to each
other all his opinions, as to be absolutely consistent at a particular
moment in his views on social policy.</p>
<div class="sidenote">Unripe social philosophy</div>
<p>3. <i>It is not safe to predict from present evidence a continued trend
toward extreme social control.</i> Social prophecy is fascinating. Men like
to answer out of their ignorance the question, Whither are we tending? A
deeper study of social law should give this power, but it is not won by
hasty generalization. Unripe social philosophers assume that because the
theory of biological evolution is correct, the particular theory of
social evolution which they choose to invent or accept is unimpeachable.
Radical socialism is the exaggerated statement of a present social need.
It is a bridging with hope, not with experience, of the chasm between
reality and the dreams of the unsuccessful.</p>
<div class="sidenote">Progress of social control</div>
<div class="sidenote">True Aim of social control</div>
<p>It is true that many evidences point to an increase in social control
for some time to come. The laws, the institutions, the prevailing
morality of society, have not kept pace with industrial growth in this
period of sweeping change. What is seen, however, is a small arc of the
curve of progress. Much of the social regulation in the Middle Ages was
similar to that which is now increasing. Legislation by gilds and
privileges of private corporations hedged industry about.<span class="pagenum"><SPAN name="Page_554" id="Page_554">[Pg 554]</SPAN></span> A reaction
against this in the seventeenth and eighteenth centuries brought on
national and state control, and state interference of another kind
rapidly increased until the time of Adam Smith. Then a strong reaction
came, and the next period of fifty years saw far less of interference.
The years from 1825 to 1840 were those of the greatest state socialism
ever seen in America, but the results were so unfortunate that a violent
reaction followed. The recent great increase of state activity is not
likely to be continued indefinitely. The path of progress is a spiral.
There are forces already at work creating a resistance to any great
extension of this movement. Competition of the healthier sort cannot be
suppressed without paralyzing results. Inequality and the opportunity
for ability to realize itself cannot be destroyed. The social
regulations must be of a sort to liberate the best energies of men, not
to enchain them. If the evils of state regulation increasingly appear to
outweigh the benefits, a limit must be put to the movement. While social
control may aid in lifting production and competition to a higher and
more moral plane, the ability of society will refuse to be ruled by the
standards of the weak and inefficient.</p>
<hr class="chap" />
<p><span class="pagenum"><SPAN name="Page_555" id="Page_555">[Pg 555]</SPAN></span></p>
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