Modern Manors: Welfare Capitalism Since the New Deal

Sanford M. Jacoby. Modern Manors: Welfare Capitalism Since the New Deal. Princeton: Princeton University Press, 1997. xii + 345 pp. Notes and index. $35.00 (cloth), ISBN 0-691-01570-8.

Reviewed for H-Business by Edward Berkowitz , George Washington University

Welfare capitalism represents one of those marginal academic side-shows that nonetheless has surprising staying power. At various times historians have shown interest in ways that firms have distinguished themselves by being model employers. The heads of these firms, unlike their stereotypical colleagues, do not believe in the classical theory of labor supply in which workers present themselves in an infinite supply at the market price. Instead, they understand that workers are valuable commodities who become even more valuable once they receive some form of on- the-job training. Hence, these employers, either out of a sense of paternalistic benevolence or, more likely, a dollars-and-cents understanding of the labor market, have tried to reduce turnover by linking pay to the company’s productivity and by improving the conditions of work beyond those of their competitors. In the conventional historiography, the hey-day of this form of welfare capitalism comes in the 1920s, when businessmen held a sort of moral sway over the nation.

Then, in the 1930s, welfare capitalism breaks down in the face of the collapse of the labor market that we call the depression. As the price of labor falls and the demand for products declines, benevolence no longer pays substantial dividends. Government steps in to offer a sort of alternative form of welfare capitalism. Through legislation the government mandates that workers have the right to bargain through representatives of their own choosing and workers also have the right to pensions and unemployment compensation that are supplied by the government, rather than the company. Historians have argued about the role of welfare capitalists or corporate liberals in the creation of the twin peaks of New Deal regulation: the Wagner Act and the Social Security Act. Whatever the results of this argument, the outcome remains the same. In the 1930s, the torch gets passed from welfare capitalism to a new world in which both unions and the government, often acting in tandem, have a substantial presence. Welfare capitalism is a subject for the first third of the twentieth century and not more recent times.

Of course, that conventional view is just plain wrong. We know, for example, that there was a corporate welfare revival in the postwar era and that welfare capitalism remains alive and well today. In the latest round of health reform, for example, the Clinton administration, just like the Nixon administration before it, tried to create a plan that would mandate health insurance coverage. Clinton had no intention of having the government become the primary supplier of health care. Instead, he wanted to make sure that all employers supplied it their employees. He wanted to enforce a welfare capitalist norm, in other words.

That suggests the need for a comprehensive history of welfare capitalism since the New Deal, and, within the constraints of the evidence, Sanford Jacoby has provided it. His book is a scholarly and thoughtful look at the welfare capitalist practices of three companies in the era from the 1930s to the 1960s. His basic argument is that welfare capitalism did not die in the 1930s. To be sure, not all firms followed its course. As we know, many large nationally based industrial firms succumbed to pressures from the CIO and entered into collective bargaining agreements with unions. Jacoby’s three firms, each for its own reason, escaped from the union movement. Each developed an alternative management structure that bound employees to the company.

In the case of Kodak, executives could build on the paternalist traditions of George Eastman who, for example, offered periodic bonuses to his employees. In creating welfare capitalist practices, Kodak also took advantage of its location in Rochester New York, a location that allowed it to hire ethnically homogeneous workers–plain white bread Wasps–who were perhaps less susceptible to union influences than members of other ethnic groups. Even more important, Kodak had a virtual monopoly on photographic film and suffered less from the depression than did those companies in more competitive markets where the cross elasticities of substitution (if I remember my economics right) were greater. Protected from some of the forces that gave rise to unions in other firms, Kodak invested a great deal in keeping the unions out, offering its employees profit sharing plans and a wide array of recreational programs and other amenities. Above all, Kodak worked hard to minimize lay-offs by planning ahead for the seasonal variations in the photography business and, if necessary, by moving workers from one job to another. As a result of all these practices, Kodak kept unions away and practiced an alternative form of labor relations that might be called welfare capitalism.

Sears Roebuck, the Chicago company that began as a mail order house and emerged as the nation’s largest retailer in the postwar era, produced a different style of welfare capitalism. It existed in a much more competitive product market, and it operated stores in locations from coast to coast. Like Kodak, Sears experimented with a form of profit-sharing but, unlike Kodak, Sears could not fight unions through overt means. Sears had to do business in places like Gary, Indiana or Lansing, Michigan where it probably would have been a bad practice to bad mouth unions in the late 1930s and early 1940s. As a means of controlling its work force, Sears did more than offer good wages and working conditions. It also initiated an attitude survey program which, as Jacoby notes, “became one the largest and most sophisticated applications of behavioral and social science research to personnel problems in industry” (p. 111). Sears used the data from the survey to identify sources of employee grievances and correct personnel problems. In a more manipulative sense, Sears also used the surveys to identify potential union organizers and to keep them from proselytizing other employees.

Thompson Products, the third of Jacoby’s companies, was a much more traditional industrial manufacturer. Located in Cleveland, a highly unionized, ethnically heterogeneous town, Thompson products made parts for automobiles and later for airplanes. Unlike Kodak and Sears Roebuck (whose leader in its early days was Julius Rosenwald, an important figure in Chicago and national philanthropic circles), Thompson did not have much of a welfare capitalist tradition before the New Deal. In 1933 Frederick C. Crawford took over the company and, among other things, started a personnel department and new welfare programs. His main contribution, however, was in the creation and maintenance of a series of what Jacoby describes as “semiautonomous company unions and a bevy of human relations programs” (p. 142). In Cleveland, unlike in Rochester, some semblance of a union was necessary. At Thompson Products, at least in its Cleveland plants, that union took the form of a company union that was resilient enough to withstand challenges from the United Auto Workers.

Why did Jacoby choose these three companies? I think it is because the records of these companies were available to him and, as he notes and business historians can certainly appreciate, the records of private companies, particularly the labor relations aspects of those companies, are not easy to obtain. Because of his choice, he has to strain a bit to establish these companies as ideal types of welfare capitalist employers, yet his analysis suggests that particular factors account for developments in each of the companies. It matters, for example, that Frederick Crawford took over Thompson Products, that Marion Folsom, an extraordinary welfare capitalist statesman, worked for Kodak, and that Robert E. Wood followed Julius Rosenwald as head of Sears. Other companies, no doubt, have their singular individuals and their particular factors that might have changed Jacoby’s story if he had chosen them.

Still, what is here is more than enough to establish Jacoby’s point that, by the 1950s, there was a non-union alternative in the world of industrial relations. Most of the nation’s attention was focused on labor unions and on collectively bargained wage agreements. It was an era when labor relations was still an important journalistic beat and writers like Abe Raskin of The New York Times wrote about labor relations in the auto and steel industries. A small academic cottage industry in labor relations developed, led by professors such as California’s Clark Kerr, Princeton’s Fritz Harbison and Richard Lester and Harvard’s John Dunlop. These people tended to write about unions as institutions and about the “mature” form of collective bargaining. In their spare time, many acted as arbitrators or mediators and thus took a formal role in the labor relations process. Intellectuals with a wide audience, such as John Kenneth Galbraith, viewed union-management relations as an important manifestation of American pluralism. With all the attention on unions, the commentators overlooked the robust nature of welfare capitalism. As the appeal of unions faded in the face of global competition and the general stagnation of the economy in the 1970s, welfare capitalism once more became visible. It meshed with the Japanese style of teamwork that came into vogue; it seemed to offer more flexibility than did the rule-bound style of industrial relations common to unionized workplaces. More recently, however, as the workforce has become more educated, the times seem to have once again bypassed welfare capitalism. Modern workers, particularly educated and advantaged workers, as Jacoby notes, often appear to be like nineteenth-century craftsmen. They drift from company to company, adding lines to their resumes and providing their own form of security through pensions and health insurance that they maintain on their own. As if to underscore the importance of these independent workers, the Clinton administration may soon convert the Social Security system so that part of it becomes a private savings account.

One of Jacoby’s main contributions in this very impressive book is to illustrate how modern welfare capitalists have come to grips with the Wagner Act and the Social Security Act. Executives from all three of his companies became involved in national politics. General Wood of the Sears Roebuck Company was a traditional conservative, involved in things like the America First Committee. Frederick Crawford became the head of the National Association of Manufacturers and played a key role in the modifications of the Wagner Act that led to the Taft-Hartley law. In particular, Thompson Products fought to preserve the right to appeal to its workers on behalf of its company-controlled union, despite warnings from the National Labor Relations Board that such appeals represented tampering with representation elections. Marion Folsom of Kodak became the leading business expert on social insurance and fought to preserve Social Security and unemployment compensations in forms that blended seamlessly into welfare capitalist practices. These companies, then, did not run away from the New Deal so much as they learned to adapt its regulatory structure to their purposes.

Without a doubt, this book is an important one that will be read both for the data it provides on the three companies and for its more general points about the persistence of welfare capitalism beyond the New Deal. The research is almost overwhelming as is the general degree of erudition in the book. It is, to be sure, an academic book in which the author occasionally takes excursions into trendy academic topics to the detriment of establishing a clear line of argument. Hence, there are digressions on such topics as the gender composition of the labor force during World War II, the nature of industrial psychology, and the organizing tactics of the United Auto Workers. Some of the writing is a little over-elaborate and demands close attention from the reader, as in this sentence (p. 74): “In theory, Kodak wage dividends plans should have been a factor in the company’s performance during the early 1930s, since profit sharing makes wages more sensitive to economic conditions, which, in turn, shields employment levels during hard times.” I could have used more help with the implicit economic theory in that sentence and would have preferred that it contain fewer clauses. Still, an academic monograph is an appropriate place to display one’s learning and it is clear that Sanford Jacoby has much to teach. One can predict with confidence that this book will exercise an important influence over modern American historiography; it represents an extremely impressive achievement.

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