I. -- PROFITS
"THE PROFIT-MOTIVE"
The desire for personal gain and the urge to better the position of their families and dependants are common to the great majority of men. The unskilled labourer aims to increase his wages; the business manager his salary and profits; the leading medical specialist the income from his fees. Apart from a very few exceptions, all people desire to increase the rewards they receive for their work. This is the real meaning of the much criticised "profit-motive".
BUSINESS PROFITS
The profits of the business enterprise are only one aspect of the "profit-motive", although a very important one. Profit in this sense, or more strictly the prospect of profit, is one of the major driving forces in the economic life of a community in which free enterprise is encouraged.
Men invest capital and establish businesses largely in the hope of reaping a reward which will compensate them for their efforts and risks. When the prospects of profit are good, the formation of new enterprises and the extension of old ones proceeds apace. If the outlook for acquiring a profit is bleak, then little new activity occurs and there is a tendency to retrenchment in the existing fields of business. This, at best, aggravates the problem of employing all the labour forces of the community, and, at worst, leads to widespread unemployment.
Profit, being the balance remaining after all other business expenses are deducted from revenue, is subject to wide variation. High profits in an industry encourage business men to enter that particular field and, provided enterprise is free, competition and increased output tend to lower prices to the consumer and reduce the margin of profit. Low profits result in a movement of capital away from a depressed industry, ultimately bringing about decreased production and higher prices and profits for those remaining in it.
Rates of profit fluctuate widely through the different industrial fields, and from time to time in individual businesses. Heavy losses are by no means uncommon. But in the public mind spectacular success tends to be remembered, whilst the failures are soon forgotten.
HOW LARGE ARE PROFITS?
With the development of corporate enterprise, in the form principally of limited liability companies, the ownership of businesses has tended to become, in some degree, divorced from management, and hence the notion has developed that shareholders gain a large share of the available profit without contributing commensurably to its acquisition. On the other side, the idea that labour has been the main contributor to the making of profits has gained increasing sway. Consequently it is widely believed that the worker should get at least a substantial part of the profits accruing to industry.
Profits are commonly thought to be so great that, if distributed among those earning say less than £300 a year, standards of life could be greatly improved, the basic wage much increased, and hours of work reduced. Against this, employers claim that many businesses are just paying their way, and that the overall return on capital invested in industry is not greatly above normal interest rates. How do these two views compare with available information?
THE AVERAGE RATE OF PROFIT
A survey of 617 companies, conducted by the Commonwealth Bank of Australia, shows that the average rate of profit as a percentage of shareholders' funds, after payment of tax, had declined from 6.8% in 1939 to 6% in 1944. These companies covered a wide scope of industrial activity and included many businesses subject to considerable risk such as pastoral and mining companies. Taking into account companies that sustain temporary losses and businesses that fail to return even the capital Invested in them, the average rate of profit over the whole field of business would probably be nearer 5% than 6% -- and quite possibly less than 5%. This seems a very moderate profit rate when it is realised that the rate of interest offering on Commonwealth inscribed stock in the last Victory Loan was 3¼%.
TOTAL OF COMPANY DIVIDENDS
The official statistics of national income presented with the Commonwealth Budget last year show that £30m. was paid in dividends in 1938-9, and £38m. in 1944-5. Of the £38m. distributed in 1944-5 a substantial sum, possibly amounting to about £20m. was paid away in taxation by the recipients. If all company dividends were to be redistributed among the lower income groups, then on the assumption that government revenue from taxation was maintained, only about £18m. would be available for this purpose. This sum would provide two million income receivers with an extra 3/6 a week each.
UNDISTRIBUTED PROFITS
What of the additional company profit which was not distributed to shareholders, but was retained in the businesses concerned?
In war time undistributed profits have been increasingly held in the form of government securities, owing to the inability of private industry to invest in new plant and equipment. In normal times these profits are used to extend the physical and working capital of industry. The expansion of capital, plant and equipment is the main single factor behind industrial progress and improved standards of life.
Unfortunately there are no statistics in Australia which show accurately the proportion of company earnings paid out in tax, distributed as dividends, and retained in business. Factual information of this description should be available, and it is a reflection on business interests that it is not prepared. A Central Council for Industry, with an expert economic and industrial secretariat, as we proposed in our statement of policy "Looking Forward", would help to meet this important need.
However, while no reliable statistics of undistributed profits are available, it is possible to arrive at a rough approximation. The proportion of profits retained by industry for re-investment varies greatly between different businesses according to the nature, financial circumstances, degree of development and judgment of the directors of the business concerned. For the purposes of this article it is assumed that, over the whole field of industry, on an average something like 25% of the profit remaining after payment of tax is set aside for retention in business enterprise. This percentage is undoubtedly on the high side. It is very probable that the average of undistributed profits is closer to 12½% than to 25% of the total of profits, after payment of taxes. However, we use the larger figures so as to be certain that we are not understating the total of profits earned by industry. If the proportion of undistributed profit to total net profit is roughly 25%, then the amount set aside out of profit and "ploughed back" into industry would represent about one-third of the amount paid away in dividends. In 1944-5 £38m. was paid away as dividends to shareholders. The total of undistributed profits for that year would therefore be of the order of £15m.
£15m. of undistributed profits divided among two million income receivers would allow an addition of 3/- a week each to their weekly incomes. If all company profits -- dividends and undistributed profits -- were divided among those now receiving £300 a year and less, then individual incomes might be increased by 6/6 a week. This surely contradicts the popular view that there are immense sums of money in company profits which, if divided up among the community, would bring about a great improvement in incomes and standards of living.
THE ELIMINATION OF PROFITS
But, assuming that it was decided to transfer, in one way or another, the profits of industry to the community, what would be the result? The confiscation of all dividends would mean that there would be no incentive to invest in business, particularly in those industries where there is any risk of loss of capital. Some other method of financing industry would therefore have to be found.
So far as undistributed profits are concerned, these have provided the chief means by which companies have purchased additional plant, buildings and stock, and generally expanded their capital equipment. A good part of the industrial development of the last hundred years has been rendered possible through the process of "ploughing back" profits into industry. The general consumer has benefited in the form of lower prices and an increased quantity and variety of goods on which to spend his income.
The confiscation of these retained profits would mean that some other method would have to be found to accumulate savings for use in improving and expanding the productive assets of the community.
INCREASED PRODUCTION
Clearly there is no hope of any large advances in standards of living through the sharing up of the profit surplus. Equally clearly, any attempt to do this would have to be accompanied by a complete reorganisation of our economic life, which would be costly, confusing, and, in the end, disastrous. The conclusion is plain. To improve our material standards we must turn to the great problem of increasing production, and of improving the efficiency of our productive methods. The benefits of this increased production should be shared fairly, in one form or another, between all those who contribute to making it possible.
II. -- INEQUALITY OF INCOME
PROFITS
Those who attack profits do so from one, or both, of two standpoints.
First, there are those who oppose any form of profit, who criticise the "profit motive" as anti-social, as against the interests of the community, and as encouraging the baser tendencies of greed and selfishness. Second, there are those who, while not objecting to the "profit motive" as such, claim that exorbitant profits are made by business at the expense of the wage-earner and consumer.
The first criticism raises deep moral and philosophical issues. The second cannot be sustained by any fair-minded examination of the facts. Industrial history no doubt reveals numerous instances of excessive profits earned by companies and private individuals, but generally over the whole field of business the figures show the average profits earned to be exceedingly moderate. Reference was made to these figures in the first article. If the whole of the profit earned by industry in Australia, including that part used for the replacement and development of capital equipment, were re-distributed among the community, the immediate gain to the lower income earner would be very slight.
INEQUALITY OF INCOME
Business profits must not be confused with the "profit motive", The former is but a limited aspect of the latter, and is confined to a limited field. The "profit motive", on the other hand, operates practically throughout the whole range of economic affairs. The wage earner in his desire for higher wages, the professional man in his ambition to earn a greater income, are as much actuated by the "profit motive" as the business man or investor who aims to increase the profits of his business.
The "profit motive", the quest for personal gain, is clearly to a large degree responsible for the significant differences in individual incomes which are so strongly criticised by many people. These critics contend that there can be no ethical, or for that matter economic, justification for great inequality of income. They point to the contrast of great wealth, on the one hand, with desperate degrading poverty on the other. They claim that this should not be tolerated in a Christian community. They urge that the desire for personal advantage -- the motive of self-interest -- be replaced by the motive of service to the community. They argue that the rewards of effort should be closely related to the economic and social needs of the individual, and take as their guiding star the Marxist dogma "From each according to his ability, to each according to his need".
Now the Marxist rule is in stark contrast to one of the basic elements of a capitalist, free enterprise economy. Under free enterprise rewards are distributed in proportion -- a rough and ready proportion it is true, and one capable of great improvement -- to contribution: that is to the work, initiative and ability of the individual. Since some people work harder than others, and because some have greater ability and more enterprise than others, this leads to great divergences in the rewards received by different individuals.
What justification, if any, is there for substantial inequality of income as between individuals? In our view, inequality of income can be supported on three grounds -- ethical, economic and social.
ETHICS SUPPORT INEQUALITY OF INCOME
From the ethical standpoint, it is entirely sound that a man should be rewarded by society in proportion to the contribution he makes to society. Those who contribute outstandingly to economic progress should gain an outstandingly high reward. It is not easy to assess the tremendous benefits conferred by a Ford, a Kayser or a Leverhulme on their fellow human beings. Should genius of this type receive no greater -- or only a slightly greater -- reward from society than that accorded the man lacking inspiration and initiative? But one has no need to go to such extremes to support the principle that it should be primarily contribution and not need which should determine the reward of the individual. Is it not right and just that the hard-working, thrifty and enterprising should reap a greater return than the lazy, self-indulgent and cautious? Why should hard work be compelled to subsidise sloth? Why should slackness be rated as highly as diligence, incompetence as competence?
The broad principle that reward should be based on contribution rather than on need admittedly requires qualification. No general principle can be successfully applied to practical affairs without modification and adaptation. In a society which can afford it, every reasonable citizen should be free from the curse of want, and from the fear of want. All those prepared to work should, so far as possible, be provided with an income sufficient to support themselves and their families at a reasonable level of life. This we have attempted to do in Australia through the institution of a minimum wage, and through the recent extension of our social services to assist more adequately the family man and the aged, the sick, the unemployed, and all those who for various reasons outside their control are unable to earn a sufficient income to support themselves. But once this necessary and just concession is made to the needs of the individual, then the ethics of the case demand that contribution be the deciding factor in the determination of income. Once the minimum has been firmly established, then those who give great services should be rewarded by high prizes.
ECONOMIC ARGUMENT FOR INEQUALITY OF INCOME
The economic argument in favour of inequality of income is based on the compelling fact that, human nature being what it is, men will not work their hardest and put forward their best efforts without the prospect of satisfactory reward. Apart from exceptional cases, men will not give extra work, take greater risks, launch new businesses, bear additional responsibilities, unless they stand to gain something for their trouble. Will John Smith willingly work eight hours a day if he stands to receive only the same income as Tom Jones, working six hours? Will men be prepared to invest their savings in risky ventures if the prospective return on their money is little or no greater than that to be gained from government securities? Who will undertake a heavy load of worry and responsibility if his reward is to be no higher than that of the man content to carry a lighter burden? Who will attempt the treacherous route to great achievement unless there is the prospect of rich reward to lure him on? If the potential industrial or business genius is to receive no more than the uninspired and unadventurous, where then is the incentive to high attainment?
The economic justification of inequality of income is that without it the higher standard of life, to which most of us aspire, cannot be realised. More than this, the elimination of incentive, which would necessarily follow a policy of levelling up rewards, would rapidly lead to a greatly reduced all-round standard of living.
AUSTRALIA NEEDS RESURGENCE OF ENTERPRISE
The tremendous formative period of American industrialism, the era of "rugged individualism" was marked by boundless opportunities for those who had the vision and the courage to seize them. True, there was a great deal of unscrupulous exploitation and economic brigandage, but the fact remains that in those days were laid the foundations of the richest material civilisation the world has known. Time has made many desirable modifications to the lusty American economy of the 19th century. But one lesson America has never forgotten: that men will respond, as they will to nothing else, to the stimulus of opportunity, of great rewards for great enterprises. This is a lesson we in Australia will have to relearn if we are to solve the legacy of problems bequeathed by the war. How are homes to be built quickly and at low cost? How are our industries to be modernised, expanded and made more efficient? How is a better standard of life for all to be achieved? How are we to develop the resources of this young country? How are we to successfully absorb tens of thousands of new immigrants? Can any of these things be accomplished unless there is prospect and hope, and unless incentives are offered to encourage the maximum of enterprise and work? In Australia we need a great resurgence of enterprise, of the spirit of adventure -- things we have temporarily lost. They can be regained if high prizes are there to be won by those who merit them, and if opportunities are broadened so that all have an equal chance to start in the race.
SOCIAL ASPECTS OF INEQUALITY OF INCOME
The social case for inequality of income has two aspects. One has been pointed to by Lord Keynes, the most eminent living economist, in his book, "The General Theory of Employment, Interest and Money". Keynes points out that dangerous human instincts, the desire for personal power and self-aggrandisement, can be directed into comparatively harmless channels by the existence of opportunities for money-making and private wealth. If these opportunities do not exist, then the baser tendencies in the human character may find their outlet in cruelty and the reckless pursuit of dictatorial power. In his own words: "It is better that a man should tyrannise over his bank balance than over his fellow citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative."
"THE CULTURAL INCOME"
A more powerful argument on social grounds for disparities in income lies in the fact that, apart from exceptional cases, the highest type of leadership can be produced only under conditions of substantial inequality. To be fitted for leadership, a man requires a long period of expensive education. Not merely while he is being educated but throughout his life, he must have ready access to the best in literature, art and scientific thought. He must have the time for reflection and study. He should not be required to wash dishes if he can better serve society by reading Plato, or by studying the implications of atomic energy, or by working out ways to increase the efficiency of his business. This is what Bernard Shaw calls "the cultural income", which he says must be retained.
EFFECTS OF TAXATION
Over the last few years in Australia, the heavy, steeply-graded taxation made necessary by the war has already gone a long way towards the levelling of income. During the war, this could not, for the most part, be avoided. Then it was not a question of economic ethics, of industrial progress or of social consequences, but of national sef-preservation. But with the return to peace, all these questions again become of first importance.
DISTRIBUTION OF INCOME IN AUSTRALIA
What are the facts regarding the distribution of income in Australia? Is there any substance in the widely held belief that the standards of life of those on low incomes could be substantially raised by transferring to them part of the income which now goes to those on higher incomes?
The following table gives the figures for 1941-42, the latest year for which official statistics are available: --
INCOME DISTRIBUTION -- YEAR 1941-42.
Income Group. | Number of Income Receivers. | Amount of Income Received. £m. | Tax Assessed 1942-43 £m. |
| Under £200 | 1,300,000 | 160 | 1 |
| £200 - £400 | 1,480,000 | 430 | 17 |
| £400 - £1000 | 270,000 | 160 | 22.5 |
| £1000 - £1600 | 26,000 | 31 | 7.3 |
| £1500 - £5000 | 22,000 | 51 | 21 |
| Over £5000 | 2,000 | 18 | 13.2 |
These statistics of income show that 50,000 people had incomes above £1,000 a year, their aggregate income being £100m. from which £41.5m. was paid in income taxes. There were 320,000 people with incomes of £400 and over, their total income being £260m. of which £64m. was paid in income taxes. People on incomes below £400 numbered 2.8m. If all incomes were limited to £400 a year, there would be another £132m. available for distribution among the 2.8m. with incomes lower than £400.
The figure of £132m. is arrived at as follows: --
| 320,000 people at present receiving a gross income of | £260m. |
| 320,000 people to receive £400 a year each = a gross income of | £128m. |
| Balance remaining for distribution | £132m. |
But those whose incomes had been reduced to £400 would now pay only about £10m. in taxes instead of the £64m. paid previously. Therefore, in order to maintain government revenue from taxation, the 2.8 million people previously receiving £400 a year and less would need to pay an additional £54m. The net gain to these income receivers would thus be only about £78m., or an average of £28 a year each. This would give an additional 11/- per week to each income earner at present receiving less than £400 a year.
CONFISCATION OF INCOME ABOVE £1,000 A YEAR
Or to take another example: confiscation of all incomes above £1,000 a year would give a surplus of £50m, for redistribution, but of this about £30m. would have to be provided in taxes by other members of the community. Thus the net gain would be about £20m. This would give and additional £15 a year, or about 6/- a week, to income receivers below £200 -- or £7 a year to those below £400 -- that is less than 3/- a week. A redistribution of income of this kind would thus bring only limited gains to those on lower incomes. And these gains would be short-lived. The destruction of incentive would be followed by the death of hard work and the decay of enterprise. This would rapidly bring about a decline in the national income and a fall in the standard of life.
BARRIERS TO SAVINGS
A policy tending toward the equalisation of incomes would raise serious barriers to the accumulation of savings. These savings are the source from which the productive assets of the community -- plant, equipment, buildings, commercial vehicles -- are maintained and extended. Before the war, gross investment in private industry amounted on an average to about £150m. a year. It will need to be raised to a considerably higher figure -- at least £200m. -- if we are to provide for the capital assets we need to improve our standards of living and swell the flow of goods and services. A good part of this, about 50%, would have to be found from the personal incomes of income earners. Most of the savings which have made possible the industrial and social progress of the English-speaking countries have been provided by the upper and middle-income groups. If the higher incomes were to be largely eliminated, then a large volume of savings would have to come from those now on low incomes.
If the people on low incomes continued the saving habits developed during the war years, it is possible that most of the capital required by private industry could be voluntarily provided. That, however, is doubtful, to say the least. And even assuming that the lower income earners continued to save a good part of their incomes, a further obstacle would have to be overcome before their savings could be made available for investment in risk-taking private industry. At the present time, small savings are deposited in the main with financial institutions, precluded by law from investing in undertakings to which an element of risk is attached. Whether the small saver could be encouraged to invest his savings directly in a field where there is the possibility of loss is a debatable point. The alternative would be some form of planned savings and investment in which compulsion would have to be exercised.
GREATER PRODUCTION IS THE ONLY WAY
The most drastic redistribution of income conceivable could do little to improve the immediate lot of those on low incomes. And any gains achieved would be temporary. In the not so long run, the destruction of incentive would cause a fall in national production, and eventually lower the incomes of all.
A far wiser policy would be to concentrate on raising the level of productive efficiency in all our industries, in order to expand the volume of goods and services available for distribution. This is the only road which can lead to a permanent increase in real wages and salaries and a worth-while improvement in living standards. In a progressive society significant discrepancies in the income of its members must remain as a stimulus to resource, initiative and adventure.
III. -- IMPROVEMENTS IN THE STANDARD
OF LIFE OF THE LOW INCOME-EARNER
HAVE THE STANDARDS OF THE WAGE-EARNER IMPROVED?
It is often claimed that, while higher productive efficiency has made possible a much enlarged national income, little if any of this improvement has redounded to the advantage of the worker and the lower income groups generally. Critics point on the one hand to the vast strides made in scientific progress, and contrast this unfavourably with the comparatively low standards of life still endured by great numbers of people. An extreme view argues that the effect of the capitalistic private enterprise economy is inevitably to concentrate wealth into fewer and fewer hands, with the result that the rich get richer and the poor get poorer. A more moderate opinion takes the stand that the great advances in industrial productivity, due to science and the increasing use of machines and mechanical devices of all kinds, have not been paralleled by a commensurate advance in the standards of the wage-earners. Critics of the Australian system of wage fixation have argued that the worker is kept on a minimum wage and gains no advantage from industrial progress. It is often contended that there has been little increase in wages since a basic wage was first established under the Harvester Judgment of 1907, and that the large expansion of the national income, which has taken place since that time has been accomplished by small, almost negligible improvements in the rewards of the wage-earner.
Is there any substance in these various claims? Is it, in fact, true that the low income earners have shared to only a minor extent in the material progress of the last 30 or 40 years? Is it a fact that the wage-earner is little or no better off today than he was at the beginning of the century? Has the great part of the 400% increase in the national output, which has occurred since 1900, gone into the pockets of the well-to-do and those already enjoying high incomes?
THE BASIC WAGE
Let us first of all examine the matter of wages and see to what extent, if any, the real wage, as distinct from the money wage, of the worker has grown since a basic wage of £2/2/- was first established in 1907 by Chief Justice Higgins in his famous Harvester Judgment. No material alteration was made to the wage set by Chief Justice Higgins until 1922, when 3/- a week was added to compensate the worker for the lag incurred in adjusting the wage upwards to cope with the rising costs of living. This is known as "the Powers 3/-". There are two schools of thought on "the Powers 3/-". One holds that it represented a real increase in the basic wage over and above the Harvester wage; the other claims that it did no more than maintain the real value of the wage at the level of the Harvester wage. It is to be noted that the worker was allowed no increase in his wages on account of higher prices until 1913 when the Commonwealth Court, on application by the unions, commenced to adjust wages to rising costs of living. In 1922 cost of living adjustments were placed on an automatic basis, so that wages were adjusted regularly every quarter in terms of retail prices. The intention, and for the most part the effect, of cost of living adjustments was to maintain the real value of the basic wage -- that is, its value in terms of the commodities and services it could purchase -- at the level set in 1907.
THE 1934 JUDGMENT
In the meantime, however, other alterations in addition to "the Powers 3/-" were made to the level of the basic wage itself. The calamitous depression of 1929-33 forced a reduction in wages of 10% in conformity with reductions in all other kinds of income. This took place in February, 1931. In April, 1934, the Commonwealth Court determined a new basic wage. The effect of this award was to restore the 10% cut in wages made in the depression, but to withdraw from the worker the advantage of "the Powers 3/-". The consensus of opinion is that under the 1934 Judgment the value of the basic wage had virtually again become equivalent to that of the wage set by Chief Justice Higgins in 1907.
In 1937 the Court added a 6/- "prosperity loading" to the basic wage, which represented a real increase over the 1907 standard. During the war, wages were further raised by the addition of "war loadings", estimated at about an average of 6/- a week, and by the increase over a wide area in minimum rates of pay for women from 54% to 75% of the male basic rate. The basic wage-earner today is therefore better off, both so far as the real value of his income is concerned and because, from 1913 onwards, he has had the advantage, which he did not possess in 1907-12, of cost of living adjustments.
It must be admitted, however, that by and large these improvements represent only a comparatively small increase in wages since the early years of the century. But the full story has yet to be told.
MARGINAL RATES AND SPECIAL PAYMENTS
In 1907 Chief Justice Higgins established the practice of awarding marginal rates of pay over and above the basic rate for various types of skilled work. Thus some skilled workers, notably fitters and turners, were entitled to 18/- a week above the basic wage. Over the last thirty years these marginal rates for special skill have been very substantially increased and their application widened. For instance, the margins granted by the Courts for some types of work are now over £2 a week. The Courts also began to make special allowances for work, which by its nature, was particularly onerous, unpleasant or dangerous. There can be no question that the increase and wider application of marginal rates and the payment of extra rates for disagreeable work have meant a very material improvement in the average real earnings received by the wage-earner. Another source of improvement has been the increase in rates of pay for overtime work. Practically all overtime is now paid at time-and-a-half rates or, under some circumstances, at double time.
INCREASE IN AVERAGE REAL WAGE
The Labour Report published by the Commonwealth Bureau of Census and Statistics, shows that over the period 1911-43 average money wages per week increased by over 130%, while average real wages -- wages in terms of the goods and services they can purchase -- increased 23% The Report also reveals the average weekly wage paid over the whole field of industry to be about 20% above the basic wage. These figures merit a little reflection. The fact that the rise in the real basic wage since 1907 has been relatively slight does not mean that the average wage-earner today is not earning considerably higher wages than he was forty years ago. The skilled worker is now receiving a much higher wage than in 1907, because the remuneration "the marginal rate", he is paid on account of his special skill has been greatly increased. Also, the proportion of unskilled to skilled workers has been reduced. In addition, many grades of workers who thirty or forty years ago were regarded as unskilled are now classified as skilled, and accordingly receive extra marginal rates. Of the total number of wage-earners, there is today a much smaller percentage than in 1907 receiving only the basic wage.
REDUCTION IN WORKING HOURS
The history of wage increases gives by no means the full story of the advances which have been made in the standards of life of the lower income groups. Higher wages have been accompanied by a long list of other advantages, all of which have combined to greatly better the lot of the wage-earner. Outstanding among these is the progressive reduction of working hours which has permitted greater time for leisure, recreation and self-improvement. In 1914 the average 'hours of work over the whole field of industry were 49 per week; in 1943 the average working week was 43.6 hours. This reduction in the working week has meant that hourly rates of pay -- real wages per hour -- have risen by 37% over the last thirty years. It is worth noting that Australia was the first country in the world to achieve a 48 hour working week in industry.
In 1900 annual leave for the wage-earner was almost unknown. Today there are few industries which do not provide an annual holiday with pay. Moreover, the length of the holiday has been steadily increased. At the present time a big proportion of workers in industry enjoy a holiday of ten days or two weeks a year. The effect of recent awards will be to increase the length of annual leave, and to extend a fortnight's holiday to great numbers of workers. In addition, the Australian worker is entitled to about ten statutory holidays in the year, for all of which he receives the full rate of pay. This compares with five statutory holidays in Great Britain, six in the United States and six in Canada. In many industries in these countries the worker is not paid for statutory holidays.
In the matter of leisure time, determined by hours of work and annual leave, there is little doubt that the Australian is better off than the workers of any of the other English-speaking countries, with the possible exception of New Zealand.
WEEKLY HIRING
The principle of weekly hiring, observed in most of the awards of the Commonwealth and State Industrial Tribunals, brought further material benefits to the wage-earner. First introduced in 1920 in Commonwealth awards by Chief Justice Higgins, it is applied to industries where the work is of a regular nature. The implications of weekly hiring are well summarised by Mr. George Anderson in a paper, "Industrial Tribunals and Standards of Living".
"In an industry subject to weekly hiring, employees are engaged from week to week, their employment is terminable by a week's notice on either side, they receive payment for certain public holidays in the year, for abscence from work on account of personal ill-health up to six days in a year, and for time lost in any week if they are ready and willing to work, and the loss of work is due to a cause for which the employer can be reasonably held responsible."
"The principle underlying weekly hiring is that the basic wage is fixed for the needs of the worker for the fifty-two weeks of the year, and that if a worker were not paid for loss of work due to public holidays, sickness and broken time, he would receive for an average week's work less than the basic wage."
WORKING CONDITIONS AND FACTORY WELFARE
Over the last few decades, there has been a pronounced improvement in conditions of work. Factories are cleaner. Work is safer. Improvement in design and lighting and the provision of adequate sanitary and washing facilities have contributed to a more healthy life for the wage-earner. In many organisations the worker is provided with free medical and dental services. With the new recognition given to the importance of nutrition, some businesses have recently introduced canteens to provide the worker with a hot, well-balanced meal. Many of these things were unheard of not so many years ago. All must be paid for out of the national income.
In many of the larger organisations the worker has benefited through schemes of financial assistance to cover contingencies such as sickness, medical expenses, injury, unemployment and retirement. These schemes have been improved, and have become more widespread in industry with the passage of years. Private industry in Australia is subsidising superannuation schemes for the benefit of employees (administered by life insurance companies) to the extent of well over £2,000,000 annually. This does not include the subsidies paid under schemes privately administered.
In ways such as this, the lot of the low income-earner has been greatly bettered by comparison with his position near the beginning of this century. The increasing adoption of annual bonus payments, profit sharing, and the widening application of systems of payment by results in industry have all helped to swell the income of the wage-earner.
The bare increase in average weekly wages thus gives an entirely inadequate and misleading measure of the improvements that have occurred in the standards of life of the industrial worker over the last few decades.
GREAT EXPANSION IN SOCIAL SERVICES
One of the most striking indications of the extent to which the low income-earner has participated in the gains of industrial and scientific progress is provided in the figures of expenditure on social services.
Government expenditure on social services is of such a nature that it assists mainly people in low income groups, while it is paid for mainly -- or at least in good part -- by those with higher incomes. In 1901 less than £4m., or about £1 per head of the population was spent on social services of all kinds. In 1925-26 the social services expenditure of Commonwealth and State Governments totalled about £30m. or about £5 per head. By 1944-5 the total cost of social services throughout Australia had risen to over £100m. or £14 a head of the population.
Most social services, because they benefit mainly the low income-earner, and because they are financed from taxation which falls more heavily on the higher income grades, represent a transfer of income from the richer to the poorer. To arrive at any accurate assessment of the real advantages of social services expenditure to the wage-earner, it is necessary to set against the many benefits derived the contributions made by the wage-earner to the cost. It has been estimated that in 1935-6 wage-earners gained a net benefit from public expenditure of £16.8m. This sum represents in effect a transfer of income from the higher to the lower income groups, and a real addition to the income of the wage-earner of an average of £9 a head per year, or nearly 4/- a week.
In recent years there has been an immense expansion of social services of all kinds -- pensions, child endowment, unemployment and sickness benefits, expenditure on health and education. The following table shows the increase in social service expenditure which has taken place over the last twenty years: --
Social Service Expenditure
| 1925-6 £m. | 1944-5 £m. | |
| Commonwealth War Pensions Old Age and Invalid Pensions Child Endowment (1941) Health Department Widow's Pension (1942) Social Service Department Maternity Allowances National Welfare Fund (1943) | 7 8 - .2 - - .7 - 15.9 | 12 21.7 12 .4 .3 .4 2.5 27.3 76.6 |
| 1925-6 | 1943-4 | |
| State Education Public Health and Recreation Hospitals Charitable Institutions Other | 9.6 .6 2.9 1.3 - 14.4 | 14.7 1.2 6.7 3.8 5 31.4 |
While only minor disbursements were made from the National Welfare Fund in the financial year 1944-45, it is possible that eventually round about £20m. a year will be paid out of this fund to cover unemployment and sickness benefits alone.
NET BENEFIT TO THE LOW INCOME GROUPS
The great expansion in social services planned during the war means that the net benefit to the wage-earner from public expenditure will be considerably higher than in 1935-6, when it was estimated at £16.8m. a year. Since 1935-6 expenditure on social services has been doubled, and a good part of this -- pensions and unemployment and sickness benefits -- is subject to a means test. In 1935-6, with a total social services expenditure of £50m., the net gain to the worker from public expenditure -- as has just been mentioned -- was estimated to be £16.8m. It would seem reasonable to suppose that of the new additional expenditure about 50% or £25m. will amount to a net benefit to the wage-earner. Thus, under the new scale of social services and public expenditure, the lower income groups may be in receipt of a total net money gain of something like £42m. or £20 per head per year. This would represent income transferred from the pockets of the better off to those of the less well off sections of the community.
In the light of facts such as these, it is manifestly absurd and false to argue that the low income-earner has not shared greatly in the material progress of this century, or that income has not become more evenly distributed with the passage of time.
MORE EVEN DISTRIBUTION OF INCOME
The following table throws a revealing light on the advances made in the standards of the low income groups, and on the extent to which the national income has become more evenly divided over the last twenty years.
| % of all income receivers | ||
| 1920-21 | 1941-42 | |
| Persons under £200 | 59.0% | 39.0% |
| Persons between £200 & £400 | 35.5% | 47.7% |
| % of National Income going to £200-£400 group | 37.6% | 50.5% |
From these figures several conclusions can be drawn.
- Since 1920-21 there has been a great reduction in the percentage of income receivers getting under £200 a year, and this in spite of the fact that the increase in the number of pensioners in latter years would tend to swell the proportion of income-receivers in this grade of income,
- There has been a remarkable increase in the proportion of the working population receiving between £200 and £400 a year, and in the share of the national income going to this income group -- 37.6% in 1921 to 50.5% in 1941-42.
- In the period 1920-21 to 1941-42 the total national income was doubled. Therefore the total income received by the £200-£400 group was much more than doubled, while the number of income-earners in that group increased by only 80%. The two years in question form a good basis for comparison, because the level of prices in both was roughly the same -- in 1920-21 slightly above that of 1941-2.
It is undeniable that there has occurred in this century a really significant improvement in the living standards of the wage-earner and lower income sections of the community. The average real wage has risen by over 20% since 1907. Hours of labour have been considerably reduced. Holidays have greatly increased. The conditions and the financial security of the worker in the factory have advanced. The scale of social services have multiplied many times. Those who, for one reason or another, are unable to earn an income are far better protected today than forty, or even ten, years ago. Public expenditure on health and education has grown. There, is a much more even distribution of income over the whole population. In the light of these facts, the claim that those on low incomes have not participated in any material degree in the rising productivity of industry falls to the ground.
STANDARD OF LIFE NOT SATISFACTORY
At the same time it is not suggested that the wage-earner today enjoys a fully satisfactory standard of life. Nor is it suggested that the present standard cannot be greatly raised. On the contrary, there is both pressing need and ample scope for further improvement. But this improvement will not be brought about by a policy based primarily on the redistribution of some imaginary surplus of income and wealth -- a surplus that does not, in fact, exist. A higher standard of life for all can be won only by a higher standard of production and enterprise by all. To be successful, economic policy must be founded on truth, not on fantasy or prejudice. The falsity of the oft-repeated assertion that the position of the wage-earner has not measurably improved since 1900, therefore needs to be exposed. It does not stand up to the facts.
SIGNIFICANT POINTS FROM THESE ARTICLES
The desire, common to practically all men, for personal gain and advancement, is the true meaning of the term "profit-motive". The profits of business are only one limited aspect of the "profit-motive". The wage-earner in his desire for higher wages is as much actuated by the "profit-motive" as the businessman in his search for new avenues of profit.
COMPANY PROFITS
A survey of 617 companies conducted by the Commonwealth Bank for the year 1944 shows the average rate of company profits as a percentage of shareholder's funds to be 6%. Over the whole field of industry, and taking into account companies that sustain losses and those that fail to return even the', capital invested in them, the average rate of company profits is possibly nearer 5% than 6%.
COMPANY DIVIDENDS.
If all the income, after payment of taxes, received by investors from company dividends in the year 1944-5 had been redistributed among those with incomes of £300 a year and less, the addition to their income would have been about 3/6 a week each.
DIVIDENDS AND UNDISTRIBUTED PROFITS.
If all company profits for 1944-5 -- comprising dividends and undistributed profits -- after payment of tax, has been divided among those receiving £300 a year and less, the individual would have received at the very most an extra 6/6 a week.
REDISTRIBUTION OF INCOME.
If, in the year 1941-2, all income above £400 a year had been confiscated and redistributed among those previously receiving £400 a year and less, the net gain to the individual would have been of the order of 11/- a week.
If, in the same year, all income above £1,000 a year had been confiscated and redistributed among those receiving £200 a year and less, the individual would have gained an extra 6/- a week. If all income above £1,000 a year had been redistributed among those receiving £400 a year and less, the individual would have gained about 3/- extra a week.
The most drastic redistribution of income conceivable could do little to improve the lot of those on low incomes. And any gains achieved would be temporary. The destruction of incentive would lead to a fall in national production, which would eventually reduce the incomes of all.
STANDARDS OF THE WAGE-EARNER
Has the lot of the wage-earner improved since the beginning of the century?
The wage-earner today is better off in the following ways: --
- Average money wages for men have increased by over 130% since 1911; average real wages -- that is wages in terms of the goods and services they can purchase -- have increased by 23%; hourly rates of pay -- real wages per hour -- have risen by 37%.
- In 1914 the average weekly hours of work of men in industry were 49; in 1943, 43.6.
- In 1900 annual leave for the wage-earner was rare. Today the great majority of workers enjoy an annual holiday with pay. The length of the holiday is progressively increasing, so that in the matter of leisure time determined by hours of work, annual leave and statutory holidays, the Australian workers are today much better off than the workers of almost any other country.
- Working conditions and factory welfare facilities such as free medical and dental services and canteens, have improved out of recognition.
- Private industry has consistently advanced the financial security of the worker through schemes to cover contingencies such as sickness, medical expenses, injury, unemployment and retirement. Private industry is subsidising superannuation schemes (administered by life insurance companies) to the extent of over £2 millions annually.
SOCIAL SERVICES
Social services, which benefit mainly those on low incomes, have multiplied many times. In 1901 social services expenditure amounted to about £1 per head of the population. In 1944-5 the provision for social services was over £14 per head of the population.
In spite of great improvement the wage-earner does not yet enjoy by any means a fully satisfactory standard of life. This standard can be greatly and rapidly raised provided we concentrate on enlarging the national output and income instead of on redistributing the inadequate income that exists.
"PROFIT-MOTIVE"
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