What do Bosses do? vs. What do Bosses really do?

: A critical review of the debate Kishore Kaushalendra Date: 3rd October 2012 1. Summary of the debate I must start by saying that reviewing a debate between giants such as Marglin and Landes is a difficult task. I consider my effort as a humble attempt to try to critique some possible flaws and biases which the authors might have had. I will start by summarising the article by Marglin titled What do bosses do?

Marglin challenges the popular notion that organization of work has been determined by technological considerations of efficiency. In his paper, he argues that hierarchy in work did not arise for technological considerations. He says that division of labour and centralized organization which characterized the putting out system and the factory system did not happen for the reasons of technical superiority. Rather, he says that, it was merely to provide the capitalist a role in the production process: Separating the tasks assigned to each workman was the sole means by which a capitalist could, in days preceding costly machinery, ensure that he would remain essential to the production process as the integrator of these separate operations into a product for which a wide market existed; and specialization of men to tasks at sub-product level was the hall mark of the putting out system. Marglin gives several arguments for this. He first challenges the three reasons given by Smith in favour of division of labour leading to increase in productivity. He says it is true that time is saved in division of labour which is generally lost in passing from one species of work to another. But this time can be saved if a person continues to perform a single activity for a sufficiently long time such that the set up time becomes an insignificant portion of the total

work time. The third argument by Smith regarding encouragement of innovation, he says is not terribly persuasive because Smith himself notes that repetitive labour does not stimulate creative faculties. As for Smiths first advantage, the gain in dexterity due to practice is useful only if the tasks are complex. But if the skills are not very special, then potential increase in dexterity afforded by minute divisions of tasks was quickly exhausted. He says that this capitalist division of labour as developed in putting out system was like the divide and rule strategy. First create a problem and then become the solution to it. Marglin says: The putter-outers peculiar contribution to production was handsomely rewarded not because of any genuine scarcity of ability to integrate separate function; rather the scarcity was artificially created to preserve the capitalists role. He says that because of the reason that division of labour was not technologically superior, in coal producing industry where there was a natural existence of capitalists because of paucity of resources there was no division of labour in the old hand-gots method or under mechanized-longwall-conditions. He gives another example of how the planters found a method to exploit the ex-slaves who were no longer tied to the land. The planter developed a system of coupling crop-lien system of credit to share-cropping system of farming. The planter capitalist advanced credit to the ex-slaves for various necessities like food, seed, fertilizer etc. These advances were secured by a lien on present and future crops, and the debtor would never be able to pay the debt as the books were maintained by the capitalist.

Marglin then analyses the factory system which took away from the worker not just the control over the product, but also his control of the work process and how much he would exert himself. He says that the advantage of the factory was not the new technology or machine but the ability to supervise and discipline the workers. It was problems in organizing the work force and not inferior technology that played a substantial part in the failure of

Wyatt-Paul enterprises. He gives additional evidence for the assertion that factory spinning did not depend for its success on superior machine technology. In wool industry, the technology of wool-spinning in factory system was same as in cottage industry. Similarly in weaving, long before power loom was practicable, handloom weavers were brought together into workshops to weave by same technique that was employed in cottage industry. The workers resentment was not towards the power loom but against the handloom shop owner.

He then says that the particular forms of technological innovation that took place were also determined by the factory system. It is not accident that technological changes atrophied within the putting-out system after Hargreaves jenny but flourished under the factory system. On the supply side he argues that it was easier to enforce patent rights with production concentration into factories, and this naturally channelled the innovative activity in more remunerative market. Although factory is more congenial for technological change it is so only because of certain institutional arrangements, in particular the system of rewarding inventors through patents. He says that a different method of rewarding inventions could have been found out but it did not happen. Had the patent system not played into the hands of the more powerful capitalists, by favouring those with sufficient resources to pay for the licenses (and identically contributing to the polarization of the producing classes into bosses and workers), the patent system need not have become the dominant institutional mode for rewarding inventors.

He then explains why market mechanism, which is supposed to harness the self interest of the producer to public interest, fails to provide adequate supervision and discipline under putting out system. He explains that discipline and supervision were inadequate only from the

producers perspective, not from the point of view of the worker. The indiscipline and laziness of the workers were because of his backward bending labour supply curve. If the wages would rise worker would only want to work less. Marglin quotes Arthur Young: But for the oligopsonistic putter-outers, the fact that higher wages led workers to choose more leisure was not only perverse, it was disastrous. Marglin then says: Thus the very success of pre-factory capitalism contained within it the seeds of its transformation. Even though the capitalists resorted to laws to check the workers, these laws were ineffective under the putting out system. It was only in factories that the worker could be monitored and this put an end to his dishonesty and laziness. The factory system was thus not technologically superior to putting out system until the advanced technological changes took place. Factories merely gave more output for more labour.

Where ever an alternative was feasible, the workers tried to avoid the factory system. Cottage weaving was one of the last alternatives to factory work and in spite of low wages many stuck to it. However the bias of technological changes towards the improvements consistent with factory organization led cottage weaving to gradually disappear.

He says that factory system existed in Roman times in the manufacture of bricks and redglazed pottery. This system was only possible because the workers who worked were slaves much like the helpless pauper children worked in factories during industrial revolution. They worked in factories only because they did not have a choice. It was difficult to organize freedmen into factories and they maintained a guild organization.

He then says that putting out system ultimately replaced guild organization for two reasons (none of which had to do anything with technological superiority). First it was more profitable to the putter-outer and second these profits provided the nascent capitalist class the requisite political power to break down the institutional arrangements of guild organization.

Marglin gives another example where the economically and politically powerful classes resort to innovation in order to change the distribution of income. He says that the water powered mills came up not because they were technologically superior because it enabled the feudal lords to extract dues that were unenforceable under a hand milling system. Under hand milling system it was easier for the producer class to cheat and not pay taxes. In order to check this the feudal lords had prohibited the use of hand mills.

Thus Marglin is trying to show that in the era when technology was not that advanced and machines were still cheap, the putter-outer system and factory system emerged not because it was technologically superior but because it gave the capitalists a way to organize production in a more exploitative way where more input would produce more output and cutting workers off from the market gave the capitalist excess surplus. Technology also later evolved to support this system of organization as this is how the incentives were biased.

I would now try to summarize the article by Landes and also the points of agreements and disagreements between the two authors. Landes disagrees with the thesis presented by Marglin and says that such a thesis misreads history and is essentially ideological. The main conclusions of the paper are that bosses do have an important role to play in the production process. An entrepreneur brings a lot to the table and his role in not just an artificially created role.

Marglin had said that division of labour does not add much value in terms of efficiency and had criticized the three reasons given by Smith. Landes starts by counter arguing the reasons given by Marlin. On set up time he says, that a skilled worked even though he might be capable of performing all tasks that went into the manufacture of a commodity would not do so for efficiency reasons. Some parts of the work might be just too trivial and easy and he would ask someone less skilled or lesser in strength to do those jobs (like his children). He also says that specialization was not just a matter of efficiency but was at the same time the vehicle for instruction and training. A new apprentice would learn the different components of work by first doing the simpler tasks and then the more complex ones. Thus as long as lesser skilled labour was available who would do the simpler tasks at lesser wages there would be division of labour. He then says that on being given proper incentives, workers can be a source of important suggestions. On Marglins argument that many of the skills are so ordinary that anyone could learn them he gives an example from Ashton (from The records of pin factory- 1814-21) to show that children and men got paid differently. Maglin had also quoted Ashton (from The records of pin factory- 1814-21) where Ashton says that the wages of adult males were almost the same no matter which branch they were engaged in.

Landes then critiques Marglins argument that the capitalist would have no role to play in the production process if there were no specialization. To counter argue he says the job of capitalist was to break a production process into simple tasks and then assign them to people of different skills, each earning a different wage. Marglin says that if the worker could have produced the final product on his own he could have sold it to the market himself and the intermediary capitalist could have been dispensed with. Landes says that this is not right as selling was a time consuming and arduous job (which required a lot of travelling in difficult weather) and which often required language skills (not found in workers). Manufacturer

could sell his good to a whole seller but again he would be back to square one or he could engage a travelling sales man to sell his work but he would then have to produce enough or buy and keep a large stock to keep the sales man busy. In that case he would have himself turned into a capitalist. Landes then explains the organization of a shop in clock and watches industry to explain how specialization would have emerged. Some shops would have produced better quality goods and would have had excess demand. On the other hand there would be more fully trained journey men than openings for masters. These journeymen would have been ready to work for a master. Seeing this opportunity some of the more enterprising of the shop owners would have taken to the job of merely managing, selling and supervising the workers without himself doing the actual production. Landes says: The specialization was already there; the gains to specialization made the market; and producers responded to market opportunity. He then gives the example of mountain Swiss which had broken the manufacture of watches into fifty components- and this in the absence of mechanization. This was done because of the pressure towards simplification which was the key to lowering costs.

Landes then gives the example of lord who did not manage the whole operation taxing and there by collect more fee. Instead he allowed outside merchants to come into the business. He argues that this was done for two reasons: first the merchants knew more about the markets opportunities the other was that there were certain tasks which did not suit the gentility. He gives other examples where people distribute work and let go a larger fee in order to avoid risk or for the simple preference of leisure.

Landes explains that Merchant manufactures needed labour and this was difficult to hire in cities as there was already a guild system existing there. They also needed labour which was

cheaper and for this they turned to the rural population where they got labour which was cheaper than trained journeymen and also much less skilled. Since they wanted quick results and profits, so they divided the job into simplest possible tasks which could be learnt quickly by the rural labourers. He says that the circumstances were many times fuzzy, and many a times producer kept working while hiring others to augment output. Gradually increased responsibility from management side pulled such people away from production (but they continued to design layouts and check quality). He says that it was this expansion into rural areas that made European and particularly English industrial products competitive and laid the foundation of industrial revolution.

He then moves on to analyse the factory system and here he says that Marglin has got the story right in the sense that the key motivation for moving from putting out system to factory system was employers desire to control the work process through supervision and discipline. But he disagrees with Marglin on the point that merely organization into factories gave factories an edge and made it a dominant mode of production. Landes gives the characteristics of factories (they consume a lot of energy, have large machines etc) to say that it makes sense to bring workers together in large units. He says that it makes more sense to work cooperatively when one is producing on speculation. However, in textile industry the wheel and loom did not require large shops and in fact dispersed manufacture had it own advantages because of which it continued to survive in the form of cottage industry long after the factory rendered its technology uncompetitive. In wool manufacture some of the hand processes were brought into concentrated units (factories) and as per Marglin this was enough to make such units competitive. Landes disagrees on this point saying that: ... such units were a response to introduction of machines into earlier, preparatory stages of manufacture (carding and slubbinbg) and aimed at ensuring throughput to the heat-intensive,

power driven finishing process (fulling, dyeing, printing).If clothiers were going to invest in factories at both end of the production process, they wanted to be able to keep the plant and equipment busy. He says that although small clothiers in woollen industry were able to survive (due to a symbiotic relationship) for quite some time, as machines got bigger and better more and more cloth was made in factories. Thus eventually machines would have taken over and the production would have got centralized. The steepness of this learning curve justifies, moreover, the argument that even if first machines had not been dominant, the new technology would have made its way, with or without parish apprentices.

Another point where Landes and Marglin disagree is the contribution of factory mode to technological change. As discussed above, Marglin thought that factory system was more conducive to new inventions only because the patents system of rewarding inventions existed. And patent system existed because it favoured those who had sufficient capital to pay for licences. Landes says that it is wrong. It rests on two assumptions- first that patents were an incentive to inventions, which has not been empirically proven and second that it is easier to capture gains from patents in a factory. He says that often spur of fame by the new invention dominates pecuniary self interests. The biggest motivation for innovation was to gain a Schumpeterian headstart for ones own enterprise. The factory bias for technological change was that it could go a long way and make huge sums of money. The role of entrepreneur was also crucial as he was the one who could understand the needs and opportunities of technological change. While Marglin criticizes the entrepreneur, Landes extols his virtues.

In the end Landes says that even if Mrglin is right, we cannot go back as we have come too far. Organizations cannot be reverted back to non-hierarchical forms, at least not without a significant cost.

2. Usefulness of the debate The authors differ on this point as well. Marglin writes: If it turns out that the origin and function of capitalist hierarchy has relatively little to do with efficiency, then it becomes at least an open question whether or not hierarchical production is essential to a high material standard of living. And workers- manual, technical, and intellectual- may take the possibility of egalitarian work organization sufficiently seriously to examine their environment with a view to changing the economic, social and political institutions that relegate all but a fortunate few to an existence in which work is the means of life, not part of life itself. On the other hand, Landes says that even if Marglin is right, it is not possible to give up the hierarchical mode of production today, at least not without a significant cost.

In my opinion the debate has quite a bit of significance today. The purpose of development in a civilized society is to make a persons life more comfortable and happy. The debate is useful simply on the grounds that it talks of how, if at all it is possible, can the work life of a person be improved and made more comfortable so that he finds more meaning in it and feels less alienated. Today human life is becoming increasing fast and busy. In developing countries, occupation is shifting from villages to cities leading to a disruption of the older mechanisms of economic and emotional support. People are busier today than ever and working hours in many societies have increased1. In such an environment where people are

Schor,J.B.(1993)TheOverWorkerAmerican:Theunexpecteddeclineofleisure

spending more time in doing their job and less on leisure, it important that we continuously strive to make the work organizations more egalitarian and humane.

The existence of cooperative firms suggests that it is even possible. These firms are more productive with more motivated workers and have better mechanisms to deal with decrease in product demand. The total factor productivity of coops was substantially higher- the best estimates by Craig and Pencavel (1995), ranging from 6% to 45% depending on the method of estimation. Cooperatives also adjusted to insufficient product demand in a very distinctive way: rather than laying off members, they reduced pay of all the workers, there by spreading the impact of negative shocks among the membership.2 The debate provides impetus towards existence of more of such firms. In a way, it challenges the modern day entrepreneurs to try and establish such firms which give better control of product and production process to the worker. One of the reasons why there are few cooperatives or labour managed firms is that labour is not able to hire capital and the reasons for this are credit constrains facing suppliers of labour and wage employment as a form of insurance. These problems can be overcome with better financial products. All we need is better insurance and credit products which are suitable to the labour class. Microfinance institutions today are trying to provide such micro credit and micro insurance products. They are already financing small scale independent entrepreneurs and it is quite possible that these and other more sophisticated financial products could gradually lead to more and larger cooperative firms. The advent of new technology is also helping. There are many firms which today allow employees to work from home and they need not come to office. They remain connected to

Bowles,S.(2004).Microeconomics.BehaviourInstitutionsandEvolutions.Chapter10

the office through internet and mobile phones. This provides the employees the control of the process of their work, something which was lost with the coming of factory system. From anecdotal experiences I can say that such employees are happier and more committed towards the company than employees in firms which dont allow such privilege. These kinds of debates will increase the pressure from the employees side on the employer to provide more of such privileges.

One place where I feel that the debate in not of much significance is in very high capitalintensive firms like steel making. It seems almost impossible to believe that a group of workers could get together to set up a large scale steel manufacturing plant simply because the capital per worker might be too high. Most of the cooperative, I believe operate in less capital intensive industry (Plywood making, dairy etc). Similarly industries which have very long gestation periods, i.e. period before the firm breaks even also cannot have labour controlled firms. Workers cannot wait for so long and for him the risks are just too high. Only a capitalist can set up a firm with a long gestation period.

3. My position on the debate It is hard to take a black and white stance on such a debate. In my opinion truth is always grey in nature, always hidden somewhere in between. I think in our present debate both the authors are correct in their own ways and have their own merits.

Whether or not division of labour adds to productivity is a difficult question. In my opinion, both the authors are right to some extent. There is no doubt that division of labour matters in complex occupations. So I will only consider the simple operations which involve run of the mill tasks. To the extent that division of labour is taking place such that a newbie is

performing the easier tasks or men are doing the physically more demanding tasks (and children the easier ones), division of labour does add to productivity. But often this is not the case. Lets consider a hypothetical task in which making a sellable product can be broken into ten separate tasks and the first five of them require relatively more dexterity than the other five. In that case if the ten tasks are performed by ten people (each one doing only one task), five of whom are newbies then there is not much of a value addition. The same productivity can be obtained if five newbies are doing all the five simple tasks and five experienced workers are doing all the five relatively difficult ones for sufficiently long time that set up time becomes small portion of their work time. Thus when Marglin says that the task are not very special and division of labour does not add much value he is also right, and when Landes says that division of labour takes place to train the trainees he is also right.

I dont agree with Marglin when he says that a capitalist can be dispensed with and that he has an artificial role in the production process. I think that an entrepreneur does bring in a lot of value to the business. Marglin says that the putting out system evolved from the guild system because it was more profitable and these profits gave them the political power to break the old system. But, lets think of an existing guild system where there are no putterouters. How did the first putter-outer arrive at the scene? Landes has given the example of the watch shop and explained how the enterprising master would have become an entrepreneur hiring many other journeymen and himself resorting to only managerial and sales activities. I am trying to explain another way in which a putter-outer kind of capitalist could have emerged. In my opinion the first putter outer would have been a merchant who decided to the buy the products from the existing cottage manufactures and tried to sell them in far away markets where the general guild manufacturer did not sell (as he sold only in the local markets). These merchants would have earned good profits and would have come to know

about the demands in the other markets. They might have also come across some of the new raw materials (say a new kind of dye) which the guild manufacturer did not use and have asked the guild manufacturer to use it. Gradually he would have started making contracts with the workers, not necessarily the existing ones who operated in guilds, to produce the sub-products. As Landes described, he would have hired less skilled labourers, many of them coming from rural areas and this would have forced him to break the tasks into simpler parts as things had to be done quickly. This process might not have been technologically superior to the guild system, in the sense that Marglin might have been right, but it was the only people could have expanded to far way markets where the guild manufacturers would not have expanded. Market size affected both the generation and diffusion of knowledge. In 1969 Mathew Boulton wrote to his partner James Watt, Its not worth my while to manufacture [your engine] for three countries only; but I find it worth my while to make it for the all the world.3 Thus in short run division of labour does add value because training takes times. If one has to compete in the market and if the rival firm is resorting to simplification of tasks which allows him to pay low wages, then the other firms is left with little choice but to copy the same strategy.

Coming to the factory system where new technology was adopted, at many places Marglin says that the new technology was not necessarily efficient. At least initially, it was merely supervision and discipline which led to an increase in productivity and not the new technology. My opinion is that, it is quite possible that in many of the cases factory got its higher productivity from both, a new superior technology as well as new modes of

Mokyr,J.(1990)TheLeverofRiches,Chapter10.

organization which ensured better discipline. I am not saying the new technologies were necessarily better but might have been better. At least Marglins arguments do not lead us to say conclusively that they were not at all better. To take the example of Waytt-Paul enterprises, just because the firm failed while Arkwrights firm made profits, Marglin concludes that the technology was not superior but what resulted in success was controlling the workers. That might not be true. We continuously have many worker related problems in modern world, an example would be the one currently being faced by Maruti; and in case Maruti fails, it would not imply the technology they were using was not superior to older technologies of car making. Similarly it is possible that Wyatt-Pauls technology was still superior but he had some labour management problems which led to his firms failure. Another example would be that of water mill. There is hardly any doubt that the decisions to only use the water mill and abolish the hand mill was taken not on technological considerations but to ensure that people dont cheat on their dues to the lord, but it is still possible that the water mill was technologically better. For the factories which used the same technology as the cottage industry it is clear as Marglin points out that the added productivity came because of the extra factor of supervision and discipline.

Marglin says that technology evolved in a way that it supported the capitalist modes of production. In my opinion, the people who are trying to create something new are facing the most arduous challenges and they grapple on whatever figment of creative ideas they can find to solve a particular problem. If technological advances were possible in a way that the machines sizes would have remained small and still conducive to cottage industry, the innovator would have adapted even that. After all we have seen that there were factory modes of organization even with same equipments that were used in cottage industry. The

innovators in my opinion were concerned only with solving a particular problem, does not matter which way it gets solved. A typical innovator in those years was a dextrous and mechanically inclined person who became aware of a technical problem to be solved and guessed approximately how to go about solving it. The successful innovators were those who put the pieces together better than their colleagues, or those who managed to resolve one final stubborn difficulty blocking the realization of a new technique.4

Many of the inventions in the textile industry have been discussed in the two papers. Let me take this opportunity to discuss one the developments in metallurgical industry. One of the major challenges in metallurgy was to convert pig iron to wrought iron which is used to make the tools of workers like nails, hammer etc. After many attempts the problem was finally solved by Henry Cort in 1784 by a skilful combination of reverberatory furnace and the rolling of heated metal over grooved rollers. Mokyr writes: After several improvements in the late 1780s, Corts success took British world of metallurgy by storm. The small independent forge, until then the source of all the wrought iron was replaced by the larger puddling furnaces. The supply of high quality and cheap wrought iron grew dramatically, making iron almost literally the building block of the Industrial Revolution I am sure Cort, while he was working on new techniques of how to make wrought iron was not wondering how to make the furnace bigger so that it fitted a more centralized factory system better. The innovation just happened to be so and it replaced the old smaller furnace which was definitely technologically inferior. While I agree with Marglin that many a times

Mokyr,J.(1990)TheLeverofRiches,Chapter5

the forms of production were so organized that they were productive only at the discomfort of the worker, I am sure that technology had sooner than later started playing a role.

In my opinion it is not possible to go back to cottage industry mode of production and hierarchy is necessary, but the work environment even in factories can be made more participative. Amartya Sen had once in his article painted a very gloomy picture of Indias development making many sharp remarks on poverty. He was later asked in an interview if he had exaggerated too much in the article. On this Sen had replied that of course he had made an exaggeration. But, he said that the idea of making such sharp statement is to draw the attention of the people towards the problem. I think that Marglin has similarly exaggerated a bit, but only for good cause. The main point in my opinion is that, large parts of production still takes place in not so sophisticated manner as to require extreme and rigid hierarchies. The workers can be trained to actually produce and also take a semi-managerial kind of role. He can own the firm, have a say in the decisions of the firms and also manage the firm. This will only give him more satisfaction in his work and also keep him more motivated. As Bowles describes: The structure of the typical plywood coop was both egalitarian and democratic. With few exception worker-owners received equal pay and jobs were often rotated. Management was decided by a body of worker-members. High levels of productivity were maintained strong work ethic among workers, enforced by peer pressure and mutual monitoring. 5 The article in my opinion is an appeal to the entrepreneurial and worker community to try and establish more of such high productive and yet egalitarian modes of production so that, as Marglin says, work is a means of life, not part of life itself.

Bowles,S.(2004).Microeconomics.BehaviourInstitutionsandEvolutions.Chapter10

References: Bowles, S. (2004). Microeconomics: Behaviour, Institutions and Evolution Russel Sage Foundation Mokyr, J. (1990). The Levers of Riches. Oxford University Press Schor, J.B. (1993). The Overworked American: The Unexpected Decline of Leisure Basic Books