15 – New paternalism, welfare and U.S. moral contract capitalisms in the United States of America

Jean-Marc FIGUET, Professor of Economics at Montesquieu Bordeaux IV University, & Bernard SIONNEAU, Professor of International Relations and Strategic Studies at Bordeaux Management School (Bordeaux Ecole de Management-BeM)

The historical experience of the United States’ 19th century “go-getting economy”can hardly be described as a “bed of roses”. Different episodes illustrate that assumption: the Oklahoma 1893 land-rush “boomers” where the best land was allotted to the first settled ones after a horse race started with a cannon; the large open cattle-ranching operations secured by the gun and the heavy business meddling into local politics; the gold and oil rushes, the railway and telegraph expansion achieved after “burning out” populations of immigrants and depriving natives or small farmers of their land. All these moves, which culminated in a wild and harsh industrialization process led by elites some depicted as “robber barons, were captured vividly in three major books of American Literature: Frank Norris’ The Octopus (1901), Upton Sinclair’s The Jungle (1906) and John Dos Passos’ U.S.A (1930-1936).

citation : Jean-Marc Figuet and Bernard Sionneau, “New paternalism, welfare and U.S. moral contract capitalisms in the United States of America” in Hubert Bonin & Paul Thomes, Old Paternalism, New Paternalism, Post-Paternalism (19th-21st Centuries), Brussels: P.I.E. Peter LANG S.A., 2013, pp. 223-242.

However, with these different episodes, there were also significant changes as far as wealth-creating units were organized and managed. Robert Tillman and Michael Indergaard thus chose to quote Charles Perrow, leading organizational theorist, who, in Organizing America[1], showed how, in the case of the railroad industry in the early 19th century, some elite interests coalesced around the project of creating a new kind of establishment “unfettered by the law”[2]. Extolling the virtues of a new kind of enterprise, “the corporation” and thanks to the political pull of these vested interests, their project became a formidable instrument of power and influence. Actually, it limited the rights of individual States to regulate firms, created special legal provisions such as “limited liabilities” and changed the legal definition of the corporation so that it had the same standing as an individual person. The latter move meant that corporations could acquire other firms, allowing thus for big mergers that produced the major leading firms in the American business environment[3].

Contrarily to most economists, who saw “efficiency” – and the constant search for it – as the main causal factor behind the advent and rise of corporations that were to dominate America’s economy, Charles Perrow interpreted it as a case in “the exercise of power – in the political as well as economic realms”[4]. Regarding his interpretation of the general consequences this entailed, they should also be mentioned here, as they were to provide, in the first decades of the 20th century, the arguments that would be used to transform the organization and management of large corporations. In fact, the separation of control from ownership that resulted from the creation of these corporations, allowed owners of large blocks of stock, top managers, and investment bankers, to use inside information for their benefit. In the case of the railroads corporations which were extremely lucrative, profits were feeding first a small group of executives and financiers while ignoring smaller ordinary investors and creditors who were not united and lacked inside information. Very quickly, the common ills of the modern corporation revealed their hidden nature i.e., inefficiency and frauds. Thanks to the bond and stock markets, firms could obtain funds to keep going when returns from revenues were insufficient, while providing small equity holders with little information about their performance or, more commonly, deceptive information. Thus, a double institutionalized swindling process materialized, as profits were not returned to the government which subsidized so much of the railroad operations, neither were they returned to outsiders’ private bond or shareholders but benefited mostly “to a small group of executives and financiers. And the course of American society was changed. Immense resources were wasted, laws protecting workers and communities were eroded and legal restraints were removed, clearing the path that enabled large organizations to concentrate wealth and power”[5].

1. Bearing the moral contract: Industrial paternalism and welfare capitalism in the United States

However, a lesser-known reality also accompanied the American industrial revolution and contributed to hide some of its major corporate structural flaws, making it thus a far more complex process to grasp than a Manichean process driven by “evil industrialists.” Actually, while a John P. Morgan displayed open contempt for the rabble’s plea for corporate morals or accountability with his famous “I owe the public nothing”, as a William Vanderbilt comforted that stance with his “The public be damned” or a John D. Rockefeller admitted his preference for insiders’ secrecy with his “silence is golden”[6], while sticks and billy clubs were commonly used by the management of mining and industrial corporations to align the interests of their workers with those of the managers and make sure that no union would interfere with that Bastian natural order[7], other corporate interests chose to privilege carrots over sticks while others still combined both fashions[8]. They were the first proponents of what would be called “industrial paternalism” then “corporate welfarism” by commentators of that historical era of U.S. early industrialism.

According to Charles Cheape, in their effort to build industrial communities around industrial organizations, early New England manufacturers used paternalism to foster new habits and discipline with their workforce[9]. Actually, providing workers with housing, schooling, religion and training ensured that the former would make a radical jump from family farm and small handicraft production to factory[10]. As a matter of fact, in the 19th century, the migration of large segment of American rural population to the cities raised new social questions[11]: in urban settings where home-grown food could not be counted upon, employment was a vital issue; taking care of the young and the elder was another preoccupation, as elderly employment or pensioning was not a priority of plant owners; also, the morals of young unmarried women employed at mills raised deep concern from their relatives and parents; last but not least, constant danger, associated with insanitary and unsafe city dwellings and plants made life a permanent struggle. “Industrial paternalism” was one of the answers found by some business owners to reduce their employees’ global risks thus ensuring a smoother running of their operations. If we consider the industrial community of Worcester, Massachusetts, where dozens of small owner-operated businesses dominated the areas of metal working, metal fabrication and machine building in the late 19th and early 20th centuries, education and training were important parts of it. This motivated the local businesspeople, as true heirs of the early industrial communities’ paternal creed, to participate in their promotion.

Two examples can be provided as illustrations: firstly, the creation of the Mechanics Hall in 1857 meant “to educate artisans and inculcate the appropriate values of discipline and industry by lecture and reading”; secondly, the founding, by leading manufacturers in the 1860s of the Worcester Polytechnic Institute, designed “to train labor in skills and attitudes”[12]. However, early industrial paternalism went beyond mere efficiency. If it led owners to provide workers with housing, schooling, training, and education, it also allowed them to promulgate their values and beliefs as crucial bonding artefacts for their nascent industrial communities. By the 1820s, New England factory owners would thus finance specific institutions which illustrated that ambition. In Lynn, Massachusetts, for instance, while promoting temperance, poor-law and educational reform, the Society for the Promotion of Industry, Frugality, and Temperance also advocated “self-discipline, productive labor and the elimination of idleness and waste.” However, if the trend of corporate paternalism started in manufacturing shops at the beginning of the 19th century, Charles Cheape pointed out that, three quarter of a century later, it had prolonged itself into multi-units’ industrial operations, thus proving that early corporate paternalism was not necessarily associated with small businesses, textile companies or the advent of women workers.

2. Origins, content and meaning of industrial paternalism and welfare capitalism

If the so-called “Progressive Period,” stretching from the years 1890 to 1920, established the foundation for modern personnel management in large U.S. corporations, it also witnessed the crafting, by Reformers, of the term “welfare work” in the early 1900s in order to describe “a movement to promote non legislative workplace reforms in factories, stores and shops across the country”[13]. Actually, in an era that Andrea Tone (1997) described as “characterized by unprecedented industrial strife and violence”[14], in her words, “welfare work seemed to herald the advance of a new age in labor relations, one that would be guided by the gentle hand of management rather than the big stick”[15]. Let us precise, nonetheless, that welfare work had already been practiced in such rough domains of labor as the mining sector in the second part of the 19th century, as mines were often established far from existing communities, obliging thus many companies to provide their employees with convenient housing or inexpensive transportation. This being said, if some kind of “welfare work” which also got known as “welfare capitalism,” seemed to be the lot of many of the largest national companies as one study reported in the mid-1920s, Andrea Tone nevertheless stated that the “welfare work movement”illustrating business benevolence towards workers served “conservative ends”[16], not progressive ones.

Before dealing with that point, and as some insight was before provided as to the concrete translation of early “industrial paternalism,” one is well founded to ask what “welfare capitalism” meant usually in terms of practices by the corporations that had integrated it. Nikki Mandell chose to investigate that particular issue, focusing precisely on the content and functioning of “welfare programs” and “welfare work”[17]. Combining her account of the National Cash Register (NCR) Company experience with Charles Cheape’s case study of the Norton company as well as other sources related to the two above-mentioned corporations, can be helpful to get an accurate picture of what « welfare programs » meant concretely in large industrial businesses at the end of the 19th century and the first half of the 20th century.

Acknowledging the fact that “welfare programs varied widely from company to company”[18], Nikki Mandell nonetheless isolated four recurrent traits used by welfare advocates to identify them.

  • There was, firstly, a preoccupation for health and safety at the workplace. At the Norton‘s company, one of the nation’s four hundred largest industrial enterprises between 1900 and 1920 and a leader in the abrasive industry, Health was a genuine issue. Actually, located in the “Norton Hospital,” it had been administered by “Norton’s physician” W. Irving Clark since 1911. There, “periodic exams, preventative medicine, and counsel against the minor vices of over smoking, late hours, and drinking, reduced accident rates and lost time, while improving health and productivity”[19]. At the National Cash Register (NCR) company, where most of welfare work practices[20] were introduced between 1893 and 1905, John Henry Patterson, its president and founder made sure that the factory floor would be kept clean, had lockers installed for everybody, and supplied his employees with clean drinking water, ventilation hoods to absorb dust, belt guards on machinery, on-site medical care, a dining room for women built in 1895 as well as restrooms, clean toilets and spacious lawns and landscaping. NCR was also a pioneer in factory designs. In 1893 the first “daylight factory” buildings were built with floor to ceiling glass windows that could be opened to let in fresh air, as well as light[21].
  • Secondly, a corporate implication in the private lives of laborer’s gathered momentum: Norton involved itself directly in the lives of its mostly Swedish core workforce. Its superintendent, John Jeppson, helped his compatriots in obtaining citizenship papers, did not hesitate to go drag drunken Swedes from saloons on Saturday nights and take them back home, delivered part of their pay directly to their wives, settled family squabbles, and loaned money to needy workers. At NCR, Lena Harvey, “welfare secretary”, hired specifically as such – undertook home visits, advised workers regarding their personal affairs, created a mothers’ clubs, a program of boys’ gardens meant to divert the latter from creating trouble in the factory neighborhood (cf. infra), started home garden contests with prizes for best landscape homes, sewing and cooking classes for employees and their families, awarded prizes twice a year to the NCR “happy family” representing every class of labor.
  • Thirdly, companies also offered a wide variety of educational, recreational, and social activities to employees. At Norton, an education program, which emphasized the opportunities available through individual initiative, was offered to the company’s employees and their children at the Worcester Polytechnic Institute. It featured training courses, instruction in basic English and mathematics, scholarships. Moreover, an extensive recreation program that included nearly two-thirds of the workforce saw Norton Beach and Norton Boathouse become family activity centers for picnicking, boating, and swimming during days off and dancing and outings in the evening. As many as 20,000 joined in the gala Harvest Day, an annual successor to the earlier company outings and a major celebration where competitions displayed gardening, photography, and other Norton-sponsored hobbies. Athletes were awarded the Norton “N,” the Norton Banner led parades, and the firm regularly honored year employees with speeches, banquets, and medals. With NCR, education and recreation were also multi-facetted experiences. In 1893 the NCR Hall of Industrial Education was opened to teach agents “the best ways of helping merchants make money”[22]. This was the first known formal sales training school where Patterson had an impressive number of executives taught in his business methods and personal philosophy. In the period 1910-1930, an estimated one-sixth of the top executives in the nation’s companies were former NCR executives. Education did not stop there. By an arrangement with high schools and colleges, vocational training was offered to promising youths. Last, and as was mentioned before, Patterson endeavored to transform young neighboring hoodlums into entrepreneurs. Offering the latter, individual patches of land and instruction from a head gardener, they were shown how to organize themselves into a stock company that they ran, were inspired to interest themselves in the work, received prizes and, at the end of the year, were paid dividends from products sold[23]. Patterson’s extensive estate was also open to his employees and to the public. All kinds of items were provided free for picnic parties as well as sports amenities such as a golf course, tennis courts, baseball field and other facilities for recreation, while a large clubhouse allowed dances to be held on Saturday evenings as well as concerts, lectures and entertainments throughout the week.
  • Fourthly, financial and health benefit advantages were often included in corporate welfare activities. They included savings and loans plans, stock or profit-sharing plans, sickness benefit associations, then life and health insurance programs after WWI. Despite the variety of these formulas Nikki Mandell points out that employers generally kept the upper hand over the amenities offered through welfare formulas as well as the way they were to be managed even after employees retired. She thus mentions the existence of “clauses” granting employers “sole discretion to alter or abolish the plans”[24] in nearly all cases. For instance, retired employees who engaged in “unacceptable behaviour” such as “strike support or union activities” could be denied access to their pension plans. Furthermore, caps were placed on the total income a worker would receive, meaning that he or she would see their company-paid benefits lowered, were they to be granted access to revenues from other sources.

3. Industrial paternalism vs. welfare capitalism: Congruence and differences

As Holger Mueller and Thomas Philippon recall, “labor conflicts turned so severe in the late 19th century that Charles Henderson, the famous University of Chicago industrial sociologist, warned that industrial warfare would destroy not only work relations, but the very fabric of American society”[25]. Symptomatic of the industrial violence that was gripping the United States at the time, Mueller and Philippon illustrate the situation with the two following examples: “When in 1892 workers of the Carnegie Steel Company’s Homestead plant resisted wage cuts, the company sent Pinkerton detectives to assume control of the plant grounds. The ensuing showdown was vicious. By day’s end, nine steel workers and seven Pinkertons had died, and more than three hundred men, mostly Pinkertons, had been wounded.”[26] The second example is also worth mentioning here, as it was formerly evoked: it is the case of Dayton, Ohio, National Cash Register (NCR) Company. If both became living examples of paternalism/corporate welfare work during the 19th century last decade, one should also mention the role played by labor conflicts in that decision. In the early 1890s, after his employers had set fire to the factory three times, Patterson admitted having been motivated to take more interest in his employers in order “to make them better workers”[27].

We have been using, until now, the terms “industrial paternalism” and “corporate welfare work” (some say “welfare paternalism” or “welfare capitalism”) indifferently. Is there, then, a difference between U.S. “industrial paternalism” and “welfare capitalism”? As was noted before, with 19th century “industrial paternalism”, employers chose to provide security and care for their workforce that often included such benefits as education and training, medical care, housing, recreational amenities and activities, etc. (cf. supra). Also, intent on having their workers appropriate their values and beliefs in thrift, temperance, orderly family life (idealized as insuring “harmony, security, authority and stability”[28]), etc. the same employers, who supported reforms promoting these, expected in return, thanks to this implicit labor and moral contract, “loyalty, deference and diligence” from their employees within a family metaphorical context (for instance, the “Norton Spirit” promoting a sense of warmth and personal ties bonding the “Norton Family” members) which emphasized “reciprocity, mutuality and obligation”[29].

Was there, then, a difference between “industrial paternalism” and “welfare capitalism”? According to Nikki Mandell, while the second one can be understood as a sequel to the first one, several elements differentiated nonetheless both approaches regarding labor issues and management. “Benevolent paternalism”, which also corresponded to a specific historical period witnessing the birth of industrial America, was often grounded in a kind of “noblesse oblige” from the business owners’ class who, against their offering paternal care, expected their workers to be more loyal (no unionizing or selling secrets to competitors as they would be equivalent to “patricides”) and diligent. Acknowledging the existence of diverging interests between the latter and working classes, business owners used “philanthropy” in order to provide basic family needs to workers, bridge the social divide with their workers, while at the same time “fostering dependency from employees” who relied on them “for shelter, food, and even religious services”[30]. “Family firms” allowed for a continuation of that benevolent moral and material paternalist tradition between owner-operators and their workforce, as they made easier the translation of the family metaphor through a single-family majority capital ownership. On the condition that family members shared the same goals regarding workers benefits’ preservation, within that type of business, strategic longer time horizons allowed for stronger personal ties between management and workforce, more security and stability for the latter. This situation motivated worth-noting stances from owners in tough economic times, who did not hesitate to defend their workforce wages against the insistent demands of higher returns from shareholders. In the wake of the Great Depression, industrial shoe-maker George F. Johnson, co-owner of the Endicott-Johnson Co, the first company in the shoe industry to introduce the 8-hour workday, 40-hour workweek, a comprehensive medical care and sold his employees low cost houses that grew into what would be known as the “Square Deal Towns” of Endicott and Johnson City, thus stated: “As long as I am on earth, I will never give the stockholders any more than I am willing to give the workers.”[31] Endicott-Johnson also maintained parks where employers could enjoy such recreational facilities as swimming pools and carousels free of charge, restaurants, libraries, etc. Paying also higher wages than other competitors, the company always remained profitable and when confronted to stockholders’ complaints regarding the use of company funds to finance relief efforts, George F. Johnson’s was known to have replied: “As a stockholder, you have a perfect right to object the use of ‘company funds’, but unfortunately, we cannot separate stockholder’s money from the working men’s money[32].

4. Welfare work and welfare capitalism

“Welfare work” and “welfare capitalism” strove in the first three decades of the 20th century (1900-1930). According to Sanford Jacoby, “by the 1920s, welfare capitalism reached millions of workers at thousands of firms”[33]. The concept and its promotion were supported by employers as well as intellectuals, social reformers and political leaders. The latter shared a common creed: that industrial unrest and related labor problems could be dealt with a distinctly American approach, where “private, not governmental, managerial, not laborist” initiatives would prevail in a “distinctive American environment comprising large firms, weak unions and small government”[34]. If a culture of workers’ dependency within a family and moral framework had been strongly associated with benevolent paternalism, Nikki Mandel adds that the “welfare work movement” clearly rejected the “charity” ethos and related philanthropic ways that it contained[35]. In fact, “good welfare programs” and their “Welfare Managers” progressively integrated that lesson. This was the case of Isabelle Nye at Greenhut Siegel-Cooper Department Store, who realized that female salesclerks preferred not to take vacations at all than taking them in the company cottage at Long Island. From what she could witness, those clerks assimilated that type of vacation to “charity” and thus “took great offense at such treatment”[36]. One way to deflect that feeling, according to welfare promoters, was to encourage workers’ desire for independence in providing them with the means to care for themselves. The move from “charity” to “individual responsibility” was thus a characteristic that distinguished “welfare capitalism” from “paternalism.” In that new interpretation of labor relations, a Carnegie Foundation study of pension plans would then advise employers to support plans where employees’ contributions were required. As the study stressed, “the responsibility of protecting oneself against dependence in the old age belongs to the individual”[37]. An organizational rupture completed that new type of reasoning: if individual workers were to be supplemented with the “welfare machinery” (pension & health plants, etc.) enabling them to be responsible for their fate, “welfare work” was going to be shaped as “company- or plant-wide policies, rather than as special favors granted on a case-by-case basis at the employer’s discretion”[38]. Thus, contrarily to 19th century paternalism, where “benevolence” was exerted by isolated entrepreneurs, early 20th century welfare work became a national movement, supported by local and national organizations (National Civic Federation, American Institute of Social Service, local Chambers of Commerce, etc.), where corporate management had an essential responsibility in defining labor relations. Contrarily to the “charity” ventures formerly decided by individual business owners, welfare work was to be organized according to shared information relayed by organizations promoting it within the realms of modern and more abstract/anonymous corporations. 

At the beginning, female welfare workers would play a key role in the supervision and implementation of these strategies, thus opening the way to a feminization of management. Employers would be eager to use that feminine presence as it could also be used, paradoxically, to confirm the traditional gender roles of male independent bread winners and female dependent homemakers. State legislation reinforced that image, what with the Mothers’ pension act voted by 39 States in 1919 that paid single mothers to stay out of the waged workplace or the Sheppard-Towner Infancy and Maternity Protection Act of 1921 which made “maternalism” an issue of public policy by establishing a network of federally subsidized health clinics offering pre- and post- natal care. Of course, employers and welfare workers had not necessarily the same agenda. While welfare capitalists counted on welfare workers to refashion the workplace into an agent of feminine confirmation (female employers as better wives and mothers thanks to company cooking and nursing, sewing classes), welfare managers sought to define precisely the obligations that businesses owed their male and female workers regarding wages and hours, employment security, foremen’s power control, health, safety and company amenities.

Although female welfare workers were meant and expected to soften the somehow rough edges of labor relations with what was conceived as a gentler touch contained in the traditional 19th century Victorian family role model associated with maternal care, they were soon, however, to lose their managerial prerogatives[39]. Actually, if employers were ready to apply the family model, it was in a limited form that would not compel them to respect the same commitments that fathers had ideally to their children and spouses, but would allow them to reform individual workers in ways that suited them best (diligent and loyal workers, good housewives providing their worker husbands with a stable household, etc.). As workers felt that their employers did not feel bound by the same obligations which “patres familiarum” had to their families, they rejected the roles associated with that dimension, supporting only those activities that provided them with real advantages. As to welfare managers, if between 1890 and the 1910s, they had achieved potentially powerful positions within large American corporation and could define many of the issues that have remained central to corporate labor relations and helped transform them into an ongoing business concern, they progressively got confronted to business owners’ refusal to organize a radical reconfiguration of the labor-management relationship.

So, by the mid-1920s, most big corporations turned to “personnel management” as a new model of labor-management relationship. This happened as male executives were hired to assume control over new “personnel management departments” including welfare work in order to rationalize the management of always larger and sometimes widely dispersed business units, thus relegating women managers to employee-mother statuses more in tune with the traditional family image treasured in both leading and popular social circles. Actually, as Nikki Mandell shows very interestingly, the change in corporate benefits management also heralded a change in the role that genders where to play in the making of corporate industrial America. Challenging the welfare system’s familial model and female supervisors with its image of “domestic skills” promotion, it argued that the labor-management relationship looked much more like a “consumer marketplace”, where male personnel managers expert in the art of “handling men” would be, thanks to these masculine qualities, more apt to purchase the most professionally relevant human resources or sell a collection of corporate benefits to sometimes reluctant and discriminating employees. The result was that, by the mid-1920s, women had lost their leadership position in corporate labor relations, having been “marginalized by the new personnel management movement or excluded by the men who controlled that movement”[40]. They would not regain that position before the 1970s, and then hailed as “path breakers”, at a time when their former pioneering role in the management of labor relations had been largely forgotten.

Another element contributed to the difference between “paternalism” and “welfare capitalism”: the focus, by employers, on “business efficiency,” versus paternalist business-owners’ involvement in workers’ morals reform or family values’ upgrade. Actually, as Nikki Mandel writes, “pragmatic business considerations, rather than paternalism guided their policies”[41]. As illustrations, she quotes, first, the case of the Metropolitan Life Insurance Company where Lee K. Frankel, its vice-president in charge of employee and policyholder welfare, stated publicly in 1916: “We have for quite a number of years attempted to care for our people, not with any thought of philanthropy. It is safe to say that we do it because it pays […]. The proper care of the employee is a good business proposition.”[42] The same pragmatic spirit seemed to animate model welfare work company National Cash Register (NCR) the emblematic ceo of which, Patterson, posted signs all over the factory with the simple following message: “It pays.” Also worth mentioning is the Colorado Fuel and Iron (CF&I) company, the management of which felt rewarded in the praise it got from the business community for requiring its employers to pay for each benefit it provided them with: medical care, club participation or homes rental in its camps, all these activities netted profit. Despite this self-satisfaction in a welfare policy that CF&I wanted clearly to differentiate from paternalism, it would experience in 1914 “one of the bloodiest labour conflicts in American history”[43].

A last and essential element will be mentioned here, regarding the difference between industrial paternalism and welfare capitalism. This has been exposed by Andrea Tone[44], as a complementary dimension for understanding what the latter stood for. While labor historians had focused their attention on the microscopic level of welfare work, studying its industrial components, provided benefits or employers’ motivations in specific industries and companies, Andrea Tone chose to contextualize its moorings, developing instead the larger social and political issues with which it was associated.

Stressing how “politics is central to the welfare work story” and how welfare work was “a distinct juncture in the evolution of labor management in the United States” and “chronologically inseparable from Progressivism”[45], Tone drew several conclusions which are especially important in order to understand the specificity of the “American Welfare State” and the role played by business in its limitations. During the 1920s Progressive era reform, the number and scope of laws governing workers’ compensation, maximum work hours, restrictions on night work for women, plus the number of new government agencies regulating business such as the Federal Trade Commission (1914), the Federal Reserve System (1913), etc. grew increasingly, motivating employers to forward and support « welfare capitalism » (known as such since the 1930s) as an alternative to “welfare Statism”. According to Andrea Tone, whatever the differences among business elites regarding their more or less strident opposition to governmental economic interference, “they stood united, almost without exception, in their animosity toward social welfare and labor legislation”[46]. They thus chose to use “welfare work” in a dual fashion: firstly, as a modern style of labor management allowing them to retain control over their workforce and avoid or lessen the disruptive potential of its unionization; secondly, as “an anti-Statist strategy intended to persuade various constituencies that business was benevolent and thus, government regulation was unnecessary.”

At the same time, business elites launched public campaigns that could be compared to cultural offensives. The goal was to convince critics, through the circulation of leaflets, public speeches, the opening of factory doors, that private benefits could be more efficient that public provisions and that “improvements in working conditions could be made voluntarily rather than in compliance with law.” Their response to the labor question and the timid ventures of successive American administrations to regulate business and labor issues – President Calvin Coolidge explicitly stated that, “after all, the chief business of the American people is business”[47] – allowed thus for the “triumph of the private sector model in the Progressive era” and the containment of the Welfare State in decades to come. However, as Nikki Mandell pointed out, “corporate welfare” and “welfare work” were not the single results of employers’ designs. It was part of a system federating progressive businesspeople, wage-earning employees, even unions and welfare supervisors then personnel managers in the organization of labor relations. Andrea Tone confirmed the role of labor: “Welfare capitalism created an arena of negotiation – not just co-option – where workers made their voices heard.”[48] This is important, as it can explain why it survived despite the Great Depression, the New Deal Welfare State and WWII.

By 1920, many large stock-listed firms in the United States had established workplace reforms voluntarily in order to escape the specter of harsher mandatory labor change imposed by legislative action. Welfare benefits would be left to the discretion of employers rather than encoded in law. Wage earners relied on their employers for professional, social and financial security, rather than on the government. By the same token, the movement also defined the content and practice of modern “corporate responsibility” towards labor with the following result: “welfare capitalism » surpassed “welfare Statism”. That context bore the ambitions of a kind of “win-win economy” that would fail to materialize towards the end of the 20th century. So many Americans seemed to benefit from welfare work, among them: employers, who, thanks to its enforcement, found ways to deal with labor unrest, recruitment, loyalty, health and security problems; wage earners and their families who, thanks to the benefits offered by their employers, were less exposed to professional hazards; consumers, who, thanks to quality norms integrated by their employers within the framework of their welfare policies, found safer and better-made goods manufactured by « cleaner hands and more attentive minds”, etc. However, in the 1920s, despite the number of large firms which had integrated welfare benefits in their practices and had broadly advertised it, “welfare firms continued to account for a minority of business establishments, welfare beneficiaries only for a minority of workers”[49]. Furthermore, employers kept the upper hand over the volume and distribution of welfare benefits, remaining free to shrink them, abandon programs or even fire workers before they collected promised payments. To social welfare expert Abraham Epstein, the privatization of workers’ welfare in the 1920s, marked the triumph of welfare capitalism and the defeat of welfare Statism[50]. And contrarily to what has been widely believed, the following decade did not really change things.

5. New paternalism vs. New Deal?

As Sanford Jacoby explains, while, during the Great Depression, many companies cut wages, decided massive layoffs and put an end to most of their welfare programs, welfare capitalism did not die[51]. Even though the major labor-related New Deal legislations – the Social Security Act (1935), the Fair Labor Standard Act (1938), the National Relations Act (1935) – protected industrial workers’ rights to unionize, regulated their working hours and established a minimum wage, they did not however translate into a full-fledged welfare State such as European countries would know. Actually, the benefits granted to workers by State were few and mediocre. For instance, in times of involuntary joblessness, unemployment insurance, funded by a payroll tax on employers, offered a weekly compensation ceiling representing half of the workers’ former wage, a ten week maximum period coverage, and fixed eligibility criteria favoring those with a strong industrial employment history. Pension plans, were financed by a 1 percent regressive payroll tax raised on employers and workers, excluded half of all workers, particularly women and colored people employed in non-industrial settings, were lost if workers were forced to move from covered to uncovered activity, delivered small retirement pensions ($20 a month) to most industrial workers as they were tied directly to wages. After the Social Security Act went into effect, and in a context of meagerness and limited scope of government welfare, large firms’ employers found an ideal opportunity to play an important role in the provision of benefits. Their familiarity, until then, with the handling of corporate welfare and their assumptions regarding a limited role of government in business matters, allowed them to substitute, in order to supplement the inadequate provisions of public pensions. One of the results was that, between 1936 and 1939, more private plans were established than closed.

The decision, by Congress to exempt costs tied up to employee benefits from payroll taxes, further encouraged the privatization of welfare and made this privatization a state-supported policy. The companies providing welfare benefits could also count upon the fact that, although many American workers joined unions during the 1930s and 1940s, many workers did not believe in unions and remained anti-union individualists. The same companies could also count on the intense dislike most American managers felt for unions. Although deeply shaken by the Great Depression and shocked by the rise of mass unions and the New Deal, by the end of WWII, they had regained their self-confidence and started to take aggressive steps to contain unionism. They supported what came to be known as the Taft-Hartley Act, a legislation passed by congress in 1947, despite President Truman’s opposition. That legislation was sponsored by conservative Republican Senator Robert Taft and Representative Fred Hartley. It added a list of prohibited actions, or “unfair labor practices” on the part of unions to the National Labor Relations Act (Wagner Act), which had previously only prohibited “unfair labor practices” committed by employers. The move was meant to counter the spread of harsh domestic strikes involving American workers after the victory over Nazi Germany. The cold-war anti-communist context and witch-hunt crusade were favorable to this situation. Simultaneously, while some business organizations like the National Association of Manufacturers (NAM) continued, with “old-rightist groups”[52], to oppose frontally the Welfare State in the United States, other groups of large stock-listed firms played with the cold war context and their experience in welfare capitalism in order to use it as a way to keep private business interests as main providers of labor benefits.

6. New paternalism vs. corporate social policies after WWII

World War II did not stop that trend. On the contrary, it boosted the drive for the privatization of workers’ benefits. For instance, while the War Labor Board (WLB) froze wages, at the same time, it exempted health and pension plans from wage controls. Considering that measure, plus the shortage of labor induced by the army war recruitment needs, employers who had the financial clout to distribute benefits, used this exemption on health and pension plans to attract and retain labor. They were not the only ones to seize that opportunity. The big unions such as American Federation of Labor (AFL) and Congress of Industrial Organizations (CIO) found in the WLB benefits’ exemption a new field of action. Unable to count on Congress to pass legislation in order to secure wage raises or agreements on labor protection, the CIO – as it was better positioned than the AFL in huge mass-production industries – used collective bargaining to usher in what some economists called the “fringe benefits revolution”[53]. Employers, in order to defuse mass demonstrations organized by unions demanding full employment or opposing workplace encroachment, chose to offer union members huge benefits to win their support. So, instead of higher wages and a measure of control over management, the CIO, then the AFL, secured employees’ benefits, making the “benefit boom” the result of a deal struck between organized labor and big business in a context marked by the rise of union movement and the consolidation of corporate capitalism. At the same time, union contracts motivated non-union businesses to set up and offer benefit programs to their workforce with the following result: in the late 1940s and 1950s, employee benefits such as pension and health plans became decisive elements in large American corporations.

So, as confirmed and illustrated by Sanford Jacoby[54], if during the great depression, companies had cut wages, organized massive layoffs, and put an end to most of their welfare programs, the latter did not disappear. They went underground and were modernized by companies such as Kodak, Sears Roebuck and Thompson Products which had been spared unionization and the ravages of the Great Depression. Each one of these corporations made major contributions to the modernization of welfare capitalism during the 1930s and 1960s. Desirous to keep unions out of their plants and to secure their workforce loyalty, they provided generous benefit plans to their employees, although the latter were redesigned as supplements – not replacements – to social security and other public programs. Moreover, if each company asserted its ambition to be a “corporate community” like the former companies driving industrial paternalism, they also made sure that this dimension did not contradict the Wagner Act labor law promoting collective bargaining. These corporations’ innovations, plus the experimentations conducted by others like Du Pont, Eli Lilly, IBM, Procter & Gamble, S.C. Johnson, Standard Oil, inspired still others like General Electric (GE). Even though it was often quoted, at the time, as union-friendly, GE did not hesitate to move its plants from the unionized North to the non-union South and learned from the above companies to keep unions out of the new plants it located in the South. Furthermore, GE developed new programs to secure the loyalty and commitment of its workforce including old-fashioned welfare benefits or more modern ones such as “attitude surveys” or “employee counselling” inspired by behavioral sciences.


All in all, from the 1920s to the 1970s, the “new private deals” provided by many large American stock-listed corporations satisfied workers’ needs for security, increased their loyalty to their corporations and to their unions (for unionized ones), and as their pension plans were invested in the high-yielding stocks of the same corporations, made them part of a corporate capitalism which they thus felt less inclined to battle. At the same time, as generous private fringe benefits became a rule in large corporations, the situation helped undercut organized unionized workers’ concern for the paucity and inadequacies of public social security provisions. This element also contributed to downplay the “liberal consensus” (or “cold war liberalism”[55]) often evoked to characterize the era before and after WWII until the beginning of the 1970s, when corporate king makers within the main political parties seemed to support “liberal”[56] government policies.

In this context, private employee benefits came to exceed public provisions in both number and financial weight and welfare privatization increased, making employers the main providers of workers’ security until the 1980s. The logic behind offered private benefits to workers remained the same for nearly half a century: contractual and individualized, guaranteeing pensions security, life insurance and medical coverage to full and long- time wage earners. Benefit eligibility and payment criteria continued to be set by companies which thus kept the right to end and change the terms of provision unilaterally, so that only employers would decide who got what under which conditions: “Legislators allowed business interests to dictate the scope and character of employee welfare.”[57]

This being said, if Paternalism and Welfare Capitalism contributed to correct the harshest dimensions contained in the 19th century industrialization process, then helped soften the deep social crisis born of the 1929 Wall Street crash and the Great Depression, if the adoption of the stakeholder model by major publicly traded U.S. corporations was decisive in fostering Corporate Social Responsibility (CSR Act I) and a « contagion of prosperity » in the United States between the 1930s and 1960s, the financialization of corporate strategies born of the 1970s stagflation, monetary, oil and industrial crises, rapidly emptied their CSR successor of any tangible meaning in its Act II version. This will be the subject of a further chapter in this very book![58]

*Jean-Marc Figuet and Bernard Sionneau, “New paternalism, welfare and U.S. moral contract capitalisms in the United States of America” in Hubert Bonin & Paul Thomes, Old Paternalism, New Paternalism, Post-Paternalism (19th-21st Centuries), Brussels: P.I.E. Peter LANG S.A., 2013, pp. 223-242.

[1] Charles Perrow, Organizing America: Wealth, Power and the Origins of Corporate Capitalism, Princeton, N.J.: Princeton University Press, 2002.

[2] Robert H. Tillman and Michael L. Indergaard, Pump and Dump: The Rancid Rules of the New Economy, New Brunswick, N.J.: Rutgers University Press, 2005, pp. 24-25.

[3] « The great merger movement of 1895-1904, during which some 157 major consolidations brought the eclipse of over 1,800 existing companies », in Roland Marchand, « Creating the Corporate Soul: The Rise of Public Relations and Corporate Imagery in American Big Business », The New York Times on the Web, http://www.nytimes.com/books/first/m/marchand-corporate.html. During his second term, President Theodore Roosevelt would try to curb the power of some 44 of these new corporations by launching anti-trust lawsuits. This was part of his « Square Deal » policies of conservation of natural resources, control of corporations, and consumer protection. In an era of violent clashes between labor and management, the square deal was, thanks to the creation of government agencies, meant to provide a fair treatment for contending interests: wage earners would be protected against the might of big corporations; consumers’ health would be protected through sanitation, label norms and supervision, corporations would be protected against too exacting demands from labor unions.

[4] Robert H. Tillman and Michael L. Indergaard, op.cit., p. 24.

[5] Ibidem, p. 25.

[6] All three references from Roland Marchand, op.cit.

[7] In an 1849 published book entitled Harmonies Économiques, Frédéric Bastiat ((1801-1850) described the harmonious functioning of economics when States did not intervene. According to his “harmony of interests’ theory”, when left free, “individuals’ interests” always coincided with “collective interests”; the same applied between “workers interests” and those of their employers; any measure taken by States to solve economic problems was a violation of citizens’ “natural rights” such as freedom and private property. As a dedicated proponent of competitiveness and free trade, Bastiat rejected any kind of administered economics. If Bastiat was very popular among libertarians such as Hayek and von Mises, other economists like Marshall or Keynes thought of him in terms of “theoretical failure”[7], see Francisco Vergara, Introduction aux fondements philosophiques du libéralisme, Paris: La Découverte, 1992, p.120.

[8] The Colorado Fuel and Iron Company (CF&I) is a good example. While starting a program of welfare work at the end of the 19th century (nursing services, central hospital for its scattered workforce, kindergartens, reading rooms, musical and recreational groups, « model cottages » where workers’ wives were taught to be frugal housekeepers and skillful cooks in order to keep their men away from bars, etc.), CF&I also experienced one of the bloodiest labor conflicts in American labor relations history. In 1914, after workers started a strike in its Ludlow operations in Colorado, the ensuing fight with the Colorado National Guard resulted in 19 deaths among which two women and eleven children, cf. Roland Marchand, op.cit.

[9] Charles Cheape, « Paternalism and corporate Welfarism in large-scale enterprises: The Norton Company experience », in Jeremy Atack (ed.) Business and Economic History On-Line, Second Series, Volume 13, 1984.

[10] Ibidem.

[11] Sanford Jacoby, « Downsizing in the Past », Challenge, Volume 41, Issue n°3, 1998, p. 100.

[12] Charles Cheape, op.cit.

[13] Andrea Tone, The Business of Benevolence: Industrial Paternalism in Progressive America, Ithaca: Cornell University Press, 1997, p. 2.

[14] Ibidem.

[15] Ibidem.

[16] Ibidem, p. x.

[17] Nikki Mandell, The Corporation as Family: The Gendering of Corporate Welfare, 1890-1930, Chapel Hill, NC.: University of North Carolina Press, 2002.

[18] Nikki Mandell, op.cit., p. 3.

[19] Charles Cheape, op.cit.

[20] Roland Marchand, op.cit.

[21] “John Henry Patterson, 1844-1922, Industrialist, Social Reformer, Patriot, Benevolent Tyrant, Father of Modern Selling”, http://www.ncr.org.uk/page106.html.

[22] Nikki Mandell, op.cit.

[23] B. C. Forbes, The Remarkable Career of John H. Patterson: He Makes Workers Happy and Cash Registers for the Whole World. A Simple Success Recipe, Dayton History Books Online, http://www.daytonhistorybooks.com/page/page/4624088.htm .

[24] Nikki Mandell, op.cit., 2002, p. 20.

[25] Mueller, Holger M. and Philippon, Thomas, “Family Firms, Paternalism, and Labor Relations” (November 2006). NYU Working Paper No. FIN-06-040, Available at SSRN: https://ssrn.com/abstract=1293662 ; and by the same authors, “Family Firms and Labor Relations”, American Economic Journal: Macroeconomics 3 (April 2011): 218–245


[26] Ibidem.

[27] Ibidem.

[28] Ibidem, p. 7.

[29] Cf. Charles Cheape, op.cit.

[30] Nikki Mandell, op.cit., p. 22.

[31] Quoted in Holger M. Mueller and Thomas Philippon, op.cit., p. 8.

[32] Ibidem.

[33] Sanford Jacoby, « Downsizing in the past », Challenge, volume 41, issue n°3, 1998.

[34] Ibidem.

[35] Nikki Mandell, op.cit., pp. 21-23.

[36] Ibidem.

[37] Quoted in Nikki Mandell, op.cit., pp. 21-23.

[38] Ibidem.

[39] Cf. Andrea Tone, op.cit.

[40] Nikki Mandell, op.cit., p. 158.

[41] Ibidem, p. 23.

[42] Ibidem, p. 22.

[43] Cf. Holger M. Mueller and Thomas Philippon, op.cit.

[44] Andrea Tone, op.cit.

[45] All quotes from Andrea Tone, op.cit., pp. 6-7.

[46] Andrea Tone, op.cit., p. 8.

[47] However, as Cyndi Bittinger added: « Coolidge goes on to say that ‘Of course the accumulation of wealth cannot be justified as the chief end of existence.‘, cf. http://www.calvin-coolidge.org/html/the_business_of_america_is_bus.html >.

[48] Gerald Zahavi, quoted in Andrea Tone, op.cit., p. 13.

[49] Andrea Tone, op.cit., p. 246.

[50] Abraham Epstein, “Industrial welfare movement: Sapping American trade unions”, Current History, 24, July 1926, p. 517, quoted in Andrea Tone, op.cit., p. 246.

[51] Sanford Jacoby, “Downsizing in the past”, Challenge, Volume 41, n°3, 1998.

[52] Cf. Bernard Sionneau, “Legitimating corporate global irresponsibility: Origins, contexts and vectors of the market modern newspeak”, Journal of Global Responsibility, Volume 1, n°2, pp. 330-365. Sionneau, B. (2010), « Legitimating corporate global irresponsibility: Origins, contexts and vectors of the market modern newspeak », Journal of Global Responsibility, Vol. 1 No. 2, pp. 330-365. https://doi.org/10.1108/20412561011079434

[53] Andrea Tone, op.cit., p. 250.

[54] Sanford Jacoby, op.cit.

[55] Jerome L. Himmelstein, To the Right: The Transformation of American Conservatism, Boston, South End Press, 1990. See Bernard Sionneau, “Legitimating corporate global irresponsibility: Origins, contexts and vectors of the market modern newspeak”, Journal of Global Responsibility, volume 1, n°2, p. 335.

[56] « Progressive » equated to « socialist » even « communist » or « leftist » in conservative America.

[57] Andrea Tone, op.cit., p. 257.

[58] Cf. Jean-Marc Figuet and Bernard Sionneau, “Boosting, then Trampling the Moral Contract: How Financialized Globalization Gave Birth to Corporate Social Irresponsibility”, in H. Bonin and P. Thomes (dirs.), Old Paternalism, New Paternalism, Post Paternalism (19th-21st Centuries), Brussels: P.I.E. Peter Lang S.A., 2013, pp. 305-332. http://classiques.uqac.ca/contemporains/sionneau_bernard/FIGUET_SIONNEAU_PATERNALISM_II_USA_22_June_2011.pdf .

Publié par dr. Bernard Sionneau

World Issues Specialist and company owner Former Senior Professor of International Relations and Strategic Studies (Kedge Business School, Bordeaux Ecole de Management, Ecole Supérieure de Commerce de Bordeaux)

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