Xi’s Costly Obsession With Security
How a Quest for Control Threatens China’s Economic Growth
WITH every passing month it becomes increasingly clear that the rehabilitation of the British coal industry is a prerequisite not only of Britain's own industrial recovery but to a large extent of that of all western Europe. The majority of observers find it increasingly difficult to understand why this rehabilitation fails to materialize. The necessity for drastic reorganization has long been recognized, the technical problems analyzed and cures recommended over and over again. Why, if the course is charted, and agreement reached by everyone in authority to embark on it, does production fail significantly to increase? Many foreign observers attribute it to the Labor Government's nationalization program, others to the dislocations of six years of war. Comparatively few realize that the present situation has been at least 25 years in the making. It is the product both of avoidable stupidity and unavoidable bad luck; the problem it presents is social and psychological as well as technical, the result of general economic and social conditions which have influenced not only mining but other basic industries, and not in Britain alone but in all the "older" European countries. The state of affairs has been so long in evolving that no amount of hard work, efficiency, goodwill or determination, from any source, governmental or private, can remedy it overnight, however great the need.
Let us look at this crisis in the making. The First and not the Second World War marked the beginning of the decline of British coal mining; it was in 1919, not 1947, that remedies should first have been applied. In the 50 years before World War I, the industry expanded phenomenally in response to an ever-increasing demand from a rapidly industrializing world. It increased its work force four times, its production three times and exports almost six times.[i] In 1913 it was the largest British industry, next to agriculture. In that year it produced 287,000,000 tons, of which 94,000,000 were exported -- a level which has not been reached since. This output required a work force of 1,107,000 and thus showed a productivity of only 259 tons per man year (1.03 metric tons per man shift). But workers were cheap and plentiful, so that, as in so many basic industries in the Old World, low individual output caused no concern either on grounds of total output or of costs.
The coal industry met the nation's needs during World War I, but the Armistice was barely signed before the situation began rapidly to deteriorate. The usual reaction from abnormal wartime efforts, a work force diluted with drafts of unskilled workers, a continued history of bad industrial relations, topped off by the government's unwisely sudden relinquishment of its wartime control of the industry, led to a serious fall in output. Simultaneously, demand began to decline. An internal trade depression caused an almost immediate reduction in the domestic market. A brief period of war-inflated continental demand in 1919 and another short period of prosperity due to temporary overseas conditions in 1923-24 helped to postpone the decline in exports. But while British coal operators and dividend holders rejoiced in this shallow-rooted demand, continental mines were recovering and expanding their prewar output. By 1925 exports fell to 50,100,000 tons; and a continual improvement in mining techniques overseas foretold a further decline in export demand even without the effects of possible world depression.
In the long run, it was unfortunate for British mining that the general high level of unemployment throughout heavy industry in the in ter-war period insured the continued presence of a large reserve of unemployed for the coal industry in spite of relatively low wages and bad conditions. Encouraged by this reserve, the coal operators' first thought in a crisis was to cut wages, which represented 70 percent of pit-head prices. In an industry where about a thousand concerns were engaged in keen competition, it was perhaps natural that this method of cutting costs came readily to mind. But it had two disastrous effects. Its immediate effect was to worsen immeasurably the relations of labor and employers in an industry where they were notoriously bad. But far more important, wage reduction was taken as an alternative to a program of modernizing and mechanizing the mines which increasingly adverse mining conditions required. Faced with a problem of rising costs and mounting competition for continental markets, the mine owners with few exceptions relied upon a cheap labor supply rather than higher efficiency. This decision is probably the most significant in the history of the British coal-mining industry. This policy determined the program of the industry throughout the inter-war period, and has to a certain extent lingered on right up to the present.
The coal seams most readily mined had been thoroughly exploited as early as 1913. More than a third of the mines had been laid out in the seventies and the eighties for quick profit rather than long-term investment. By the twenties the industry was showing the effect of this. Deeper, narrower and less accessible seams had to be mined, but little or no action was taken to improve mining techniques. Efficiency plummeted, and costs began to soar. Modernization could have brought health to the industry, but the coal operators could not get over the feeling that dividends to their shareholders had first claim on current earnings. In the brief period of prosperity in the early twenties they paid out dividends instead of reading the writing on the wall and plowing back their profits -- the last of any size they were to make. When the depression hit it was, in a sense, already too late for the necessary reforms. Unemployment was so extensive, excess capacity so large and investment risk so great that the immediate crisis had to be ameliorated before long-term measures could be taken. In the absence of any program for increasing efficiency, the formula of reducing costs and meeting continental competition by wage reductions was a failure. The effects of this formula antagonized labor and still further retarded the development of greater efficiency in the industry. At the same time it wrecked the financial structure of the industry and that, in turn, forced the mine owners to continue their already disastrous policy.
The history of labor relations is too well known to need detailed repetition here. But it has had such an effect on the current attitude of the coal miners that some mention seems necessary. By 1925, wages had already been reduced to half their wartime level. In that year, the owners adopted a new wage cut which led to the coal strike of 1926. The accompanying nine-day general strike, the first and only one in England, is so well known that it is occasionally forgotten that the coal strike which caused it continued for six months. The strike ended finally in a crushing defeat for the miners and this, in an industry continually weakened by foreign competition and world depression, made the next ten years a period of bitter memories for the mining villages. Average adult earnings seldom exceeded $9 per week. Even as late as 1938, weekly earnings had increased only to $11, and in a list of nearly 100 industries, coal mining was eighty-first in average adult male earnings. Unemployment averaged 25 percent. Although no large strikes took place, persistent minor warfare continued so that in almost every year stoppages in the mines accounted for more than 40 percent of the working days lost through strikes in the whole country. More than 50 percent of those engaged in industrial disputes in Great Britain were miners. These facts, together with an accident and a disease rate that compared unfavorably with those in other industries made miners vow that their children should not enter the mines if there was any alternative. In consequence, the recruitment rate by 1938 was already far below that needed to maintain the working force, foreshadowing the labor shortage of the war and postwar years.
By 1930 the general state of the industry was so low the government had to come to its aid. It perhaps speaks well for the hearts of the coal operators that their ideas of what to do at that juncture were not concerned with rationalization and concentration, but with spreading the available business, however thinly, among all. It does not speak well for their heads. The Coal Mines Act of 1930 set up machinery for regulating prices and (by the establishment of quotas) production to a degree unprecedented in British industry. The coal operators, who had already attempted voluntary cartel arrangements, welcomed this section of the act joyfully. The Act was still in effect at the beginning of the war and its application had, by that time, succeeded in raising prices and wages somewhat. There was a second section of the Act, which established a Coal Mines Reorganization Committee, supposed to promote amalgamations and the concentration of production in the most efficient units. However, the Committee's powers were weak. It was hampered both by the private ownership of mineral rights (whose boundaries often bore little relation to the ownership of the mines themselves) and by the forcibly expressed dislike of the operators for anything resembling compulsory consolidation. By 1939, only 90 voluntary amalgamation schemes had gone through. In 1938 a somewhat stronger act was passed, which included a provision for the nationalization of the coal seams (though not the coal mines), but the war interrupted its application.
With demand continually falling (especially for export coal, due partly to abnormal subsidized competition from Germany and Poland), with so much excess capacity, and with the immediate demands of the stockholders still, as ever, first in their minds, it was scarcely to be expected that the coal owners would open new mines. However, since overseas competition had somehow to be met, and wage costs cut, and since wage rates had really reached rock bottom, the operators did, during the thirties, at last begin a program of mechanization. Between 1929 and 1938, the proportion of coal cut by machinery increased from 28 percent to 59 percent, and the proportion mechanically conveyed from 17 percent to 54 percent, resulting in an increase of 6 percent in output per man shift. Unfortunately, machines for power loading, originally developed in the United States, were generally not adaptable for British mining conditions and the construction of a suitable machine was neglected.
British miners did not welcome this program. Unfortunately, it was carried out in a period of unemployment, so that it seemed one more threat in a world full of threats, just as the new wage rates, which accompanied it, often seemed one more danger to wages already unbearably low. Nor were industrial relations such as to enable drastic technical changes to be made easily. Above all, the miners and their leaders shared with so many owners the resistance to, and fear of, radical change; it seems sometimes as if the chief characteristic of both owners and men was inertia.
In contrast with the 287,000,000-ton production of the halcyon year of 1913, Great Britain, in 1939, produced 231,000,000 tons of coal, of which 46,000,000 were exported. It did this with a work force of 766,000, an output per man year of 301.6 tons (rearmament demands insured full time working) and an output per man shift of 1.17 metric tons. During the last couple of years, domestic demand had increased somewhat because of rearmament, while exports were being protected from further decline through trade treaties. But the crisis already threatened. The average age of pits became older and older, their seams more difficult to work. The relative inefficiency of British mines could be seen from the high cost of coal, in spite of low mining wages. If, for any reason, wages were raised costs would skyrocket. And now, for the first time, it began to look as though a labor shortage might compel higher wages, for in 1938 the rate of recruitment of boys and youths had fallen to between 15,000 and 20,000 a year, a rate too small to meet normal retirement.
During World War II, the industry's inability to meet the calls upon it forced the government gradually to take more and more control of the mines. Among steps taken by the Government were the maintenance of the work force and the drafting of new recruits by compulsory labor direction; the promotion of mechanization projects through the supply of new equipment and training in its use; the establishment of the open-cast mining program; and the temporary settlement of the wages question, the most vexed of all wartime industrial relations problems (the miners ended the war with a $20 a week national minimum guaranteed wage for underground workers). To meet the cost of the increased wage, to guarantee it against unpreventable fluctuations and to pay for the extended welfare arrangements initiated by the Government, profits were standardized and a Coal Charges Account was established, financed by a levy on tonnage, and used to help the least prosperous districts pay their way. This contributed to the perpetuation of the inefficient mines.
Thus, by the end of the war, the coal industry was far from a free competitive enterprise, operating under normal economic laws. Throughout the war, no new pits were opened and output had continued to fall. When peace arrived, with its demand not just for coal at any cost, but for coal at an economic cost, few doubted that an even more drastic reorganization was necessary. Some collieries had to be closed, others developed, new ones opened, research intensified and enormous sums spent on new equipment. Who could carry out this program? The owners suggested that they themselves should establish a Central Board whose technical and financial decisions would be binding on the industry. But past history led most observers to doubt if the more progressive owners could voluntarily bring themselves to the necessary sacrifice of their weaker brethren. The miners, who for years had called for nationalization and forcibly expressed their reluctance to see the end of government control, could not be relied upon to coöperate. And now, for the first time, the desperate shortage of mining labor made it imperative that the miners' attitude be taken into account. Above all, it was obvious that the industry could not raise the necessary enormous sums for reorganization through normal financial channels. The Government would have to help with the finance, and many felt it should, therefore, have a say in how the money was to be spent.
Would a continuation of wartime dual control do the trick? The proponderant evidence had shown that this was unsatisfactory; many mine owners clung invincibly to a short-term view -- often they could not afford to take a longer one -- and refused to play ball with the control. Many miners and their union leaders found the halfway measures unsatisfactory and could not believe in a new deal while the old bosses were in immediate control. The position of the mine manager was invidious -- responsible to the Government for policy, he was still responsible to his directors for daily operation and did not feel he could rely on the Government to save him if he went against their wishes. Above all, the control was virtually powerless financially.
Nationalization was no new idea. For many years it had been part of the program not only of the miners' union, but of the Labor Party. Lord Sankey, Chairman of a Government Commission on Coal, had recommended it as far back as 1919. It had been in the air for 20 years, and indeed the continued threat of it was one of the many reasons, on the one hand, for the coal operators' reluctance to invest money in an enterprise they felt might be taken from them any time, and, on the other hand, for the uncoöperative attitude of labor. Above all, the Reid Committee, a group of seven eminent mining engineers (most of whom were drawn from the ranks of private enterprise), appointed by the Coalition Government which reported in 1945, had concluded a long list of technical recommendations with the comment that, "it is evident to us as mining engineers that they [the necessary changes] cannot be satisfactorily carried through if the industry is organized as it is today." The Committee felt that some "authority" drastically different from any then existing in the industry must be established with the duty of ensuring that the industry be "merged into units of such size as would provide the maximum advantage of planned production."
It was, therefore, surprising to no one that one of the Labor Government's first acts was to pass a bill nationalizing the coal mines. Under it, a nine-man National Coal Board was appointed by the Ministry of Fuel and Power and came into office on January 1, 1947. It conducts the affairs of the whole industry. Ultimately responsible to the Minister and to Parliament and subject to policy directions from the Minister, it is, apart from this, quite free to develop the industry.
It is in this dismal atmosphere that the British coal industry must be revived. Even had the economy of the British Isles not been rocked to its very foundations by the effects of World War II, this would be a difficult and slow task. Now it must be accomplished in a country that has suffered much physical damage, where capital investment throughout much of industry has been long deferred, and which has lost most of the invisible income that previously permitted it to buy a large share of the world's raw materials and finished goods. The scarcity of almost every physical requirement of a modern industrial society, be it food, clothing, housing, energy or essential consumers' goods (let alone luxuries), is evident everywhere in Britain.
There is a grave question whether the amount of new capital facilities that can be made in Great Britain will be sufficient both to cover the needs for the plants already authorized by the Government and to meet the export allocation. Every attempt at long-term industrial improvement conflicts with the urgent short-term demand for continued production with the tools at hand. For example, it would be eminently desirable to drive new level haulage roads which could use locomotives and high capacity cars to replace some of the present tortuous "up hill and down dale" entries, but to do so requires miners who cannot now be spared from working at the face, breaking coal that is carried to the shaft in minuscule "tubs" by endless rope haulage.
Similarly, replacing ancient steam winding engines and boilers with efficient electric hoists is not everywhere possible in the near future as there is insufficient electrical energy available in the power grid. Additional central stations, electrical generating equipment, transmission and distribution facilities must be built first, and the coal mines themselves must compete for hoists with the new gold mines on the Rand, the sale of the equipment for which will provide much needed foreign exchange. Shutting down some of the preposterously inefficient surface installations at collieries so that new labor-saving preparation plants can be constructed is not always possible, as the nation can ill afford temporarily to lose the production of even an outmoded mine. And so it goes with almost every plan that is put forward.
It is not difficult to understand that in the period just prior to the vesting of the mines in the National Coal Board there was no industry-wide campaign of reorganization and modernization. The Board has now made public its general plan for some 100 major projects, 20 of which will be started in 1948 and the last of which will be finished in 1962, as well as for some smaller two-and-three year schemes. It can only be hoped that this plan was not formulated hastily in answer to an insistent public demand for concrete proposals, and is backed up by detailed engineering and estimating work. The technical problems are understood by many and are not mysterious. The question is, can a national authority and its employees exercise that nice degree of judgment between the engineer's desire for a "perfect" mine and plant and the economic necessity of keeping capital costs within reason? One also wonders if the "conference system" of making major decisions, inherent in a top-heavy organization (already employing many thousands of people more than were engaged in the administration of the industry under private enterprise), can succeed in breaking away from the traditional unimaginative approach to technical and economic problems which has so long plagued the British coal industry.
In any general discussion of the technical side of the British coal industry, there are two broad considerations to be kept in mind. First, the process of mining coal is that activity which takes place at the coal face, and ends when coal is placed on the first device that moves it. From that point onward, the winning of coal is a matter of what I choose to call "materials handling." Second, the "materials handling" consists of underground transportation to the shaft bottom, hoisting to the surface, preparing the coal for the market requirements and loading it into cars.
One generally hears offered as an excuse for low output, the broad conclusion "coal seams in England are thinner [i.e., narrower] than in the United States." This is true, but it is an oversimplification. Admittedly, the degree of mechanization which can be achieved in Great Britain will never, under the best conditions, approach that now achieved in the United States. Nature was not as good to the United Kingdom when she laid down the coal deposits. However, more than 50 percent of the coal mined in Great Britain is extracted from seams more than three feet high and is, therefore, subject to some degree of mechanization. There is much room for improved efficiency at the coal face, but, in any case, conditions at the face cannot be made an excuse for failure to tackle aggressively the job of materials handling.
The importance of improving underground transport has been repeatedly stressed by all observers, and plans for reorganizing the industry incorporate measures to cope with this problem. However, none of the reports that have come to my attention has sufficiently emphasized the improvement of surface plant. In the United Kingdom, there is employed on the surface alone at the present time approximately one man for each four long tons of coal loaded. In the United States there is employed on the surface, in underground transport and at the face, one man for each 5.2 long tons of coal loaded. In other words, there are more men on the surface in British coal mines than there are in American mines both on the top and in the bottom per ton of coal loaded. The conditions of the coal seam have absolutely nothing whatsoever to do with the efficiency of the surface layout. It must be improved not only to release the men employed to other useful purposes, but to contribute to the "atmosphere of efficiency" so necessary to obtain maximum output in all parts of a modern industrial enterprise.
Not only technical but also social and psychological factors must be taken into account in assessing the probable success of the Coal Board's program. The first six or seven months of 1947 may be considered to have been a honeymoon between the National Coal Board and the miners. During that period the Board, and the Ministry of Fuel and Power, made many concessions to the mineworkers, the principal one being the establishment of a five-day week with provision for six days' pay. Many other minor concessions were made at division or colliery levels which resulted in better working conditions, and sometimes in more pay. Several schemes for increased medical care and better welfare provisions are either under way or projected for the near future, including a commitment to provide the miners with superannuation and invalid pay at the rate they were paid when they retired. But for these privileges, actual or promised, the miner has given little in return. The relations between the National Coal Board and the miners must necessarily be those of employer and employed, and up until now the Board would appear to have lost most of its bargaining power with the Union, without having impressed on the miners the central fact that even under nationalization any radical improvement in wages, conditions or hours can only come as the result of increased productivity. For the miners have not only failed to increase production significantly, they have apparently failed even to alter their traditional hostile attitude toward "the boss." This was shown all too clearly with the sudden ending of the honeymoon in September, when the Board decided to meet the urgent need for increased production by increasing each man's daily stint in districts where it was apparent that the existing stint did not employ the miner's full working day. The result was a major strike.
Earlier in 1947, observers had begun to fear that the power of the National Union of Mineworkers in the Trades Union Congress and the Labor Party would make it impossible for the Coal Board to act the part of employer with vigor and authority. And indeed, certain words and actions of the late Minister of Fuel and Power which showed a tendency to by-pass the Board in granting the miners' requests seemed to bear out this view. Probably many of the miners themselves held it. But the September dispute disillusioned them, showing that the Board could on occasion take the employers' rôle all too convincingly, and brought the miners face to face with the less agreeable aspects of nationalization. British newspapers say that the miners complained that the Board was more inhuman, remote and untouchable than even the worst of their late employers. The decision on the increased stint and the accompanying wage provision was taken after less joint inspection and consultation than preceded many similar moves under private ownership; and when the strike had begun, the Board refused to depart from the most orthodox strike settlement procedure, so that movement toward adjustment of differences was painfully slow. The miners felt that the coal owners had been superseded by a "new gang" of bureaucrats who were the harder to fight because strikes caused them no personal financial damage; and they were the more bitter because of a feeling that now even some of their own trade union leaders were not on their side, but, anxious to obtain a position with the Board or elsewhere in the vast army of government officials, took the new bosses' part.
Nationalization has apparently not given the miners a psychological incentive to work, and the material urge is certainly lacking with the shortage of all sorts of consumer goods. Perhaps in any case it is really too late to alter the mental habits of the present generation of miners, either by psychological or material means. The mental scars of the inter-war years cannot be repaired overnight, any more than can the physical damage to the mines. How, other than by this hypothesis, can one account for the irrationalities in the coal industry? In Lanarkshire, for example, a mine with a 27-inch seam has an output per man shift (O.M.S.) 40 percent above the national average; in South Wales a mine with a four-foot seam is far below the average. A new mine in Fife with good underground conditions does miserably from the point of view of both total and individual output, while mines in Nottingham with no better underground conditions have twice the O.M.S. Similar examples, difficult to analyze and explain on any but a psychological basis, are all too frequent. Obviously they depend on the individual and collective behavior of the human beings who are directly or indirectly associated with the industry. It is not only the miners who are working with insufficient goodwill or effort. The trade union leaders also take a one-sided view. The psychological damage extends to management who, to a significant degree, lack vigor, imagination, and the willingness to take big risks for big gains.
Thus the most hopeful aspect of the new deal for mine workers lies in its effect on recruitment, which is on the upgrade for the first time in many years. The total work force continues to fall, since retirement from old age more than counterbalances the increase in young workers. It will continue to be badly balanced, since the middle-age group, which best combines skill and vigor, still bears the marks of low recruitment in the thirties. But it seems that the future manpower supply may be secure, and one can hope for a new generation of miners who will be without the present crippling attitude.
To evaluate the effect of the present low level of coal production on the over-all economy of the United Kingdom, the present demand for coal must be estimated. In any industrial nation, the demand for this essential raw material is said to vary with the real national income. Over the short term this is essentially correct, although over the longer term the tendency for production to shift from heavy industries to light industries, and for economic activity, on the whole, to shift from production to distribution must be taken into account, so that the relation of coal requirements to national income may be a decreasing function. Taking the national income in the period 1940, extrapolating to the present, and relating this to internal coal consumption, a demand for 222,000,000 tons is arrived at. As the coal presently produced in Great Britain is not comparable to that placed on the market in 1938 because of increased ash content and the misapplication of types and sizes of coal through faulty distribution, 10,000,000 tons need to be added. Deducting 7,000,000 tons for conversion to oil leaves an estimated demand of 220,000,000 to 225,000,000 tons at present. This estimate must be treated with caution and is not necessarily the tonnage which would be consumed in the present troubled conditions of the British economy, but is the quantity which would be consumed were coal and other commodities available with complete freedom from controls.
The production in 1947 will probably fall short of the Coal Board's target of 200,000,000 long tons by 4,000,000 to 5,000,000 tons. For the calendar year 1948, it may provisionally be expected that production will expand slightly. The target set by the government and included in the report prepared by the Paris Conference of the 16 nations comprising the Committee of European Economic Coöperation is 213,000,000 long tons. To achieve this calls for a marked improvement in productivity per man shift, an increase in the work force, and a reduction in absenteeism -- or a combination of all three. It would take, for instance, a productivity of 1.1 to 1.15 tons per man shift and an expanded labor force of 750,000 (as compared with recent figures in September 1947 of 1.05 and 718,000) to reach this total. The experience under the first year of nationalization leaves grave doubts that both or either of these prerequisites will be achieved.
Moreover, should this production be reached, the problem of transportation of coal from the mines to the consuming points will become acute. All indications are that a sustained weekly rate of coal production in excess of 4,100,000 long tons will strain the existing facilities. The annual production of 210,000,000 to 215,000,000 tons means that, to allow for normal weekly fluctuations in coal production, an output of 4,100,000 tons per week or more must frequently be attained for several weeks in a row.
The long-term objective of the Government and the National Coal Board is something along the line of an output of 245,000,000 long tons by 1951, and an eventual output of 250,000,000. An ultimate output per man shift of two long tons and a work force of 500,000 are frequently mentioned by British governmental agencies. While the expected O.M.S. is technically possible -- it was almost achieved in the Dutch mines before the war where mining conditions are much more difficult than those generally encountered in Great Britain -- the work force figure presupposes little or no absenteeism. A more realistic estimate is that 550,000 to 560,000 workers will be needed.
In the writer's opinion, this estimated target will not be reached in ten years. Any guess further into the future is of no value. It must be realized, however, that a productive capacity of 250,000,000 long tons will possibly be reached in less time by recruiting a large labor force and improving rail facilities. The achievement of a high production rate in this manner can be considered only an interim solution of the final problem of efficient production, and such an interim solution creates more problems for the future. For example, as output per man shift increases, fewer young men will enter the industry and the average age of the miners will increase steadily over a period of 20 years or more, until normal retirement of the older men is balanced by recruitment of an equal number of younger men.
It must not be forgotten that during the period necessary for the British Coal industry's reorganization there exists a distinct possibility that British coal may be priced out of the export market. The principal competitor of the future British export coal market will probably be coal from Poland, and all indications lead to the conclusion that it will be priced lower than coal from Great Britain. From the point of view of the South American coal market, it is significant to point out that at the present time the sales price of railroad and power-house coal f.o.b. tidewater on Atlantic ports of the United States is less than the pithead cost of coal in the United Kingdom. The coal industries of Poland, South Africa and the United States cannot be expected to stand still while Great Britain sets its coal mines in order.
The British coal industry is in a bad way. It is difficult to see how the steps toward rehabilitation can be either shortened or speeded up. It is essentially an internal British problem, which must be solved by the people of that country in their own way. The effects of the economic laws which are bound to operate, even in a controlled economy, may, however, be the agent which precipitates the ultimate reorganization of the industry.
[i]Cf. Harold Wilson, "New Deal For Coal." London, Contact, 1945.