American cities, their method of business

Preface

The improvement of the means of communication between different parts of the nation and between na- ^ tions, has developed a strong competition between ^ cities as a whole rather than simply between the citizens of different cities. More and more business fails or succeeds because of the city which harbors it. Where a man takes goods to the market, he takes with him his city with its good and bad influences. The city conditions under which he has prepared his goods for the market may make him successful over others or they may bring defeat.

The great problem of city promotion is just this new^ need to make the city an efficient partner with its business rather than an undirected force acting on that business. That problem is to make use of the city with its multitude of possibilities in what H. G. Wells calls '' the every day drama of human getting." But business success, of course, is no more the whole field of city promotion than the individual income is the whole problem of the individual. Every science and art has a relation to city development.

In the near future the American city is going to be

PREFACE

more than just a miscellaneous group of people. It is going to become a powerful force making for the business success of its citizens. Success in augmenting the flow of prosperity to the city will in turn stimulate the artistic, the cultural, for with such success comes greater hope, greater faith in the future, greater freedom from total absorbtion in the mere problem of getting. The whole trend of business life is forcing this development, but by proper community thought and action, these favorable conditions can be achieved much earlier.

This book is sent forth with the hope that it may help to concentrate attention on the possibilities of constructive city evolution. The aim has been to express briefly a philosophy of city improvement — not a statement of the utmost that can be hoped for, the ideal city, but the methods by which directed improvement can begin, the path along which real improvement must travel, the means by which the ideal, if it ever be reached, will be reached. It is hoped that this philosophy will help in bringing together all those groups of citizens who will gain by real city promotion but who are more or less separated now from supposed differences in interest, and that it will help to isolate those interests hostile to fundamental improvement.

The author is chiefly indebted to the teachings and

PREFACE

influence of Tom L. Johnson, the late Mayor of Cleveland, Ohio, the first man in the United States to grasp clearly the principles by which cities must be promoted. Converted first by the works of Henry George, this great pioneer devoted himself utterly to the task of human betterment, so wonderful did the prospect of this task appear once its principles were grasped. Johnson, with his intimate understanding of business and his association with large business of his day, was able to round out a philosophy of city development that comprised all essential factors. If his principles had received more publicity, if he had not been opposed so bitterly by a congealed conservatism that was nation wide and that controlled nearly all avenues to public opinion, American cities would now be years ahead of their present development. But the force of events has cracked this crust of conservatism. Conservatism has simply delayed the application of correct principles rather than strangled them for all time. The Johnson principles that made Cleveland the best city in his time in the United States, must soon receive universal recognition. There is scarcely a point of importance in this book for which I am not indebted to either Mr. Johnson or a fellow disciple of his, Mr.

A. B. Gilbert.

St. Paul, Minnesota.

March i, 19 18.

Contents

CHAPTER PAGE

I The Growing Interest in City Promotion i

II External Costs 14

Chapter I The Growing Interest In City Promotion

The twentieth century shows no more marked change than that in our attitude toward the city. The apathy of previous years has given way to interest, and among the more progressive, to a very active interest in studying and molding city conditions. This new importance which alert citizens are attaching to the city is manifested in several different ways: there is a great and growing demand for the readjustment of city government; the scope of the work of the city government is being greatly enlarged not only in practice but in the thinking of the business man about his city; almost every city large enough to come within the classification set by the Bureau of the Census, has its commer- \ cial club to which every business man of any importance in the town contributes liberally in dues and somewhat in personal effort; the rapid growth of certain cities and the retardation of others are being given serious study.

THE CHANGE IN INTEREST TAKEN

The business men, and we might say the entire body of citizens, are not only taking an increased interest in city affairs but an interest that is different to a marked degree from that which they were taking until recently. No one who has made much of a study of the American city, can fail to realize that, in the order of things now being supplanted, only those who had certain obvious gains to make from the city activity or lack of city activity (in other words, special privilege) took any interest in city affairs, and that the great mass of the citizens, including the bulk of the business men, took little or no interest in their city and allowed those who had special interests to manage it to suit themselves. We know, of course, that this era in city government has by no means passed; it still holds more or less tenaciously in every city of the United States; but the significant thing is that there is an extensive movement in another direction. The average citizen and the average business man is coming to realize that the city may mean a great deal to him as well as to the special interests even though the connection is not quite so obvious, and he is also realizing that the few

THE GROWING INTEREST IN CITY PROMOTION 3

who have obtained special favors from the city may be hostile to his own economic and social welfare.

This difference of attitude is by no means entirely conscious. The facts and mis-statements, the correct and the incorrect hypotheses about city life, the local peculiarities, and the personal elements and interests, are so confusing that only the more progressive have reasoned their way through to any clear principle such as I have mentioned above. A great many have their minds focused upon specific city problems or abuses which they are trying to solve; some, superficially at least, are interested solely in the philanthropic or welfare aspect of city life; others are interested in the more obvious evidences of vice, crime and degeneration; and still others see city problems chiefly in the light of city beautification. It is one of the pecuharities of human life that the mass of people in the midst of a great movement do not discern clearly what is going on, and it is not at all surprising that people living in the midst of the great movement for city development, and taking part in it, should fail to grasp the movement fully and clearly. Greater progress could be made, of course, if the people did realize clearly what the movement really means, because they could then eliminate a great deal of the working of cross-purposes, a great many of the false steps, and could throw their whole strength in the right direction. This change of attitude, especially on the part of the average business man, can be better understood if we can find some logical, driving reason for it in the nature of business as it is carried on at the present time. It need not be a reason about which the business man is entirely conscious, but it must be one sufficient to force a reversal of attitude. It is by no means logical to assume that the characters of people have changed so radically in recent years as to turn them from apathy to active interest or to transform what might appear to be the selfish indifference of the former generation into altruism in the present. Something in the environment and the methods of earning a livelihood must have changed. A great deal of progress and change has been made in the technical methods of doing business, and although these changes must have had a great influence upon our thinking, they do not furnish a satisfactory explanation; there is a complementary and perhaps a much more plausible explana- i tion to be found in the progress in business organiza- ' tion as distinguished from technical progress.

BUSINESS DIFFERENTIALS

To the individual business man or organization it is most important to have a differential or differentials

THE GROWING INTEREST IN CITY PROMOTION 5

which will enable him to place his goods on the market a little more favorably than is possible for his competitors, or better, than is possible for the majority of his competitors. Differentials are sought by all business men, for the object of business activity is normally and rightly the increase of proprietorship, and the differentials make these increases possible. If there is no differential, the profit (the increase of this year's property over that possessed in the preceding year) disappears. It is a well understood fact, I believe, that not all the agents in a certain field of production can have profits over a period of any length. We find them divided into four classes : the very successful, the moderately successful, those breaking even, and those going behind. Those in the first class have large differentials; those in the second very few or minor differentials; and those in the third and fourth classes none of any value. The differentials may consist of superior managing power, superior labor supply, superior organization, better location, etc. Under competitive conditions these differentials are being continuously assaulted and must break down and disappear in time unless a hard and fast monopoly can be established. The competitors are ever trying to acquire the coveted knowledge, the desirable location, the better organization, and the better labor, and inasmuch as these are not monopoHzed, they become common property. When they become common property, their value as profit producers is lost, and the progressive must find new means to profits.

Up to about i860 the prevailing business organizations were the sole proprietorship and the partnership, forms of organization that have decided limitations in the business world. The stock company form then came into extensive use, and for a considerable period the corporation form of organization and the technical progress made furnished strong differentials in business activity. In time, however, the corporate form was so thoroughly established that it yielded little or no advantage in competition; it became a means of staying in business rather than a differential.

Again, beginning about 1820 the little capitalism of the preceding years developed rapidly into what might be called middle capitalism through the remarkable increase in industrial opportunities and the larger scale of operation made possible by the stock company organization. The capital needed by such enterprises as railroading and steamboat operation was far beyond what the single enterpriser or the partnership could furnish. After the Civil War this middle capitalism grew rapidly into what is known as high capitalism or big business. By 1875 i^^ possibilities were ap-

THE GROWING INTEREST IN CITY PROMOTION J

parent to both friends and foes and by 191 2 or perhaps before high capitahsm had reached its zenith. By that time practically all lines of business readily consolidated by big business methods had been so consolidated and had become practically intolerable to non-consolidated business and the people. Those controlling big business, on the other hand, had reached the limit of profit making by issuing bonds and stocks and could make further profits only by waiting for the country to grow and by pushing internal economy of operation.

Those large business men who were unwilling to be content with monopoly profits, seized upon the next great impulse in the business world — the efiicienc3; philosophy. Of those operating on a small scale the wide awake seized it as a new way out and the others have been gradually forced to apply it by the competition in their own lines and by the ever increasing monopoly prices charged by consolidated enterprises furnishing supplies. The more progressive who saw the possibilities of differentials in the efficiency movement and seized them, have been able to add greatly to their net profits. This philosophy, however, is fast becoming common knowledge, and as it becomes common knowledge, the differentials that sprung from it disappear. Like the corporate form of organization, it too becomes not so much a source of profits as a means of staying in business.

CITY DIFFERENTIALS

The problem of the progressive business man in a field that has not been monopolized, is to find another source of differentials, and in this more or less conscious quest he is turning to the city in which his business is located for help. For certain groups of business men to receive special help or favors from the public through its government, whether the government be city, state, or national, is no new method,, as we may recall from what has been obtained by those who have secured franchises, lands, and money for public utilities, and from what has been obtained by those who have sought favoring tariffs ; such activities are essentially those of the older order. Rather the present movement is in the opposite direction because the progressive business man, not definitely associated with a public utility, has nothing to gain and much to lose by this course. His possible differentials lie in making the city a more efficient and consequently a cheaper place in which to produce goods. If the city in which he is located does not appear to offer advantages which his competitors in other cities have, he seeks out another city as a location. To move an

THE GROWING INTEREST IN CITY PROMOTION 9

industry of any size, however, to another city is a tremendous undertaking, and the average business man would rather see what could be done in the way of improving the opportunities in his own city to going elsewhere. He becomes vitally interested in the cost of doing business in his city, and in proportion as he sees the issue clearly does he oppose those city methods that raise these costs and favor those city methods or activities that tend to lower them.

In the necessity and the striving for new differentials we have, I believe, the compelling motive for the new and radically different interest in city affairs. No one who runs over a profit and loss statement of a factory with the thought in mind, can fail to realize how greatly the costs of doing business are influenced by city conditions : materials, with the inward freight and cartage, labor, heat, light, power, rent, taxes, insurance, and the freight outward — the large items in any such statement depend very largely on the city conditions, and to a much less extent than is commonly supposed on what goes on within the four walls of the factory. At almost every point at which the progressive enterpriser attempts to run down his cost of doing business, he meets the stone wall of city conditions. In the older way of regarding city affairs these city costs were looked upon as something absolute and determined by lO AMERICAN CITIES AND THEIR BUSINESS

the laws of nature or by Providence, and it was thought that the individual was helpless before them. The thought that is coming into prominence, on the other hand, is that these city conditions are not fixed and absolute, but can be materially altered for the better by well-directed collective activity of the citizens.

The movement in this direction has reached different stages of development in different cities. In many, especially in the German cities, we find it fairly well developed and a fairly clear consciousness of the end and means among the citizens ; in others scarcely a beginning among the few has been made. Business men are commonly active in commercial club work and in their city government without a definite realization of the end to be sought; more commonly still, they are almost completely at sea as to the means or methods of accomplishing the desired end. Such a situation is entirely natural because city promotion is an applied science by itself, different in many respects from business as now carried on, and men whose experience is limited to the business field would naturally carry over into this work the experience, the theories, and the notions gleaned from the business field.

City promotion, to be of any use in furnishing differentials to the business man, must be made an applied science. There must be the definite, concrete end in

THE GROWING INTEREST IN CITY PROMOTION II

view and well-reasoned, tested methods for reaching this end. We must know the end before we can direct our activities efficiently, and the means of reaching this end must be made a matter of scientific thoroughness. Is it possible to develop such an applied science? There is strong reason for believing that it is, inasmuch as a great deal has been done that closely approaches the demands of an applied science, and that would lead us to believe that the problem is chiefly one of focusing attention upon the proper end and devising scientific methods for reaching that end. This new interest taken by the business man and the average citizen in his city government, gives good reason for expecting that in time, after many mistakes and misdirected effort and part success, the business man will come to have as firm a grasp of city promotion as a differential producer as he now has of his own business. The past, however, out of which the better knowledge grows, survives with us and impels its limitations. There are still gains to be made from the corporation form of organization and still more from efficiency, and these possibilities must keep a large portion of our business men from seeing clearly the possibilities in this new source of differentials. Great numbers of men remain who have given no more than lip service to the efficiency philosophy and they must go through this step at least before they are ready to deal scientifically with city promotion. Also there remain those who have controlled our cities and are consequently adverse to any serious change in city activity.

There are no definite boundaries to movements such as the historians and economists mark out for convenience in teaching; rather several movements or groups of thought exist at the same time as somewhat in the manner different types of trees survive side by side in a forest until after long struggle one gains the mastery. Such is my meaning in speaking of the new movement to promote cities. In a few cities it is fairly well recognized; in many more it is struggling to the light; and in the majority the beginnings have scarcely been made among the more progressive citizens. It concerns what the most progressive persons who have gotten about all that can be obtained from private efficiency and initiative, are thinking about their respective cities.

Practically the corporate form and the efficiency movement have been means of meeting and surpassing competitors, and the thought may naturally arise that differentials produced by the conscious activity of a city, may pass away quickly also under the stress of competition. City differentials undoubtedly wear out

THE GROWING INTEREST IN CITY PROMOTION 1 3

as do those produced by other means; in fact where cities are not consciously working to better differentials in a scientific manner, there are forces within the city that quickly neutralize nearly all its advantages. City differentials when scientifically produced and maintained will last longer than those obtained through the corporate form or the ef^ciency movement. They are necessarily of much slower growth. Frederick Taylor, the father of the ef^ciency movement, emphasized strongly that a factory of any size could not be put on a thorough efficiency basis in less than two years, and it is easy to see that to put a city, with its vitally varying interests and its lack of concentrated power, on an efficiency basis of the kind suggested would take a much longer period. The more progressive cities would be able to capitalize their progressiveness comparatively quickly and the cities that had little or no education in the right direction would be a long time in overtaking them. The possibilities of differentials through city promotion, also, are limited only by the capacity of men to work together for the common good, in other words their capacity for civilization. In fact there is good reason for believing that *' inventions " in the city promotion field are possible, comparable at least to the inventions made in the technical world in the last one hundred and fifty years.

Chapter II

" I am calling these wastes as they now exist our industrial tragedy. The reason will be sufficiently clear, I think, for while they reduce profits, they also reduce the sum of human life and happiness."

If we subtract from the selling price of an article all the costs or contributions which the seller makes to the article, we have the net profit of the transaction. This remainder is what we manufacture and buy and sell for; it is the objective of the applied science of private business. In the costs the seller must include a fair wage for his own services and a return on the capital invested equal to what the capital would earn in any other fairly safe investment, perhaps from four to six per cent. — depending on conditions. The land used must also be represented by rent even if the enterpriser owns the land. These costs and the factors that enter into their totals are almost infinite in number and are difBcult to analyze. 1

Cost accounting, the applied science which attempts

EXTERNAL COSTS IS

this analysis, has developed only in recent years and still remains a mystery to at least half of the business world. For a long time, accounting which shows lump costs and the net profit, has been used, especially in England where it was well developed before i860, but cost accounting is much different from this. It aims to analyze the many factors that enter into these lump costs — not to get the net profit because that can be found under the old system — but to discover leaks, to get exact knowledge by which better methods may be devised, and these better methods tested. Fundamentally it is no more than the application of scientific methods to the multitude of factors producing the sum total of business costs. Accurate records must be kept of the details from day to day; then these facts must be generalized and intelligence must be used to devise methods of reducing, if possible, the burdens which they reveal. A costly machine may be working only part time; a skilled man may be doing work an unskilled man could do; the wrong materials may be used, etc. This minute record of costs is the material on which the efificiency man works, supplemented, of course, with any useful knowledge that may be drawn from the sciences or other applied sciences. The old method was to guess at all these factors entering into costs, and the application of scientific methods to the field has revealed possibilities of cost reduction unsuspected by the men of the old school — rather the greater part of the improvements devised by the new method are so contrary to the tradition and practice of the past that they may appear absurd, except to the initiated.

Splendid differentials have been obtained recently by developing efficient methods from accurate cost data and many are preaching cost accounting as the cure for the ills of private business; our trade papers are full of it; efficiency is more and more a household word. In the sense in which these persons understand efficiency and cost study, however, they furnish very short-lived differentials ; they give nothing in the way of a patent or a natural monopoly; the new knowledge, if it produces greater profits, can spread quickly; as soon as any considerable number have achieved it, its differentials disappear; it becomes only a means of staying in business.

In another sense this cost study and the general efficiency movement give great promise. They are showing business men what costs are and how to analyze them; they are bringing over into the field of business the attitude of mind and the general methods that have been so valuable in the natural sciences, in medicine, and in engineering. They are taking the guess out of business and by so much are making it easy for men to think in proper terms about business and about the promotion of cities. A man whose private business is all based on tradition, notion, past experience and guess, is poorly equipped to think scientifically about his city, but when once this man has taken these things out of his own business, he is fairly well prepared to carry the accurate methods to the next logical stage. This movement is furnishing the necessary background for city promotion, and by so much holds out great promise for the future.

The man who has turned seriously to a cost study of the conditions within his factory or store, finds soon that the many factors entering into the major grpups of costs can be only partly influenced by his activity. He may bring his individual business to the highest point of efficiency possible within the four walls of his business and yet barely touch many of these factors. His studies, his analyses, his methods lead him out through his factory windows, so to speak, but he has no authority outside. Things out there must remain as they are, but he longs to get out and shake them up because he can see where a new method here and a new method there would lower his costs. These many costs can be easily traced out of the factory into the environment of his business, and once the business man sees this connection he develops a desire to mold that environment more to his advantage.

At every point the cost analyst runs into the environment of the business — the greater part of which is the city. The profit and loss statement of a factory will generally contain the following costs :

Materials

Direct labor

Indirect labor

Superintendence

Freight, express and cartage

Light, heat and power

Rent

Insurance and taxes

Supplies

Depreciation

Alterations, repairs and renewals

Selling expenses

To these should be added interest on the investment, for unless the favorable balance more than covers this interest, there is no profit in the correct sense of the word.

In practically all these production costs, w^e can see where the city is an element of more or less im-

EXTERNAL COSTS I9

portance. The materials may be drawn from a distance without the city, but the freight rates to the city and the means of handHng these materials within the borders of the city must be reckoned with before the materials reach the factory doors; the labor employed is an important variable; it may be good or poor, relative to the price paid. What is it that makes labor good or poor? The conditions within the factory, of course, have great influence and many enterprisers have had great success with remodeling these conditions. These same experts also know how far they have failed of complete success. The factory has one-third of the workman's time and the city the other two-thirds. What happens in this other two-thirds of the time has a direct bearing on the working time, and yet it is beyond the manager's control; the city and not he determines the two-thirds. Is the laborer warehoused in miserable quarters? Is the price of food so high that he is poorly nourished? Are there healthful recreation facilities so that when the worker comes on the job Tuesday morning, he is as fresh as on Monday morning? Are the schools preparing the students efficiently for work? Is the sum of these conditions forcing the worker lest he perish to clamor for ever higher and higher money wages? Such points come to mind when we go a little way on the subject of labor efficiency.

In the list of costs, we see also the various services such as light, heat, and power which are coming to be more and more community services. Are those who run these to be allowed to absorb nearly all the advantages of large-scale production or are they to be real servants to the production of the city. Again the same may be said of transportation facilities, such as river fronts, lighterage service, tunnels, storage facilities, street railways. Then there is fire insurance, the basic rate for which is almost entirely a product of city conditions. There are the taxes direct and indirect which may be rightly or wrongly raised with reference to business development and which for business may be a burden or a splendid investment. Again there is the land which all business must have either by direct purchase or by rental. Is the price charged for this land so high as to neutralize most of the advantages of the city, and to discourage enlargement of the business, and if so why is such a price charged? Can it be proved that the productive business of the city gains by this neutralizing land value?