The Enlightened Capitalists

Cautionary Tales of Business Pioneers Who Tried to Do Well by Doing Good

James O'Toole

• Verlag: Harper Business
• Jahr: 2019
• ISBN:
  9780062880260
• Thema: Business
• Thema: Business History

An expert on ethical leadership analyzes the complicated history of business people who tried to marry the pursuit of profits with virtuous organizational practices—from British industrialist Robert Owen to American retailer John Cash Penney and jeans maker Levi Strauss to such modern-day entrepreneurs Anita Roddick and Tom Chappell. Today's business leaders are increasingly pressured by citizens, consumers, and government officials to address urgent social and environmental issues. Although some corporate executives remain deaf to such calls, over the last two centuries, a handful of business leaders in America and Britain have attempted to create business organizations that were both profitable and socially responsible.

In The Enlightened Capitalists, James O'Toole tells the largely forgotten stories of men and women who adopted forward-thinking business practices designed to serve the needs of their employees, customers, communities, and the natural environment. They wanted to prove that executives didn't have to make trade-offs between profit and virtue.

Combining a wealth of research and vivid storytelling, O'Toole brings life to historical figures like William Lever, the inventor of bar soap who created the most profitable company in Britain and used his money to greatly improve the lives of his workers and their families. Eventually, he lost control of the company to creditors who promptly terminated the enlightened practices he had initiated—the fate of many idealistic capitalists.

As a new generation attempts to address social problems through enlightened organizational leadership, O'Toole explores a major question being posed today in Britain and America: Are virtuous corporate practices compatible with shareholder capitalism?

Part I

The Pioneers

1

The First Business Reformer

Robert Owen (1771–1858)

In 1742, shortly after large-scale manufacturing began in the mid-eighteenth century, the Lombe brothers established a giant mill in England. Daniel Defoe, author of Robinson Crusoe, described the incredible interior of that vast six-story building, with its “26,586 Wheels and 97,746 Movements, which work 73,726 Yards of Silk-Thread every time the Water-Wheel goes round, which is three times in one minute.” Defoe failed to mention that the children who worked in such mills “tended the machines round the clock for twelve to fourteen hours at a turn . . . [and] were boarded in shifts in barracks where, it was said, the beds were always warm.”¹ Those children were as young as five years of age, but in the eighteenth century that was more likely to be considered a sign of progress than exploitation. Writing to the US Congress in 1789 about the economic advantages of British textile mills, Secretary of the Treasury Alexander Hamilton proposed the enactment of policies to encourage the construction of large manufacturing facilities in America. In addition to the material wealth created by industrial factories in Britain, Hamilton cited the advantage of “employment of persons who otherwise would be idle and, in many cases, a burden on the community. . . . It is worthy of particular remark that, in general, women and children are rendered more useful, and the latter more early useful, by manufacturing establishments, than would otherwise be. Of the number of persons employed in the cotton manufacturies of Great Britain, it is computed that four-sevenths, nearly, are women and children, and many of them of a tender age.”

To spur American economic growth and military security, Hamilton thus advocated the establishment of William Blake’s “dark, satanic mills” in America—and was more than willing to pay the price in terms of child labor. When the ever-economizing Hamilton saw young American children playing on their parents’ farms, he saw underutilized factors of production who could be employed more “usefully.” In distinction, his lifelong rival, humanist Thomas Jefferson, saw such children as potentially virtuous, self-sufficient citizens in need of an education to prepare them for democratic participation in their communities. By and large, Hamilton’s view would prevail in America and Britain over the subsequent century.

Britain, circa 1800

The mid-eighteenth-century introduction of such laborsaving devices as James Hargreaves’s spinning jenny, Richard Arkwright’s water frame, and Samuel Crompton’s spinning mule greatly reduced the time it took to spin thread from cotton and to make it into cloth, functions previously performed at home by women using distaffs and spindles and, later, spinning wheels. By 1800, cotton cloth would be more efficiently mass-produced in gigantic mills far larger even than the one Defoe had described six decades earlier. The effect of industrialization on Britain’s economic and social order was staggering. By 1816, machines were spinning cotton, wool, flax, and silk into thread and turning out millions of yards of cloth annually. The productivity of those mills created vast wealth for their owners and for the British nation. In that year, it was estimated that the machines in one enormous mill produced the labor equivalent of eight million women spinning at home. John Quincy Adams, while a member of the House of Representatives, estimated that, during the War of 1812, machines in Britain had produced the equivalent of the labor of two hundred million people. A dozen years later, another member of Congress calculated that, even if such estimates were inflated by a factor of two, “every British workman, on the average, has but forty inorganic slaves to help him.”² Consider the numbers: in 1769, Britain had exported only about £212,000 worth of cotton goods per year; in 1829, over £37 million was exported. New, efficient methods also were developed for making iron and steel, and steam-driven machines were substituted for animal and human power in other industries as well. The net effect of the Industrial Revolution was to transform Britain into the wealthiest and most militarily powerful nation on the globe.

It is thus easy to understand why Hamilton’s view of British industrialism had been so benign: he wanted America to have the mother country’s wealth and power. What he failed to anticipate were two terrible consequences of the Industrial Revolution: the growth of large cities and the creation of slums within them. As British workers left the farmlands where their forefathers had toiled for generations, they made their way to cities such as Manchester, where jobs awaited them in the new mills. In the early 1840s German expatriate Friedrich Engels (Karl Marx’s co-author, friend, and patron) managed a cotton mill in Manchester owned by his father, where he observed what he and Marx would later call the “immiseration” of the men, women, and children who labored in factories like his father’s. In his classic 1845 analysis The Condition of the Working Class in England, Engels meticulously documented how Manchester’s mill workers and their families lived, often six to ten huddled in one small, filthy, unsanitary, unheated room without the benefit of running water. Most wore rags, many suffered from tuberculosis, all breathed foul air and endured the stench of open sewers. They were paid subsistence wages on which they could afford only meager meals of bread, the occasional piece of mutton, and a mug of cheap gin. The little food they had was often as contaminated as the water they drank. In the mills, men and women labored twelve hours a day under horrendous conditions alongside children, often “of a tender age.” Those children—typically orphans living in workhouses—slept on straw and, like cattle, were fed from troughs. Engels noted with disapproval that such conditions existed at the very time Britain was experiencing the greatest increase in wealth, and the largest outpouring of scientific advancement and technological invention, in the history of the human race.

Enter Robert Owen

Thirteen years after Hamilton issued his report to Congress, and forty years before Engels wrote his own report drawing quite different conclusions, a British industrialist with a Jeffersonian philosophical bent observed the terrible conditions in Manchester’s mills and then asked himself how he could make manufacturing pay without dooming his workers to misery and degradation.³ That manufacturer, Robert Owen, famously succeeded in doing just that between 1800 and 1824. Yet despite his example, over the next century only a handful of industrialists in Britain and America saw fit to adopt Owen’s practices—in effect turning their backs on methods manifestly more profitable and more virtuous than their own. In exploring the mystery of why they chose to act as they did, we discover that in numerous ways the last two hundred years of business history reads like a sequel to the puzzling story of Robert Owen’s New Lanark textile mills.

Among the business leaders profiled in these pages, none has been written about more than Robert Owen.⁴ Yet despite all the ink devoted to analyzing his beliefs and actions, no consensus has emerged on how history should evaluate his significant, albeit odd, career. To some observers he was a thoughtful, benevolent, farsighted manager and thinker whose pioneering reforms at the New Lanark mills addressed the worst by-products of the Industrial Revolution, thus demonstrating that capitalism need not be exploitative. Yet to Marx and Engels, Owen was a profit-mongering capitalist who exploited his own workforce. To others, he was an insane, utopian socialist dedicated to the abolition of capitalism, a radical free thinker hell-bent on the destruction of traditional societies, and a dotty, impractical do-gooder in the mode of Dickens’s Mrs. Jellyby. To his admirers he was an infidel, to his critics a prophet. The British historian and politician Thomas Macaulay described Owen as “a gentle bore” from whom he “fled at the first sound of his discourse,” but prominent scientists, philosophers, monarchs, and presidents considered him a valued friend. Especially, he was much loved by those who knew him best: the workers and schoolchildren of New Lanark.⁵ He was, in short, a most unusual man.

Owen was born in Wales in 1771, the sixth of seven children in a lower-middle-class family that, unusually for the era, had the wherewithal to send Robert and his siblings to the village school. Owen’s first four years of childhood were passed at home with his loving family (at roughly the time Adam Smith was furiously penning The Wealth of Nations in Edinburgh). Beginning at age five, Owen attended the school taught by a certain Mr. Thickness, whose improbable Dickensian name was an accurate description of his mental capabilities. Despite schoolmaster Thickness’s shortcomings, Owen proved himself to be something of a prodigy, learning to read, write, and do arithmetic sums by the time he was seven. As incompetent as Thickness was, he nonetheless was capable of recognizing talent, and thus enlisted Owen—before the latter was eight years old—to serve as his assistant teacher, instructing younger children in the three Rs. Over the next two years, Owen “acquired the itch to learn and still more the itch to teach.” In his own words, “I thus acquired the habit of teaching others what I knew,” a habit that would serve him for both good and ill in his subsequent career.⁶ Socially awkward, he compensated by mastering the art of dancing, a “habit” he acquired at age seven.

At age nine, realizing he had no more to learn from Thickness, Owen dropped out of school to work in a draper’s shop. At ten, he borrowed forty shillings from his father—the last financial support he would receive from his parents—and set off to London to make his fortune. But after only six weeks at his brother’s home in the British capital, he again was off by carriage, this time to Stamford, a small town in Lincolnshire where he apprenticed himself for three years to Mr. McGuffog, a lace maker with another marvelously Dickensian moniker. Many years later, Owen wrote that he had been “fortunate in obtaining such a man for my first master,” for McGuffog was “thoroughly honest, and a good man of business—very methodical, kind, liberal and much respected by his neighbors and customers.”⁷ From his experience working for McGuffog, Owen concluded that ethical business practices could create satisfied customers, and treating employees well could foster a productive, loyal workforce. Indeed, as a young employee, Robert Owen was exceptionally well looked after by McGuffog, who allowed his apprentice to spend as many as five hours a day reading in his extensive library.

At the end of the apprenticeship, Owen returned to London, where he went to work as an assistant in a drapery house. There the thirteen-year-old worked long hours, often from eight in the morning until two a.m., seven days a week (on Sundays there was a welcome break for a good dinner, the only meal during the week Owen didn’t take while standing and working). At fifteen he decided he’d had enough of such treatment—in that era, not only factory workers labored under bad conditions—so he quit and moved to Manchester, where for the next three years he worked in decent circumstances for a successful draper. There, Owen’s workday was short enough to allow him to continue his self-education, and he used the spare time to read widely, if not deeply. Manchester was then, along with London and Edinburgh, a prime center of Enlightenment thinking. During the seventeenth and eighteenth centuries Europe had given birth to that intellectual movement predicated on the assumption that humans could find knowledge and happiness—and advance civilization—through the application of reason. Two luminaires of the Enlightenment, John Locke and Jean-Jacques Rousseau, reasoned that, because existing political, social, and economic constructs had been created by humans, ergo, humans had the power to change them. As Rousseau famously argued in The Social Contract, God did not create social classes, nor were those in the lowest classes inherently inferior to their “betters” (contrary to what aristocrats and popes had long claimed). Hence, the fact that most extremely poor people at the time didn’t bathe, couldn’t read, lived in hovels, and demonstrated little ambition was due not to their nature but their nurture, to use the modern lexicon. Locke’s and Rousseau’s writings encouraged subsequent generations of men and women to attempt to change the unjust structure of society through either reform or revolution. Those ideas were in the smoky air of late-eighteenth-century Manchester, and Robert Owen absorbed them.

But Owen’s mind at the time was more attuned to business than philosophy. On the job, he quickly mastered most aspects of business from bookkeeping to the ins and outs of the fabric trade. Manchester in 1789 was the Silicon Valley of its time, and Owen found himself at the innovative center of the Industrial Revolution. Not surprisingly, he wanted to play a part in the exhilarating technological and business changes going on around him. By the time he was eighteen, he was junior partner in a firm that manufactured the latest technologies of the era—such as Arkwright’s water frame, Hargreaves’s spinning jenny, Crompton’s mule, and Edmund Cartwright’s power loom—all used in the production of high-quality cotton cloth. He soon went off on his own and established himself as a successful self-employed businessman. But he was ambitious, and when he read a notice soliciting applicants for the post of factory manager at a large mill, he applied. He went in person to meet the mill’s owner, a wealthy merchant and manufacturer named Drinkwater. Taking one look at Owen, Drinkwater curtly said, “You are too young.” Owen explained that he might look young for his age, but he had years of business experience. Drinkwater then asked, “How often do you get drunk in the week?” Owen indignantly replied, “I was never drunk in my life.” That apparently impressed Drinkwater, who asked what salary Owen was looking for, as recounted by the latter’s eldest son, Robert Dale Owen:

“Three hundred a year” [around $200,000 in today’s dollars].

“Three hundred a year! Why, I’ve had I don’t know how many others after the place here, this morning; and all their askings together wouldn’t come up to what you want.”

“Whatever others may ask, I cannot take less. I am making three hundred a year by my own business.”

“Can you prove that to me?”

“Certainly. My books will show.”⁸

Owen got the job, and within a year he had turned Drinkwater’s underperforming mill into a highly profitable enterprise employing five hundred workers.

About that time, Owen joined the prestigious Manchester Literary and Philosophical Society, where he became friends with the chemist John Dalton (originator of atomic theory), the poet Samuel Taylor Coleridge, and the American inventor Robert Fulton. (Owen briefly shared quarters with Fulton, who borrowed £160 from him to finance his fledgling “steamboat project.” Fulton later repaid Owen £100, then neglected to remit the remainder.) Based on how Owen conducted himself in debates with the great minds of the society, they dubbed him “the reasoning machine.”⁹ He delivered at least one well-received learned paper there, which indicates that these distinguished men accepted him as their social and intellectual equal. His extensive reading had thus equipped him not only with a sound education but with social mobility unusual for that era. He was now widely accepted as “a gentleman.”

The New Lanark Mills

Among other gentlemen in Manchester at that time were many who were growing rich thanks to booming industrialization. Those with money to spare were eager to invest in promising business ventures. Thus, when the twenty-seven-year-old Owen heard of a large, unprofitable mill for sale in New Lanark, Scotland, he had little trouble raising the capital to buy it. Nonetheless, the mills’ owner, David Dale, could not believe such a young manager had the wherewithal to make a major financial investment of £60,000 (perhaps $60 million now). Furthermore, the cheeky lad had the temerity to ask Dale not only to sell him the mills but, in the next breath, also for the hand of his daughter, Caroline, in marriage. Dale was not amused. He was a wealthy, socially well positioned Scottish Presbyterian of the strictest Calvinist sect, and no lover of the English (or the Welsh, for that matter). In addition, he was a rabid Tory who believed poverty was the consequence of working-class vice and sloth. He saw in Owen a moderately well-off social upstart, a Welsh deist who, although not active politically at that time, had evident Whig leanings. It had taken Dale little time to discover that the core of Owen’s social and political philo...

Inhaltsverzeichnis

• Cover
• Title Page
• Dedication
• Contents
• Preface: The Good Unearthed
• Introduction and Background: Why It Is Hard to Do Good
• Part I: The Pioneers
• Part II: The Golden Era
• Part III: Yesterday, Today, and Tomorrow
• Conclusion: Difficile Est Bonum Esse
• Acknowledgments
• Notes
• Index
• Photo Section
• About the Author
• Also by James O’Toole
• Copyright
• About the Publisher