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Wily welfare capitalist: Werner von Siemens and the pension plan
Abstract and Figures
The German firm of Siemens and Halske introduced many enterprising features of what later came to be known as welfare capitalism in the mid-nineteenth century. Profit sharing, annual bonuses, a pension fund, a reduction in work hours, and an annual party were all means to ensure a productive, trouble-free workforce. We investigate the reasons why Siemens and Halske introduced this internal welfare system. We focus on the by-far most expensive part of the welfare system: the pension fund introduced in 1872, more than a decade before the nationwide social security system was implemented in Germany. We find that the adoption of the internal welfare system increased labor productivity, and in addition discouraged workers from striking. We estimate that the company’s gains due to strike prevention and higher productivity were at least as high as the cost of the pension fund. This suggests that (1) the introduction of a pension fund is not inconsistent with simple profit maximizing behavior on the firm’s side and (2) increased labor unionization induced firms to introduce subjective components of workers’ remuneration packages.
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... The efficiency wage theory argues that companies such as, Siemens, that paid pensions at the earliest times, might have been goaded to pay premium wage to workers in order to prevent shirking of responsibility by workers and also to elicit extra effort from them. It is further argued that creating a pension fund is akin to wage raise in that when workers cared about their future they will take into account the benefits of being Kastl and Moore, 2009). Even, as a plausible explanation, it was further posited that the mid-1870s economic decline in Europe occasioned by banks' failure and ...
... This theory speculates that the pension fund may have acted like an implicit contract between the firm and the employee to the effect that the firm would look after employees in their old age so long as employees worked faithfully for the company for many years (Kastl and Moore, 2009). It simply comes down to mean that when employers and employees repeatedly interact over a long time, it may be optimal to design long-term implicit contracts that encourage human capital acquisition and reduce employee turn-over and strikes (Lazear, 1979;Prendergast, 1979, as reported by Kastl and Moore, 2009). ...
... This theory speculates that the pension fund may have acted like an implicit contract between the firm and the employee to the effect that the firm would look after employees in their old age so long as employees worked faithfully for the company for many years (Kastl and Moore, 2009). It simply comes down to mean that when employers and employees repeatedly interact over a long time, it may be optimal to design long-term implicit contracts that encourage human capital acquisition and reduce employee turn-over and strikes (Lazear, 1979;Prendergast, 1979, as reported by Kastl and Moore, 2009). It appears a settled matter, as in the case of Siemens, that that the establishment of the pension fund and the associated rules were equivalent to workers placing a security deposit with the company. ...
... It did so by involving the firm in the housing, education and health of the worker's family as well as the worker. Thus, the nature of this responsibility parallels and reflects what we know about similar developments in Berlin with the firm of Siemens and Halske (Kastl and Moore, 2010) and in the Ruhr valley with the Krupp steel company and other nearby firms (McCreary, 1968). These responsibilities align with a paternalistic role for the firm and the business leader, in which they cared for their employees in ways that echo the manorial system of feudal Europe (Hielscher and Husted, 2020); yet, they also take into account the migration to the cities, creating new institutions for the care of indigents in light of the weakening institutions of the medieval world. ...
Purpose
The purpose of this study is to examine and interpret the characteristics of social responsibility in general, and business responsibility in particular, that were evident during a period in European history that was plagued by widespread social problems and change. Based on that interpretation, the authors explore the lessons those characteristics may have for social responsibility in a contemporary world that is facing similar conditions.
Design/methodology/approach
The paper presents a qualitative analysis of the proceedings of the Bienfaisance Congress held in Frankfurt in 1857, where societal leaders from different nations met to answer the question, who has responsibility for whom, and for what? The authors use grounded theory, as it is operationalized in what is known as the “Gioia template,” to conduct a structured analysis of this particular text, and to in turn produce a theoretical interpretation of how that question was answered.
Findings
The interpretation from this study is that congress participants articulated certain established dimensions of responsibility (individual, organizational, national), as well as one new dimension (international), and did so by differentiating boundaries of responsibility; in turn, the authors suggest that these dimensions and boundaries work together to form a nested system of responsibilities.
Research limitations/implications
There is limited empirical evidence available that documents the variety of responsibility-based initiatives that were being conducted during the 19th century. An analysis of the congress proceedings allows us to gain a better understanding of how the 19th-century world, particularly the upper echelons of European society, approached the question of under what conditions actors in different domains have responsibility for another. While the implications are limited by the analysis of the proceedings of one congress that was attended by elites, they do provide a snapshot of how Europe sought to articulate a system of bounded responsibilities during a time of widespread social problems and change.
Practical implications
Although the nested system of responsibilities framework that emerged from the grounded theory analysis is not applicable to all situations, it should sensitize policymakers and business leaders to the need to address social problems in a systemic way.
Originality/value
The authors both present a systems-based framework for understanding how responsibility is differentiated among actors (individual, organizational, state and international) and demonstrate how a theoretical interpretation of historical documents can be accomplished through the use of grounded theory, as operationalized through the Gioia template.
... However, it is equally true that there is a continuity and structural similarity of certain responses to societal challenges- Luhmann's (1980) "social structureat times when semantics do vary a great deal. For example, we know that a cornerstone of today's CSR activities-the provision of health-related services such as occupational security, health care, and old-age insurance-was developed and refined by the industrial patriarchs in the Prussian Rhine and Ruhr valleys, one of Germany's industrial hubs during the nineteenth-century industrialization (Kastl and Moore 2010;McCreary 1968). From Germany, such corporate programs then found their way to England (Hay 1977;Morgan, 1996), later to the United States and then many other countries. ...
In this paper, we argue that antecedents of modern corporate social responsibility (CSR) prior to the Industrial Revolution can be referred to as “proto-CSR” to describe a practice that influenced modern CSR, but which is different from its modern counterparts in form and structure. We develop our argument with the history of miners’ guilds in medieval Germany—religious fraternities and secular mutual aid societies. Based on historical data collected by historians and archeologists, we reconstruct a long-term process of pragmatic experimentation with institutions of mutual aid that address social problems in the early mining industry, and thus before the rise of the modern state and the capitalist firm. Co-shaped by economic and political actors, these institutions of mutual aid have influenced the social responsibility programs of early industrialists, modern social welfare legislation, and contemporary CSR. We conjecture that other elements of proto-CSR might have evolved according to similar trajectories.
... The earliest pension originated in Britain, the first evidence being a pension scheme for merchant seamen in 1749(Kastl & Moore 2010). A later example of a company performing CSR related activities is Cadbury, the family business which was taken over by George and Richard Cadbury in 1862 (Soskis 2010). ...
Corporate Social Responsibility is an important part of a modern organisation. The definition of CSR can be seen to play an important role in understanding and engagement by organisational stakeholders. There are a numerous definitions and frameworks in the field of CSR and different organisational stakeholders may hold different views in respect of strategic priorities. The research explores three questions: firstly, what is the respondents’ personal definition of CSR? Secondly, how does the concept of implicit / explicit CSR fit within an organisational context? And finally and to a much lesser extent, are there any variant CSR themes within the island of Jersey compared to, for example, the UK?
A multiple case study methodology was adopted, which supported the exploration of CSR policy and activity from the perspective of organisational members. Semi-structured interviews were used along with critical incident technique to explore the definitions, beliefs and values of a range of organisational stakeholders. Empirically based findings support the general definition of the respondents’ personal definition of CSR and also an augmented implicit / explicit framework of CSR which is based on Matten and Moon’s paper (2008). In respect of a personal definition of CSR, 21 respondents were interviewed across 11 organisations and a general, personal definition was found. Generally, respondents defined CSR at an explicit level as being about philanthropy, role in society and engagement. Implicitly, respondents generally defined CSR in terms of ethical, legal and economic interests. People tend to define CSR at an explicit level as ‘fundraising’ and ‘philanthropy’ and at a more implicit level about ‘social good’ and ‘doing the right thing’. An electronic survey showed that respondents from one of the researched organisations prioritised organisational responsibility in the following order: legal, ethical, economic and philanthropic.
The exploration of the implicit / explicit framework of CSR revealed the advantage of utilising a relational perspective which integrates perspectives rather than frames them as a paradox (although this is a perspective adopted by the researcher which is likely to invoke debate rather than be universally accepted). A series of diagnostic dimensions were defined which was used to place the 1,315 respondent meaning units into the framework, resulting a balance of implicit and explicit influences on the organisational framework. The meaning units derived from the implicit / explicit model tended to mirror the respondents’ personal definition of CSR.
There are several areas of recommended research, including an opening of dialogue regarding paradoxical / complementary perspectives of CSR versus organisational responsibility. Recommended research also is how CSR knowledge is transferred from the individual stakeholder to the institution within which she sits and vice versa.
... The earliest private-sector pension schemes also came from Britain. Kastl and Moore ( 2010 ) trace the fi rst evidence of an old-age pension to a 1749 program for merchant seamen. Plans were developed in the 1840s for clerical and other workers of the London and North West Railway, with other railways following. ...
The history of the practice of corporate social responsibility (CSR) has largely been limited to the twentieth century, with a focus on the United States. This paper provides a brief introduction to CSR practice from the nineteenth century through World War I in the United Kingdom, United States, Japan, India, and Germany. The relevance of nineteenth-century CSR to current debates and research regarding the motivations for CSR, the business cases for CSR, stakeholder management, political CSR, industry self-regulation, and income inequality are also discussed.
... (von Bismarck, 1884, p. 165). At the same time, various German companies were also introducing new policies geared toward the improvement of the lives of their workers (and their families), for instance in the form of company lunches but also pensions (e.g. in the case of Siemens as early as 1872, see Kastl and Moore, 2009) and the provision of housing (Honhart, 1990). ...
Markets do not bring about morally beneficial results by and of themselves. Any moral evaluation of market outcomes is to a large extent contingent on the way markets are allowed to operate, i.e. by the boundaries that determine where and how the market is allowed to function. Labor standards and the ILO’s Decent Work Agenda, which is based on the normative concepts of human dignity and decency, can be seen as fulfilling this boundary function. In this book Maarten Biermans (1974) discusses the relationship between markets and morality by way of this agenda. In this discussion the focus lies not solely on the content of that agenda but also on its two foundational normative concepts and the way they interact with markets. The concept of human dignity comes with a considerable history which is covered in the analysis. With regard to decency, the writings of the philosopher Avishai Margalit on the Decent Society are used in the appraisal of the ILO’s Decent Work framework. The evaluation of the framework shows that the Decent Work Agenda will not be able to function effectively as a moral market boundary. The reasons for this outcome are predominantly found in the methodology that was deployed (e.g. the way the underlying concepts are defined) as well as in a general opposition against the idea of decency as an evaluative concept. The overall assessment presented in this dissertation offers various suggestions and routes on how to effectively incorporate the concepts human dignity and decency in moral market boundaries.
Recent research has argued that the American welfare state is not necessarily smaller than the welfare state in other advanced industrial countries. Rather, it is organized on principles that make it seem smaller: Because it functions through tax expenditures and public-private partnerships, it is less visible than welfare states that operate on the principle of direct spending. This review summarizes the most important messages of this revisionist scholarship, particularly in how this form of welfare provision undermines support for the welfare state, increases the complexity and decreases the efficiency of the system, and hides regressive policies from public scrutiny. I then argue that although this work has taught us much about American politics, several gaps need to be addressed. First, the explanation of the origins of this state of affairs is incomplete and unconvincing. Second, while private welfare is an important part of the American experience, the scholarship on private welfare provision has not yet grappled with the fact that private welfare was also historically found in many other advanced industrial countries, but did not crowd out the public welfare state there as it has in the United States. Finally, although the scholarship has usefully called attention to the invisibility of tax expenditures, we should not consider tax expenditures part of the "welfare state," because they only rarely accomplish the functions of redistribution and risk pooling of public welfare programs. Rather, in most cases, tax expenditures should be seen as tax cuts, that is, diminishment of state capacity. These observations suggest that the scholarship would benefit from broader engagement with the comparative literature on political economy and from a more precise and conceptually grounded definition of the "welfare state."
This paper analyses the evolution of the French pension system from the mid-nineteenth century to the current period. Competing or complementary hypotheses that can explain the long-run rise in pension expenditure are discussed. The determinants that appear to offer the best explanation for the evolution of pension expenditure are economic growth, the process of industrialization and ageing. The time series related to these determinants are cointegrated over the long run. A multivariate model is estimated in order to assess the long-run elasticities between the pension expenditure and its main determinants.
That cliometrics is an indispensable tool in the study of economic history is no longer a very controversial statement. It is now generally agreed that economic theory, combined with new data as well as historical, statistical and mathematical methods are necessary at the theoretical level, to formulate problems precisely, to draw conclusions from postulates and to gain insight into workings of complicated processes and, at the applied level, to measure variables, to estimates parameters and to organise the elaborate calculations involved in reaching empirical results. This article is an illustration of my belief in this principle.
A comprehensive history of German society in this period, providing a broad survey of its development. The volume is thematically organized and designed to give easy access to the major topics and issues of the Bismarkian and Wilhelmine eras. The statistical appendix contains a wide range of social, economic and political data. Written with the English-speaking student in mind, this book is likely to become a widely used text for this period, incorporating as it does twenty years of further research on the German Empire since the appearance of Hans-Ulrich Wehler's classic work.
Peter Lindert inquires as to whether social policies that redistribute income impose constraints on economic growth. Although taxes and transfers have been debated for centuries, only recently have we been able to obtain a clear view of the evolution of social spending. Lindert argues that, contrary to the intuition of many economists and the ideology of many politicians, social spending has contributed to, rather than inhibited, economic growth. Peter Lindert is a prize-winning researcher and teacher at the University of California-Davis where he serves as President of the Economic History Association and as Co-Editor of its journal. His textbooks in international economics have been translated into at least eight other languages, and he has previously taught at the University of Essex, Harvard University, Moscow State University, and University of Wisconsin.
This study analyzes the changing role of pre-industrial family and bureaucratic traditions in the development of Germany's leading electrical manufacturing firm. The Siemens company developed a decentralized, multi-divisional structure ten to twenty years before duPont and General Motors pioneered a similar organization in the United States. The pre-industrial bureaucratic traditions, considered in a multi-national context, facilitated the development of efficient modern management in Germany and help explain the relative success of German industry in the two decades before World War I.