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Wily welfare capitalist: Werner von Siemens and the pension plan

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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. ...
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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. ...
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... 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). ...
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... 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. ...
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