Beginning around 1910 and continuing throughout the 1930s, scientific management became a major guide to managerial thought and practice in the United States (Wren 1994). But by the mid-1920s, the social structure of work in the United States was changing. Millions of Americans were leaving firms and moving to cities (see Bogue 1959). This, combined with the con- tinued immigration of foreigners into metropolitan areas (Bogue 1959), had a dramatic affect on the dependency relationship of workers. As the avail- able labor force for factory work increased, the bargaining power of employees declined. With less ability to make wage or job security demands, and with heightened competition for jobs, employees found themselves increasingly dependent on specific firms.
While scientific management and changes in the social structure of work were altering employees’ dependence on the firm, the Great Depression would have monumental affects on all three constituents. In the early 1930s, the unemployment rate in the U.S. rose to approximately 25%. Congress expressed concern for the plight of workers by passing the Norris-La Guardia Act in 1932. This Act strictly limited the use of injunctions against unions and outlawed the use of ‘‘yellow-dog’’ contracts (contracts stating that the worker could not join a labor union as a condition for employ- ment). Though managers now enjoined judicial protection from strikes and boycotts, the loopholes in the Act and the economic climate of the depres- sion meant that they could merely dismiss striking workers and replace them with others at a lower wage (Cihon and Castagnera 1988).
In 1933, the National Industrial Recovery Act (NRA) contained sections specifically intended to address these issues. When the Supreme Court found the NRA unconstitutional in 1935, Congress moved that same year to pass the Wagner Act, otherwise known as the National Labor Relations Act (NLRA). The concern of Congress was again with the power of employees relative to employers. This is exemplified by Senator Wagner’s opening re- marks before debate on amendments to the bill, where he stated:
It [the NLRA] is the next step in the logical unfolding of man’s eternal quest for free- domy. [W]ith economic problems occupying the center of the stage, we strive to liberate
man from destitution, from insecurity, and from human exploitationy. In this modern aspect of a time-worn problem the isolated worker is a plaything of fate. Caught in the labyrinth of modern industrialism and dwarfed by the size of corporate enterprise, he can attain freedom and dignity only by cooperation with others of his group (Congres- sional Record, 1935: 7565).
Meanwhile investors continued to reduce their dependence on specific firms by pursuing the corporate organizational form. Although far from perfect, corporate formation did allow investors to continue to decrease their fi- nancial liability in the firm. Congress’ recognition of this dependency dif- ferential between employees and investors can be found in the pre- amendment wording of Section 1 of the NLRA:
The inequality of bargaining power between employer and individual employeesyarises out of the organization of employers in corporate forms of ownership and out of nu- merous other modern industrial conditionsy(Congressional Record 1935: 9717).
The corporate organizational form changed the relative dependence of em- ployees and investors on specific firms, increasing employee dependence and drastically decreasing investor’s dependence. And in 1937, when the Su- preme Court upheld the constitutionality of the NLRA, it signified the first time that both the judicial and legislative branches were in agreement re- garding employees’ increased dependence on large corporations.
The timing of this convergence of views in no small way reflects the economic environment of the early 20th century (1920–1944). The growth of the corporate form was reducing the number of potential employers in the labor market. In 1909 there was one small manufacturing firm for every 250 people in the United States; by 1929 there was only one for every 900 people.
The increase in the ratio of people-to-firms (partially) was the result of the growth in the corporate form (from the speech of Senator Wagner, Con- gressional Record 1935) as well as immigration and the movement of labor from farms to the cities (see Bogue 1959). These developments served to increase the firm-specific dependence of employees.
The Liabilities of Scientific Management in a New Institutional Environment
With the Supreme Court’s 1937 decision to uphold the constitutionality of the Wagner Act, the employment relationship changed dramatically. This was an external shock that affected the professional autonomy of managers.
Employment-at-will was no longer the only doctrine that governed the as- sociation between the employer and the employee. Instead, unionization and
Management Paradigm Change in the United States 133
collective bargaining became options available to workers. With the advent of forced bargaining, union contracts, and strike funds, employees decreased their level of exposure to firm-specific uncertainties. Further, government restrictions on managers’ ability to bargain and terminate employees had the effect of increasing the degree of uncertainty associated with investment in a firm, as volatility in earnings were now more likely. As this uncertainty increased, so did the possibility of heightened investor scrutiny of mana- gerial decisions, another potential infringement on managerial autonomy.
The external shock of these legal changes led managers to realize that their current management practices would be unable to nullify these new intrusions on their professional autonomy. Scientific management was an excellent method for managers to establish and defend their professional domain when it was threatened by a lack of knowledge of job skills and work processes. But it offered very little help against legislated union bar- gaining power. As the 1930s came to a close, managers were searching for a new rationale to regain their professional autonomy. One of the fruits of that search was the human relations approach.
Enter the Human Relations Paradigm
Although it is often identified with the Hawthorne studies in 1929, the human relations approach would not find its way into the management mainstream until the mid-1940s (Sherman and Bohlander 1992;Wren 1994).
Unlike scientific management’s focus on production efficiency, the human relations approach focused on aspects of human behavior as these affected the firm. One area of attention focused on manager’s ability to be sensitive to the needs and feelings of their employees and to recognize the individual differences among them. This approach also emphasized the need for in- creased worker participation and employee-centered supervision (Sherman and Bohlander 1992;Wren 1994).
The human relations approach was radically different from its pre-dec- essor that stressed the use of time–motion studies to achieve uniformity and maximum efficiency. This extreme shift in emphasis was an attempt on the part of managers to regain professional autonomy. Given the prevailing legal environment of the late 1930s, the use of scientific management would only exacerbate existing tensions between managers and employees. It would increase the uncertainty of continued, stable profits and heighten investor scrutiny of managerial decision making. What managers needed, given labor’s increased power in organizational matters, was a method that
would appease workers in order to prevent them from exercising their newly created rights.
This attempt at appeasement was embodied in the human relations ap- proach to management. By focusing on such areas as the needs and feelings of workers, managers could hopefully avoid any costly confrontations (Bendix 1956; Braverman 1974) and stabilize firm output (Gillespie 1991).
This would have the effect of reducing labors’ power, decreasing investors’
scrutiny of managerial actions, and restoring managerial autonomy.