Rationalization:
Rationalization is a term used by economists and others to indicate the application of the most efficient methods in production, distribution, and transport. In its various uses, a rationalization would include ample modern equipment; mass production; cooperative effort; evenness and regularity of output; scientific organization and management; and the elimination of unnecessary and wasteful competition. In its loose use, it is taken to mean combines to maintain prices, manipulation of shares to control markets, crushing out weak opponents by underselling, gaining special legal privileges for particular groups of traders, and other such acts commonly associated with trusts which are ordinarily of doubtful advantage to the community. Rationalization has been carried to its greatest extreme in the U.S.A., especially in the great motor car and steel plants. Next to the U.S.A., Germany carried rationalization to the greatest extreme.
The word rationalization derived its name from the German word rationalisierung which was first used in Germany at the end of World War I. In its original use, the term was employed to describe a narrower and more specific aim of “rationing” the output of certain establishments “to keep it within the limits of current market demands”, and effecting, at the same time, a reduction of costs. But now, as stated in the previous paragraph, the term has come to be used for a far more comprehensive policy that is being followed by business magnates throughout the world. Since the term rationalization essentially indicates rational thinking and scientific and logical methods in industry, the phrase has been differently interpreted. An attempt is made here to sort out some of the definitions with a view to get a clear idea of the meaning of the concept which has assumed a much wider scope than its original meaning.
Meaning of Rationalization:
The various definitions of the term are as follows:
(1) The World Economic Conference, Geneva, 1927. “Rationalization means the methods and technique of organization designed to secure the minimum waste of either effort or materials. It includes the scientific organization of labor, simplification of processes, and improvements in the system of transport and marketing.” Elimination of waste for greater efficiency is the core of this definition.
(2) Professor Sargant Florence. The same idea of the reform of industry through the elimination of waste of labor, time, and materials and by the reorganization of industry scientifically is expressed by Prof. Florence. “Rationalization”, says he, “is the movement to eliminate waste and inefficiency “scientifically and logically” by some sort of joint action between all the firms within one industry.”
Professor Sargant Florence explains the science and logic involved in rationalization when he observes that the application of scientific management and vertical and horizontal integration of various firms eliminate waste and inefficiency. The emphasis primarily is on the Elimination of waste and inefficiency-
- through the use of scientific techniques in every unit (an internal aspect of rationalization).
- through business combination (an external aspect of rationalization).
(3) Professor E.A.G. Robinson. Professor Robinson lays stress on the improvement of industrial structure through reorganization. According to him, Rationalization refers to the “reorganization of the relationship of the individual firm to the industry as a whole.” Besides the achievement of internal efficiency, he regards the combination of firms as the means of achieving maximum economies of production and marketing.
(4) Mond in Industry and Politics sums up the scope by stating that “the rationalization of industry, then, is an attempt to adjust the means of production to the probable means of consumption, and so to regulate prices, that instead of curves rising and falling like the contours of the Alps, there should be a fairly level roadway of prices along which trade and commerce could move.”
The emphasis in this definition also is on reorganization through the loose association of firms for regulating prices, both for the benefit of the producer and the consumer.
(5) Advisory Committee on Management of the I.L.O. (1937) spells out rationalization in the following descriptions:
- Rationalization, in general, is any reform tending to replace habitual, antiquated practices by means of methods based on systematic reasonings.
- Rationalization, in the narrowest sense, is any reform of an undertaking, administration, or other services, public or private, tending to replace habitual antiquated practices by means and methods based on systematic reasonings.
- Rationalization, in a wider sense, is a reform that takes a group of business undertakings as a unit and tends to reduce waste and loss due to unbridled competition by concerted action based on systematic reasoning.
- Rationalization, in the widest sense, is a reform tending to apply means and methods based on systematic reasoning to the collective activities of large economic and social groups.
The central idea in this definition is two-fold: a conscious re-orientation of the methods of production and those of distribution of what is produced in such a manner that it results in the maximum economic and social advantage, and the reduction of maladjustments and economic disequilibrium resulting in the restoration of economic and social order.
Aims and Objects of Rationalization Movement:
As stated earlier, rationalization was originally employed as a remedy for the ills of German industry and as a scheme for its reconstruction. Its success attracted the attention of economists and industrialists in all the advanced countries of the world. The World Economic Conference held in Geneva in 1927 gave it a definite meaning and status. It defined the term and laid down its aims and objects. According to the Conference, Rationalization aims at:
- Securing the maximum efficiency of labor with minimum effort.
- Eliminating the waste of power and raw materials.
- Facilitating by a reduction in the variety of patterns (where such variety offers no obvious advantage) research into the methods of manufacture and use of standardized parts.
- Simplifying distribution of products by eliminating unnecessary transport, burdensome financial charges, and useless interposition of middlemen.
- Securing to the community with greater stability and a higher standard of living.
- Ensuring the consumer lower prices of goods more carefully adapted to general needs.
- Ensuring a higher and steadier remuneration to be equitably and fairly distributed among the various classes of producers.
According to the Bombay Textile Labor Inquiry Committee, 1941, rationalization has three aims.
- Increase in production per man and machine and its relation to wages.
- Improvement in the efficiency of workers and in working conditions; and
- Financial and industrial re-organization.
The fundamental aims may be summed up as-
- Securing for each industry, considered as a whole, the maximum benefit of the most fruitful of all economic devices- the Divison of Labor.
- Suppression of redundancy in all its forms, whether of plant, material, labor, or mechanical processes.
- Bringing the whole of an industry under intelligent direction and management.
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