Why Factories Built Worker Housing Before the Wars: The Era of "Embedded Costs"

Why Factories Built Worker Housing Before the Wars: The Era of "Embedded Costs"

Before the major global conflicts, roughly from the late 19th century up to the 1940s, the construction of company towns and worker housing was seen by many industrialists as an embedded, albeit significant, cost of doing business. The reasons were often tied to the prevailing economic and labor conditions:

1. Directly Enabling Operations in Undeveloped Areas: Many primary industries (mining, textiles, steel, lumber) were tied to specific geographical resources. These locations were often remote and lacked existing infrastructure or housing. Building homes, roads, and utilities wasn't a choice; it was a necessary capital expenditure to even begin operations and house the workforce. Without it, the factory simply couldn't exist.
2. Securing and Stabilizing Labor: In eras of rapid industrial expansion, labor was a critical and often volatile resource.
   • Recruitment Incentive: Offering housing was a powerful draw, particularly for migrants (both internal and international) seeking stable employment. It provided an immediate solution to the worker's most fundamental need beyond wages.
   • Reduced Turnover: High labor turnover was costly due to recruitment and training expenses. Stable housing fostered loyalty and reduced workers' propensity to leave, effectively lowering long-term labor acquisition costs and ensuring a consistent, experienced workforce.
   • Control and Discipline (Paternalism): While seemingly benevolent, company housing also provided a means of social and moral control. By managing all aspects of a worker's life (housing, shopping via company stores, social activities), employers could exert influence, discourage unionization, and ensure a "disciplined" workforce, which was perceived to improve productivity and reduce disruptions. This was a form of vertical integration of the worker's entire life into the corporate sphere.
3. Lack of Alternative Public or Private Infrastructure: Local governments often lacked the resources or political will to provide large-scale housing or municipal services in newly developing industrial hubs. The private housing market in these nascent industrial areas was often insufficient or non-existent, leaving a void that companies had to fill.

From an early industrialist's perspective, these were not merely "nice-to-haves" but often strategic necessities to ensure a reliable and controllable supply of labor, particularly in an era before widespread public infrastructure and highly mobile workforces. The cost was considered a necessary part of the total cost of production.

Why This Practice Largely Disappeared After the Wars: The Rise of Financial Prudence and Shareholder Value

The post-World War II period, particularly from the 1950s onwards, saw a fundamental shift in corporate strategy, driven significantly by evolving financial doctrines and the professionalization of management, deeply influenced by business schools:

1. The Ascent of Shareholder Value Maximization:

   • MBA Influence: The post-war era witnessed the explosive growth and influence of business schools, especially MBA programs. These programs heavily emphasized finance, accounting, and quantitative analysis. The core tenet became the maximization of shareholder value – generating the highest possible returns for investors.
   • Return on Capital Employed (ROCE) Focus: Managers, increasingly trained in these disciplines, began to scrutinize every asset and activity through the lens of its Return on Capital Employed (ROCE) or similar profitability metrics. Housing, being a significant capital investment, often yielded a very low direct financial return compared to investing in new machinery, research and development, or marketing.
   • Divestment of Non-Core Assets: From a purely financial perspective, owning and managing housing was a diversion from the core business of manufacturing. It tied up capital that could be deployed more efficiently elsewhere for higher profit margins. The new managerial wisdom dictated divesting from non-core assets to focus resources and capital on what the company did best – producing goods.

2. Escalating Costs and Management Complexity:

   • Maintenance Burden: As housing aged, maintenance costs soared. Factories found themselves operating as landlords, dealing with repairs, tenant disputes, and increasingly complex regulatory environments (e.g., housing codes, environmental standards) – none of which were their primary expertise.
   • Labor Relations Headaches: While initially a tool for control, company housing increasingly became a source of labor friction after the war. Workers, empowered by stronger unions and a growing sense of autonomy, resented the perceived paternalism and control over their private lives. Housing issues often became grievances in collective bargaining, adding to operational complexities and potential strike risks. Companies realized that controlling housing could actually exacerbate labor problems, rather than alleviate them.
   • Uncertainty and Risk: Economic downturns or technological shifts could quickly render a company town obsolete, leaving the company holding a vast portfolio of depreciating, unsaleable assets. The risk of stranded assets became a significant financial concern.

3. Maturing External Markets and Infrastructure:

   • Improved Public Infrastructure: Post-war governments invested heavily in public housing, transportation (highways), and municipal services. Workers could now live in independent communities and commute to work, reducing the company's burden.
   • Developed Housing Markets: Private real estate markets matured, offering diverse housing options. Companies no longer needed to be landlords; workers could simply find their own accommodations.
   • Increased Worker Mobility: With greater car ownership and public transport, workers were no longer geographically tethered to the factory gate. They could commute from farther afield and switch jobs more easily, eroding the "stability" benefit of company housing.

In summation, the demise of company-provided housing was a complex historical outcome. While the social and political changes after the wars certainly contributed by making company towns less necessary and less desirable for workers, the overriding factors were rooted in financial pragmatism. The rise of a management philosophy centered on efficiency, return on investment, and shareholder value, heavily promoted by business schools, drove companies to shed non-core, capital-intensive, and administratively burdensome assets like worker housing. It was a strategic decision to optimize capital allocation and focus on core manufacturing competencies in a new economic landscape.