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 GIFT OF 
 
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 NOTES AND OPINIONS 
 
 ON 
 
 Certain Aspects of Insurance 
 
 UNDER THE 
 
 Foreign Compensation Laws 
 
 Of 
 
 UNIVE; 
 
 , 
 
 BY 
 
 P. TECUMSEH SHERMAN 
 of the New York Bar 
 
NOTES AND OPINIONS 
 
 Certain Aspects of Insurance 
 
 UNDER THE 
 
 Foreign Compensation Laws 
 
 P. TECUMSEH SHERMAN 
 
 HARTFORD PRESS 
 
 THE CASE, LOCKWOOD & BBAINABD COMPANY 
 1912 
 
OF P*OF. 
 
 WILLIAM BROSMITH, ESQ., Manager, 
 
 Bureau of Publicity-Casualty Insurance, 
 
 TOO Main Street, Hartford, Conn. 
 Dear Sir : 
 
 In compliance with your request for a critical analysis of 
 the foreign workmen's accident compensation laws in their in- 
 surance aspects and for my opinion as to their respective merits 
 and demerits with reference to their adaptability to conditions 
 in this country, I submit the following. For convenience of 
 reference the matter is arranged under principal topics. 
 
 Yours very truly, 
 
 P. TECUMSEH SHERMAN. 
 K"ew York, June 24, 1912. 
 
Notes and Opinions on Certain Aspects of Insuranc 
 Under the Foreign Compensation Laws. 
 
 The Compensation. Differences in the scales of compel 
 sation in the various work-accident compensation laws need hei 
 be noted only so far as to point out where they are so materi 
 as to cause material differences in the cost of insurance. 
 
 Generally the cash compensation prescribed is so measun 
 that the- proportion thereof payable by employers approximate 
 on the average 50^ of the estimated wage losses resulting fro: 
 the injuries compensated for. The greatest variations from th 
 rule are to be found in the law of The Netherlands where tl 
 percentage is 70, in that of Finland where it is 60, in that < 
 Russia where, for permanent disability, it is 66 2-3, and in th; 
 of France where, for permanent disability, it is 60.* Whe: 
 in the laws of other countries the rate of accident compensatic 
 exceeds 50^ of the wage loss the excess is generally offset I 
 exceptionally long waiting periods, by contributions from tl 
 workmen or by exceptionally low maximum limitations. 
 
 In Greece the compensation is 50$; but half of its cos 
 after the first three months, is imposed upon the Miners' Pro^ 
 dent Fund, to which workmen's mutual aid societies contribui 
 
 In Sweden and New South Wales the compensation is not 
 all in proportion to the wage loss, but is limited to provide 
 minimum relief just sufficient to prevent destitution. For di 
 tinction this kind of quasi-compensation may be called " po 
 relief ". It is of course much cheaper than " compensation 
 In Sweden this compensation is paid wholly by employers. '. 
 
 * In Norway the rate is 60%, but the first four weeks are cornpt 
 sated by sickness insurance, if any. If there be no sickness insuran 
 compensation for the first four weeks is paid by the employer directly a 
 not by the accident insurance fund. 
 
 3 
 
 267080 
 
New South Wales its cost is divided equally between the work- 
 men on the one hand and their employers and the state on the 
 other hand. 
 
 In Great Britain employers are liable for compensation for 
 certain occupational diseases due to the employment; and the 
 published insurance rates are for insurance covering this lia- 
 bility, Under all the other compensation laws diseases are not 
 injuries for which accident compensation is payable. (But in 
 many countries they are covered by sickness insurance schemes) . 
 
 In France, where an injury is determined to have been due 
 to the inexcusable fault of the. employer, the amount of the com- 
 pensation is materially increased. This extra liability (which 
 in practice is almost a negligible quantity) is covered by the 
 usual form of insurance. Somewhat similar provisions are to 
 be found in some of the other laws ; but generally they are penal, 
 and the liability therefor is not covered by insurance. In Great 
 Britain the employer remains subject to a liability for full 
 damages at Common Law and for limited damages under certain 
 employer's liability statutes in addition to his liability under 
 the compensation law ; and the published insurance rates are 
 for insurance covering all these liabilities. And a similar 
 liability for negligence is retained in Denmark and Sweden. 
 
 Under the laws of the following countries there is payable 
 as compensation for injuries in addition to the cash benefits 
 the cost of medical and surgical treatment during the follow- 
 ing periods : 
 
 " First aid " Italy. 
 During first 6 months Belgium. 
 After first 4 weeks Norway. 
 " 10 " -Hungary. 
 
 " "13 " Germany and Luxemburg, 
 Whenever necessary in consequence of the injury 
 
 France, The Netherlands, Russia, Spain and Greece. 
 
 In Germany, Austria, Hungary and Luxemburg 
 and since 1911 in Norway compulsory sickness insurance 
 
provides medical and surgical care during the first few weeks 
 after injury. In Great Britain and its colonies it is presumed 
 that the employer or his insurer will be induced by his self in- 
 terest to furnish such medical and surgical care and treatment 
 as may be truly necessary. 
 
 In some countries the cost of this item is a very large part 
 of the total cost of compensation. 
 
 The Liability. The individual employer is directly liable 
 for compensation; no obligation or inducement to insure; 
 liability not dischargeable by insurance. But, upon conditions 
 and by agreement with his workmen, the employer may sub- 
 stitute a scheme of mutual benefit insurance in place of his legal 
 liability. 
 
 Great Britain and the following of its colonies : Alberta, 
 British Columbia, Cape of Good Hope, New Zealand, 
 Quebec, Queensland, South Australia, Transvaal, and 
 Western Australia. 
 
 The individual employer directly liable for compensation ; 
 liability dischargeable by insurance ; insurance optional. 
 Eussia, 1 Spain, and Denmark. 2 
 
 The individual employer directly liable for " poor-relief " ; 
 
 liability dischargeable by insurance if in the state insurance 
 office ; insurance optional, but security for accrued liabilities 
 may be required. 
 
 Sweden. 
 
 The individual employer directly liable for compensation; 
 
 liability dischargeable by insurance ; insurance optional ; 
 but all employers (France) or all uninsured employers 
 (Belgium) are taxed to maintain a state fund to guarantee 
 the payment of compensation for death or permanent disability 
 (France) or for temporary disability (Belgium). 
 
 France 3 and Belgium. 4 
 
 1 Insurance of certain miners compulsory. 
 
 2 Insurance of seamen compulsory. 
 8 Insurance of seamen compulsory. 
 
 * Insurance of miners compulsory. 
 
The state, through the Royal Insurance Bank, directly liable 
 for compensation ; the individual employer being liable to 
 the said bank for the compensation to his employees and for 
 his share of its expenses of administration; the employer's 
 individual liability for compensation dischargeable by insurance 
 if in the Royal Insurance Bank ; insurance or security com- 
 pulsory. 
 
 The Netherlands. 
 
 The individual employer directly liable for compensation; 
 liability dischargeable by insurance; 5 insurance (or 
 security) compulsory. 
 
 Italy and Finland. 
 
 An employers' compulsory mutual insurance association 
 directly liable for compensation; the employers belonging to 
 each association being collectively liable to it for its liabilities, 
 and the state undertaking to see to it that all the associations 
 are maintained solvent and pay their liabilities. For the cost of 
 compensation the individual employer is assessed in proportion 
 to his payroll and his risk. 
 
 Germany, 1 Austria, 2 Hungary, and Luxemburg. 
 The state itself, through its Insurance Office, liable for 
 compensation; to meet the cost thereof employers taxed in 
 proportion to their respective payrolls and to the estimated 
 risks of their respective industries. - 
 
 Norway. 
 
 The individual employer directly liable for compensation 
 for the first three months disability and for half the compensa- 
 tion thereafter; the remaining compensation (if any) payable 
 and all compensation guaranteed by a state fund maintained 
 by assessments levied on employers and on workmen's mutual 
 aid societies. 
 
 Greece. (Miners, quarry men, etc. only.) 
 
 6 In Italy only insurance in National Accident Association discharges 
 the liability. 
 
 1 In Germany the employer is directly liable for some compensation. 
 
 2 In Austria there are some exceptions to the general rule of compul- 
 sory association insurance. 
 
" Poor-relief " payable from a state fund maintained by 
 fixed rates of assessments levied on workmen and employers 
 and by contributions by the state. 
 
 Xew South Wales. (Miners only.) 1 
 
 In America there is a disposition to seek by amendment of 
 the law to provide just and expedient compensation for injured 
 workmen without regard to the question of who shall pay the 
 cost. But if compensation is to be given to workmen as a 
 matter of legal right and not of public charity, there must be 
 a correlative and equivalent legal liability to pay the cost; and 
 it is^primary importance that that liability also should be 
 just and expedient. Consequently in an analysis of the com- 
 pensation laws it is a point for primary inquiry as to pach 
 law to find out upon whom the liability to pay the cost of 
 compensation is therein imposed and to decide whether or not 
 such imposition is just and expedient. 
 
 From the foregoing summary it is manifest that' in the 
 laws of Great Britain and of nearly all of those of its colonies 
 that have compensation laws, of Spain, Russia, Denmark, 
 Sweden, France. Belgium, Italy, Finland, and The Nether- 
 lands the liability to pay the compensation for each injury 
 is imposed upon the particular employer of the particular 
 workman injured, or is so placed that the cost of such com- 
 pensation will be borne by him. And although not so manifest 
 and although the employer's individual liability is concealed 
 behind the legal liability of an insurance association, etc., 
 nevertheless (as will appear from later analysis) it is certainly 
 the purpose of the laws of Germany, Austria, Hungary, and 
 Luxemburg to impose upon each individual employer a share 
 of the total cost of his insurance association strictly in pro- 
 portion not only to his payroll but also to the actual risks 
 encountered in his employment. It is a logical inference from 
 the foregoing that all these laws are based upon an idea of 
 employer's responsibility for causation and a juridical principle 
 
 ^Somewhat similar insurance of miners is compulsory in Belgium; 
 and like schemes formerly existed in Wiirternberg and Baden. 
 
8 
 
 that it is just that each particular employer should indemnify 
 or hear the cost of indemnifying his injured workmen to the 
 extent required of him by the law,* that the fundamental pur- 
 pose of all these laws is to enforce that principle, and that insur- 
 ance where incorporated in or made obligatory by any of these 
 laws is not an intrinsic factor, but rather an ancillary method 
 of effectuating that fundamental purpose. And while it is 
 entirely consistent with that purpose for the state to contribute 
 and to require workmen to contribute towards the cost of insur- 
 ance or to require workmen to contribute so as to increase the 
 amount of the indemnity, yet it is entirely inconsistent with that 
 purpose to compel the use of methods of security or insurance 
 which will shift the cost of the compensation liability or any 
 part of it upon the state or taxpayers generally or which will 
 distribute it among employers arbitrarily and not as above 
 stated. 
 
 The law of New South Wales, on the other hand, is not 
 based upon any idea of employer's responsibility. The workmen 
 are required to pay half the cost of insuring themselves, the 
 employers are required to contribute one quarter thereof and 
 the state contributes the remaining quarter. The purpose here 
 is to prevent the social evil of pauperism from work-injuries by 
 assuring a certain measure of poor-relief at distributed expense, 
 and not to enforce a responsibility of the employer. 
 
 The law of Greece is a composite of these two different 
 principles. 
 
 The law of Norway belongs in principle to the first class; 
 but it fails to distribute the cost according to its purpose. 
 
 * This is contrary to the idea that relief of work injuries is a " duty 
 of general society ; " ( see Emery, " Workmen's Compensation," Annual 
 Bulletin of Comparative Law Bureau of American Bar Association, July 
 1, 1911). It is not meant to be denied that in some respects many of the 
 Continental laws fall within the domain of what is there termed " public " 
 as distinguished from " private " law ; but it is contended that under all 
 these laws the liability of the employer and the right of the injured work- 
 man are, according to the terminology of English and American law, dis- 
 tinctly " private." 
 
1. In this connection it should be noted that the legal 
 liability for compensation is itself insurance, for it is a 
 quasi-contract (i. e. a contract imputed or imposed by law) 
 on the part of an employer, association, etc. to indemnify his or 
 its workmen for their losses in certain amounts and upon certain 
 contingencies. Wherever this basic liability subsists all other 
 or further insurance is in the nature of reinsurance. 
 
 NOTE 2. The term " social insurance," now in frequent 
 use, is of too loose and indefinite a significance to serve as a 
 differential term by which to distinguish any particular class 
 of compensation insurance. In one sense all the compensation 
 laws constitute social insurance even the laws of Great 
 Britain, Russia, Spain, and Denmark, because they make the 
 employer liable as an insurer to his injured workmen. In other 
 senses only those compensation laws which provide technical 
 insurance or insurance more or less at joint or public expense 
 may be termed social insurance laws. But how far the state 
 must go in the way of requiring, supervising, providing, or pay- 
 ing the cost of insurance before it should be termed " social " 
 is a question of terminology that is wholly unsettled. 
 
 NOTE 3. It will be seen from the foregoing that con- 
 trary to an impression common in America there is no general 
 " Continental system of social insurance " for work-injuries in 
 contradistinction to the British system of direct liability for 
 compensation, and that, so far from being exceptional, the 
 British system is merely the simplest form of the majority type. 
 
 Security. In New South Wales, there being no underlying 
 employer's liability and no state guarantee, the only security 
 for the payment of compensation is the fund itself; and con- 
 sequently the payment and the amount of the compensation 
 are dependent upon the continuance and sufficiency of the fund. 
 
 In Greece the employer's liability for part of the compensa- 
 tion is secured by the insurance fund ; but for the remainder of 
 the compensation, for which the fund is primarily liable, 
 there is technically speaking no security. 
 
 In Norway the state itself has assumed the liability to 
 pay all compensation through its General Insurance Office, 
 
10 
 
 so that all the resources of the state are security for the 
 payment. 
 
 In The Netherlands the state has implicitly assumed the 
 liability to pay all compensation through the Royal Insurance 
 Bank; and it secures itself against loss by requiring security 
 from private insurance companies and uninsured employers, 
 and by compelling all employers either to insure in said bank 
 or in approved private insurance companies, or to furnish 
 security. 
 
 In Germany, Austria, Hungary, and Luxemburg the 
 liabilities of each insurance association are secured by the 
 collective (joint and several) liability of its members. 
 
 In Italy it is compulsory for the employer to insure the 
 payment of compensation either in the National Industrial 
 Accident Insurance Association (a co-operative association of 
 savings banks under strict state supervision), in private com- 
 panies, in mutual associations, or in establishment funds j 1 and, 
 moreover, the state maintains a guarantee fund. 
 
 In Finland 2 it is compulsory for the employer to insure in 
 a private or mutual company or association, or to furnish 
 guarantees. 
 
 In Belgium 3 the State taxes uninsured employers for a 
 fund to guarantee the payment of compensation for temporary 
 disabilities. 
 
 In France 4 the State taxes all employers for a fund to 
 guarantee the payment of pensions for death and permanent 
 disablement, while compensation for temporary injuries is 
 secured by a preferred claim on the assets of the employer. 
 
 In Great Britain, Russia, Sweden, Denmark, and the 
 British Colonies the injured workman is given a preferred 
 claim upon the assets of his employer. And in Great Britain 
 
 x But the government is authorized to establish compulsory insurance 
 societies in particular cases. 
 
 2 Special provisions for seamen. 
 
 3 Special provisions for miners. 
 
 4 Special provisions for seamen. 
 
11 
 
 he is in effect subrogated to the rights of the employer in and 
 to any employer's liability insurance that the latter may hold. 
 Many of the laws contain provisions requiring special 
 security for accrued liabilities, as follows : 
 
 In Belgium employers are required to deposit in the 
 National Retirement Fund the capitalized values of pensions 
 for which they have become liable. 
 
 In Finland uninsured employers must deposit in an in- 
 surance company the capitalized values of pensions for which 
 they have become liable. 
 
 In Sweden uninsured employers may be required either 
 to deposit security with the state insurance office or to buy 
 annuities therein to secure the payment of pensions for which 
 they have become liable. 
 
 In Russia employers retiring from business must furnish 
 security for the payment of pensions for which they are liable. 
 
 In The Netherlands private insurance companies and em- 
 ployers who have given guarantees in lieu of insuring must 
 make deposits with the Royal Insurance Bank to cover indem- 
 nities currently falling due and the capitalized values of 
 pensions for w r hich liable. 
 
 Purposes Of Compensation Insurance. Insurance of com- 
 pensation is required or resorted to for the following pur- 
 poses : 
 
 (1) In the form of a system, to collect from various con- 
 tributors (voluntary or otherwise) a fund out of which to 
 pay the compensation. 
 
 Examples of compulsory systems with this purpose : 
 Xew South Wales, Greece, Austria, Germany, and 
 Xorway. 
 
 Under the laws of Great Britain,* of nearly all its Col- 
 onies and of Sweden it is permissible for an employer, 
 under conditions and by agreement with his workmen, 
 to substitute a voluntary system of mutual benefit, 
 insurance in place of his legal liability. 
 
 * See Act of Dec. 21, 1906, Sec. 3. 
 
12 
 
 (2) In the form of a system, to collect a fund to guarantee 
 payment by the parties liable. 
 
 Examples: France, Belgium, and Italy. 
 
 (3) In the form of a contract, to secure payment to the 
 injured workmen and to indemnify the employer. 
 
 This is the form of the contract or " policy " of in- 
 surance in private companies or associations which prevails 
 in Europe. It corresponds to our " collective insurance." 
 
 (4) In the form of a contract, solely to indemnify the 
 employer. 
 
 This is the prevailing form of contract or policy in 
 America, and is commonly termed " employers' liability " 
 insurance. Where abroad insurance of compensation is 
 compulsory this form of policy is not permitted ; and where 
 abroad insurance serves to discharge the employers' liability 
 for compensation it is not valid for that purpose. 
 
 It is now generally recognized, that the fourth form of 
 insurance, while a necessary concomittant of the discarded 
 liability laws, is socially harmful, because it insures only employ- 
 ers against their employees instead of operating directly for the 
 benefit of the latter in proper cases. But it is a mistake to 
 believe that any of the other forms of insurance is in all 
 cases socially beneficial. Where needed, as is generally the 
 case, either to secure the workmen or to distribute the em- 
 ployer's risks insurance is of great benefit. But where not 
 needed for either of these purposes, where, as is sometimes 
 the case, the employer is directly liable and is responsible and 
 able to defray his compensation charges without embarrassment 
 insurance is wasteful. And it is always industrially harm- 
 ful to the limited extent that it disturbs the direct relations 
 between employer and employed whether it be in a stock 
 company, in a mutual association or in a state office or scheme. 
 Of these three forms of insurance, the last in my opinion, 
 by reason of the political element, is by far the most disturbing. 
 
13 
 
 State insurance has for a purpose to keep down insurance 
 .rates; (see "State Insurance in Competition with Private 
 Insurance "). 
 
 Compulsory state-insurance and compulsory mutual in- 
 surance have for a purpose not only to secure the workmen 
 but also to provide insurance cheaply for the benefit of em- 
 ployers (see " Cost of Insurance "). In this connection it 
 should be borne in mind that it is harmful to provide insurance 
 for hazardous establishments too cheaply i. e. below cost 
 for that amounts to subsidizing the maintenance of hazardous 
 methods and conditions of industry. It is an established doctrine 
 that unduly to cheapen rates for fire insurance tends to increase 
 the fire risk. That doctrine applies also and with equal force to 
 accident compensation insurance. 
 
 State Insurance. State-insurance is insurance by the state 
 itself in or through a fund or office maintained by it and 
 managed by its officials. 
 
 In Norway state-insurance is compulsory, that is, it is 
 compulsory to insure in the state insurance office, which has a 
 legal monopoly of this branch of the insurance, business. 
 
 In Italy* and The Netherlands insurance (or security) 
 is compulsory and there is state-insurance; but it is not com- 
 pulsory to insure in the state's insurance office, other alterna- 
 tive forms of insurance (or security) being also permitted. 
 
 In New Zealand insurance is purely voluntary; but the 
 state itself sells accident compensation insurance (as well as 
 fire and life insurance) in competition with private companies. 
 
 In Sweden insurance is optional but the state sells accident 
 compensation insurance. 
 
 In France and Belgium the state provides guarantee in- 
 surance. In France the National Accident Insurance Fund 
 also sells insurance of compensation for permanent disability 
 or death. In Belgium the law provides that the National 
 
 * The National Insurance Fund of Italy is not strictly a state institu- 
 tion, but is a voluntary mutual association of savings banks under close 
 government supervision, not operated for profit, and favored by free Post 
 Office facilities, remission of taxes, etc., etc. 
 
14 
 
 Retirement Fund shall (or may?) sell accident compensation 
 insurance; but that provision has not been carried out. 
 
 NOTE 1. In France and Finland there is compulsory 
 state-insurance of seamen. 
 
 NOTE 2. " State-insurance " must not be confused with 
 " compulsory insurance". Compulsory insurance is such in- 
 surance as is required by law, whether it be state or private 
 insurance. For illustrations: There is compulsory insurance 
 in Germany, Hungary, Austria, and Luxemburg, but it is not 
 state-insurance; and there is state-insurance in Sweden, but 
 it is not compulsory insurance. 
 
 NOTE 3. State regulation or supervision of insurance and 
 of insurance companies and associations also must be dis- 
 tinguished from state-insurance. In New York, for example, 
 insurance is subject to many regulations ; but those regulations 
 neither partake of the nature of state-insurance nor tend towards 
 it. 
 
 NOTE 4. The state insurance offices of France, Belgium, 
 Sweden, The Netherlands, and Denmark also sell annuities to 
 cover pension payments, upon purchasing which annuities em- 
 ployers are discharged from the liability for the pensions. 
 
 State Fund Insurance. This kind of insurance is insurance 
 which is provided by a fund maintained by taxes or assessments 
 levied by the state. It is distinguished from pure state-insur- 
 ance by the fact that although the state manages the fund 
 it does not itself assume the liability to pay the compensation 
 or guarantee its payment, and consequently that the payment and 
 amount of the compensation is dependent upon the continuance 
 and sufficiency of the fund. 
 
 The law of New South Wales provides for insurance in this 
 form; and, so in part, does the law of Greece, Under the 
 law of New South Wales the contributions are fixed and con- 
 sequently the rate of compensation cannot be; and therefore 
 the law provides that the Governor shall revise the scale of com- 
 pensation to correspond with the financial condition of the fund. 
 Under the law of Greece, vice versa, the rates of compensation 
 
15 
 
 are fixed and consequently the assessments and contributions 
 cannot be; and therefore the law provides that the insurance 
 officials shall vary the assessments and contributions to be levied 
 as may be necessary to maintain the sufficiency of the fund. 
 
 Mutual and Establishment Fund Insurance. The follow- 
 ing forms of mutual and of establishment fund insurance are 
 contemplated or permitted under the various compensation 
 laws. 
 
 (1) Where a group of employers join in an association to 
 insure the payment of their joint liabilities for compensation. 
 
 (2) Where a group of employers and their workmen join 
 in contributions to a fund to insure compensation. 
 
 (3) Where a group of employers and their workmen join 
 in contributions to a fund to insure the payment of compensation 
 and of other and additional benefits equivalent to the workmen's 
 contributions. 
 
 (4) Where a single employer and his workmen join in 
 contributions to a fund for the purposes specified in (3), supra. 
 
 (5) Where an employer alone maintains a fund to insure 
 compensation (or something more) to his workmen. 
 
 In Germany, Hungary, and Luxemburg form (1) is com- 
 pulsory. (It is, however, in effect form (2), because com- 
 pensation for the first weeks is provided by sickness insur- 
 ance funds, to which the workmen contribute.) 
 
 In Austria form (2) is compulsory. 
 
 In Italy forms (1) and (5) are permitted, but do not 
 discharge the employer's liability. 
 
 In The Netherlands form (1) is permitted, but does 
 not discharge the employer's liability. 
 
 In Finland, form (1) is permitted, and discharges the 
 employer's liability. 
 
 In France forms (1) and (3) and establishment funds 
 along the lines of forms (4) and (5) are permitted, and 
 discharge the employer's liability. 
 
 In Belgium forms (4) and (5) are permitted and dis- 
 charge the employers' liability. Form (3) and presump- 
 
16 
 
 tively also form (1) are also permitted, but discharge the 
 employer's liability for temporary disabilities only. 
 
 In Russia forms (1) and (3) are permitted, and dis- 
 charge the employer's liability. 
 
 In Denmark form (1) is permitted, and discharges the 
 employer's liability. 
 
 In Sweden, insurance being voluntary, almost any kind 
 of insurance is tolerated, but nothing except insurance in 
 the state office discharges the employer's liability. The law, 
 however, permits employers and employees by agreement to 
 substitute other arrangements, provided they are equally 
 favorable to the workmen, in place of the legal liability. 
 CNo information as to the operations of this provision is 
 available.) 
 
 In Great Britain and its colonies (^"ew South Wales 
 excepted) all forms of insurance are permitted; but they 
 do not discharge the employer's liability. The law how- 
 ever permits employers and employees by agreement to 
 substitute other schemes of benefit or insurance in place 
 of the legal liability, provided they are equally favorable 
 to the workmen. Under this provision form (4) has had 
 some success. 
 
 In all the countries mentioned, except Great Britain, its 
 colonies and Sweden, insurance in whatever form and of what- 
 ever effect, and in Great Britain, its colonies (Xew South 
 Wales excepted) and Sweden, insurance under the substituted 
 schemes there permitted, is minutely regulated by law or official 
 orders as to reserves, etc., etc., and is subjected to strict gov- 
 ernmental supervision. And in some of those countries particu- 
 lar insurance associations or particular forms of insurance are 
 especially favored by law in ways too various and complex to be 
 detailed. 
 
 StOCk Company Insurance. This kind of insurance is in 
 private companies which sell insurance for profit, the policy 
 holders neither sharing in the profit, if there be a profit, nor 
 
17 
 
 being subject to assessment to make good the loss, if there be 
 a loss. 
 
 Insurance in stock companies is permissible in Great 
 Britain, Sweden, and the British Colonies (New South Wales 
 excepted), but it does not discharge the employer's individual 
 liability. In France, Denmark, Russia and Spain, if in an 
 approved company, it discharges the employer's liability. In 
 Belgium, if in a Belgian company, it discharges the liability; 
 but if in a foreign company, although authorized to do business 
 in Belgium, it does not. And in Italy, the Netherlands and 
 Finland, where insurance or security is compulsory, insurance 
 in approved stock companies is an optional form of compliance 
 with the law but in the two former countries it does not 
 discharge the employer's liability. 
 
 Guarantee Insurance. Three countries maintain funds to 
 guarantee the payment of compensation by the employers liable 
 or their insurers, namely : Italy, France, and Belgium. 
 
 In Italy the fund is under the supervision of the 
 Government Bank of Deposit and Loans and is supported 
 by fines for non-compliance with the requirement to insure 
 and by other fines and by collecting compensation for fatal 
 injuries where there are no dependents. (No information 
 is available to the writer as to the condition and operations 
 of this fund. ) 
 
 In France the guarantee fund is managed by the National 
 Old Age Retirement Fund and is supported by taxes, in 
 the nature of occupational license fees, upon all employers 
 covered by the law. But it guarantees pension payments 
 for death or permanent disability only, and leaves the 
 compensation for temporary disability to be secured by a 
 preferred claim on the assets of the employer. The tax is 
 not heavy (in 1906 it aggregated 1,859,053 francs on an 
 aggregate payroll of 3,615,000,000 francs), and yet it is 
 sufficient (in 1906 the expenditures of the fund were 
 743,988 francs). But it is to be observed that by omitting 
 
18 
 
 temporary injuries it avoids about one-third of the burden 
 of a complete guarantee. 
 
 In Belgium the guarantee fund is managed by the 
 National Retirement Fund and is supported by a tax on 
 those employers only who do not carry insurance. The 
 fund guarantees compensation for temporary disability 
 only ; uninsured employers upon becoming liable for 
 pensions for death or permanent disability being required 
 to deposit the capitalized values thereof (or security there- 
 for) with the National Retirement Fund. 
 
 Premiums. " Level premium " insurance is that which is 
 sold or provided for a definite premium, payable in advance, as 
 the full price for the assumption of risk for a definite period. 
 
 Such premiums are charged for insurance by " stock 
 companies " generally, and by the state-insurance offices of 
 Norway, The Netherlands, Italy, France, Sweden and New 
 Zealand. 
 
 " Assessment insurance " is provided by funds maintained 
 by assessments levied upon the insured. Such assessments 
 may take the form of more or less regular and definite 
 premiums; but, in addition to such regular payments, the 
 assured remain liable for such further assessments as may be 
 necessary to supply any deficiencies in the funds. 
 
 Private mutual insurance companies and associations 
 generally maintain their funds in this way; and so do the 
 compulsory employers' associations of Germany, Hungary, 
 Austria, and Luxemburg. And the state fund of Greece 
 is maintained in like manner (but by assessments upon 
 both employers and workmen's societies). 
 
 Rates. It is a postulate of the advocates of compulsory 
 mutual or state insurance that insurance for profit is a social 
 evil. That postulate is a quasi-socialistic assumption. The 
 greatest desideratum of insurance (next to soundness) is that 
 the rates charged shall be fair ; and to be fair accident rates 
 
19 
 
 should be in proportion to the risks. And especially is it im- 
 portant that the rates for particular employers among com- 
 petitors in the same industry should be differentiated according 
 to risks, for otherwise all material incentive to efficiency in 
 accident prevention on the part of the individual employer will 
 be removed. 
 
 "Where insurance is voluntary or where private insurance or 
 security is permitted, competition among insurers tends to pro- 
 duce a fair differentiation of rates, and the alternative of 
 standing out or of furnishing security enables employers to 
 bargain freely for fair rates. But where state officials fix the 
 rates for all or where the state compels mutual insurance in 
 one specified mode, the state must see to it that the rates are 
 fair, otherwise its scheme of insurance may become a serious 
 social evil. 
 
 In Xorway the problem of fair rates is practically ignored. 
 The state-insurance office's rates are " flat " for each industry. 
 And although it is being attempted gradually to fix correct rates 
 for the different classes of industry, experience tables show that 
 for a large proportion of them the rates have varied extremely 
 from the demonstrated risks. (See Bulletin of Bureau of Labor, 
 Xo. 90, pp. 800-1.) 
 
 In Germany, Austria, Hungary and Luxemburg, on the 
 contrary, the laws prescribe or contemplate methods of rate 
 fixing designed to result in approximately fair rates. The 
 methods under the German and Austrian laws are here sum- 
 marized for illustration. 
 
 In Germany the liability for industrial* accidents is carried 
 by an association of all employers in each trade or group of 
 allied trades throughout the empire or in each of certain large 
 territorial divisions. The association or in some cases a 
 section of the association forms a risk-tariff according to 
 the degrees of risk in the different establishments in the asso- 
 ciation or section, assigns each establishment to a class in that 
 tariff, and grades the assessments accordingly. This tariff must 
 
 *Agricultural and navigation insurance are different. 
 
20 
 
 be revised at least every five years with respect to the accidents 
 that have occurred. Between re-classifications particular estab- 
 lishments may be transferred from one class to another. The 
 state makes all compensation payments through the Post Office, 
 and at the end of each year charges each association the total 
 of all payments made on its account during that year. There- 
 upon each association collects that total (plus the amount re- 
 quired for reserves, etc.)* from its members by assessments 
 graded according to the risk tariff. Each new classification of 
 establishments is made with respect both to the accidents that 
 have actually occurred in each establishment during the period 
 covered by the preceding classification, and to the coefficient of 
 risk under actual conditions in each establishment as reported 
 by the association's inspectors. Consequently the rate for each 
 establishment should be approximately fair that is, if the 
 association be managed fairly. 
 
 In Austria the insurance associations (institutions) are 
 organized territorially and include all establishments in all 
 trades covered by the law (railroads and mines excepted) within 
 their respective territories. They are governed by boards of 
 directors consisting of one-third employers, one-third workmen 
 and one-third Government nominees. The general classes of 
 risks are fixed by the Government, but the board of directors of 
 each association assigns each of its establishments to a class. 
 The employer of each establishment is then assessed according 
 to the " coefficient of risk " of that class. Elaborate methods 
 are resorted to to ascertain the risks correctly and to fix the rates 
 accordingly ; but it is manifest from experience that some extra 
 hazardous industries have avoided an adequate rate, and by 
 their disproportionate losses have impaired the reserves of the 
 majority of the associations. 
 
 In Great Britain the rates are fairly well differentiated by 
 competition and bargaining, particularly for the hazardous 
 industries. The assertion, frequently made, that rates there 
 are " flat," is the reverse of true, as may be seen by consulting 
 
 * Expenses of management are assessed differently. 
 
21 
 
 the table under the heading " Cost of Insurance," post, but as 
 may be more convincingly ascertained by enquiry of those who 
 have had experience with insurance in England. 
 
 Reserves. An accident causing death or long continued 
 disability under the compensation laws generally gives rise 
 to a liability for a pension, running for an uncertain and some- 
 times long period and which is a fixed charge on the insurer 
 during that period. There are two insurance methods of meet- 
 ing such charges. 
 
 1. The first method is to charge as an immediate liability 
 only that part of each pension which is payable during the 
 current year and to leave the payments falling due in subse- 
 quent years on all pension charges to be met by the premiums 
 or assessments for those years. 
 
 This method (supplemented by assessments for an 
 equalization reserve) is permitted in Germany for the 
 majority (but not all) of the industrial employers' accident 
 insurance associations. It is used by private employers' 
 mutual associations in Sweden where such insurance does 
 not discharge the employers' individual liabilities. And 
 there is nothing to forbid it in Great Britain and its 
 Colonies, where insurance is purely voluntary, does not 
 discharge the employer's individual liability, and is safe- 
 guarded by publicity and not by specific governmental regu- 
 lations. 
 
 2. The second method is to charge as an immediate liability 
 the estimated capitalized value of each pension and to maintain 
 in a reserve fund an amount sufficient, with its interest 
 accumulations, to meet all the future payments required on all 
 such pension charges. 
 
 This method is prescribed for the compulsory employers' 
 mutual associations of Austria and Hungary (as to Luxem- 
 burg, quaere) and for the " Engineering and Excavating " 
 association and the " branch institutes " * of Germany, is 
 
 * The branch institutes carry the insurance for petty employers, in 
 certain trades. 
 
22 
 
 followed in the management of the miners' fund of Greece, 
 and in all the state-insurance offices that of ISTorway in- 
 cluded, is required of all approved private insurance 
 in all countries except Great Britain, its colonies and 
 Sweden, and in these latter countries is required of 
 mutual benefit insurance schemes substituted by agreement 
 in lieu of the legal liability for compensation. (Whether 
 or not the reserves are everywhere properly maintained in 
 accordance with this method is, of course, another question) . 
 
 In ^Kew South Wales neither method is followed. The 
 contributions are fixed. If they do not maintain a sufficiency in 
 the insurance fund to pay the pensions, the pensions must be 
 reduced. 
 
 Cost Of Insurance. Who should pay the cost of insurance? 
 Because the employer alone should bear the cost of compensa- 
 tion, it does not necessarily follow that he should also pay the 
 cost of insuring it, unless the insurance is purely voluntary 
 and is taken by him primarily for his own protection. But 
 where it is required by law, for the protection of the workmen 
 and indirectly of society, should not the workmen or society 
 pay the cost or part of it ? 
 
 That society should pay the cost is the \iew adopted in 
 Norway and' Sweden, where the expenses of management of 
 the state insurance office are paid by general taxation. In The 
 Netherlands the state contributes half the salaries of employees 
 of the state insurance office. And in Xew South Wales 
 the state contributes heavily to the cost of compensation and 
 incidentally to that of insurance. In the other insurance 
 countries generally the state limits its contributions to free 
 administrative assistance w^hich, however, is sometimes very 
 substantial and expensive. 
 
 In l^ew South Wales, Greece, Austria, Germany, Hungary, 
 and Luxemburg the workmen contribute to the cost of com- 
 pensation and, incidentally, of insurance in new South 
 Wales heavily, and in Germany, Hungary, and Luxemburg in- 
 directly through the sickness insurance funds. 
 
23 
 
 What is the cost of insurance under the various compensation 
 laws respectively ? This inquiry applies to all the compensation 
 laws; for even where insurance is in no degree compulsory it 
 is generally necessary or desired. It is argued that the ex- 
 penses of management of the private insurance companies in 
 England average 36$ of premiums, whereas the. corresponding 
 expenses of the Norwegian state office and of the German 
 accident associations average only about 11$ and 16$ respect- 
 ively, and, therefore, that the English system is wasteful and 
 comparatively expensive. This argument begs the case for mon- 
 opolistic insurance as against competitive insurance; for com- 
 petition always entails greater expenses of management than 
 monopoly. But expenses of management are only one factor in 
 cost, and we are concerned not with one factor only but with 
 the total cost and comparative efficiency of insurance. However, 
 before taking up that inquiry, it is worth while to examine 
 critically into the foregoing assertion as to " expenses of man- 
 agement " in England, Norway, and Germany. 
 
 In the Norwegian expenses of management there is not 
 a cent spent for accident prevention. In both the German and 
 English expenses there is a considerable item for that purpose. 
 In Norway the administrative work of collecting premiums, 
 making pension payments, investigating injuries, adjusting 
 awards, etc., is performed by the Post Office and by local 
 officials; and in Germany injuries, etc., are investigated by the 
 local police, and pension payments are made by the Post Office. 
 Undoubtedly there is economy in this use of pre-existing govern- 
 mental machinery; but it results in shifting upon the govern- 
 ment or other branches of the government a large portion of 
 the expenses of managing the insurance and thereby in conceal- 
 ing that part of them. Moreover the use of local political 
 machinery for such purposes gives rise to abuses which waste 
 the funds and increase the cost, and yet arithmetically decrease 
 the ratio of expense. Eeduced expense of management means 
 increased expense of mismanagement. The expenses of mis- 
 management are to be found amon^ the claims. To disregard 
 
24 
 
 them and to limit attention to the accredited expenses of man- 
 agement is vitally misleading. To go further into this item 
 of expense of management, note that in Germany all injuries 
 lasting less than 13 weeks (about 78$ of reported work-injuries) 
 are investigated by local police, etc., and disposed of at the 
 expense of sickness insurance without any expense to the acci- 
 dent insurance associations ; that in Norway all injuries lasting 
 less than 4 weeks (about 64$ of reported work-injuries) are 
 similarly disposed of without any expense to the accident insur- 
 ance fund; but that in England all injuries lasting over one 
 week are good claims against the accident insurers and require 
 investigation, so that probably less than 30$ of work injuries 
 are disposed of without material expense of management. In 
 other words in England not only do the computed expenses 
 of management include this expensive item of investigation, 
 which in Norway and Germany is shifted onto general taxes and 
 ignored, but also the accident insurance covers a much higher 
 proportion of work-injuries. Or to put it differently 78$ in 
 Germany and about 64$ in Norway of certain expenses of man- 
 agement of the insurance of compensation for work-injuries falls 
 upon the sickness insurance and not upon the accident insurance 
 funds. Finally, in Germany an important part in the manage- 
 ment of the accident associations is borne by employers, who are 
 drafted for this service, and remunerated insignificantly. At 
 first the employers assumed this philanthropic duty enthusias- 
 tically ; but now, according to Herr Friedensburg, they are be- 
 coming weary of it and disposed to hire substitutes if that were 
 permitted. This service costs the drafted employers time and 
 labor the value of which should be but is not charged as an 
 expense of management. In short the 11$ of premiums in 
 Norway and the 16$ in Germany respectively do not cover the 
 expenses of management, but only that portion of them which is 
 paid in cash by the insurance office or associations. What is the 
 true ratio to premiums of total expenses of managing the insur- 
 ance in Norway and Germany respectively no one knows, be- 
 cause a large part of it is shifted over where it is concealed. 
 There is nothing to indicate that state or compulsory-mutual in- 
 
25 
 
 surance gives service equivalent to private insurance at less rela- 
 tive expense. The only saving is in part of the commissions 
 paid to agents ; and as against that saving is the extra cost of the 
 abuses of monopoly. Sound, efficient, and satisfactory insur- 
 ance at the least cost is the desideratum ; and there is nothing to 
 indicate that the total cost of insuring compensation is relatively 
 any lower in Norway or Germany than in Great Britain. 
 Behind the demand for state insurance on the part of many 
 employers is not a belief in its relative cheapness, but a desire to 
 shift part of the cost of compensating for injuries in their busi- 
 nesses onto the general body of taxpayers. 
 
 Now, what is the actual cost 'of insurance in these three 
 countries, which we will take as typical for purposes of com- 
 parison ? It would be desirable also to take into the comparison 
 the cost in France and Sweden in France because of its in- 
 dustrial importance and in Sweden in order to learn the effect 
 of competition on the cost of insurance in a subsidized state in- 
 surance office. But the only itemized rates of the stock com- 
 panies in France which I can find are old and were far below 
 cost ; and in Sweden the liability is for " poor relief," which 
 costs much less than the English, German, or Norwegian 
 liability for compensation. 
 
 The following comparative table of insurance rates for 
 a few of the more important hazardous industries in Norway, 
 England, and Germany shows the approximate cost in those 
 countries respectively. It has been compiled from the tables 
 of Mr. Miles M. Dawson, published in the Bulletin of the 
 Bureau of Labor, September, 1910 (No. 90). The rates are 
 given in percentages of payrolls. 
 
 The figures under " Norway " are the flat rates at which 
 all employers in the given trade-class are taxed. (The two 
 figures under " rolling mills " cover four classes with a special 
 rate for each.) 
 
 The figures under " England " are the maximum and 
 minimum premium-rate published by either the tariff or non- 
 tariff companies. These published , rates are not only well 
 
26 
 
 differentiated, but in practice some bad risks are refused even 
 at maximum rates and some good risks accepted in special 
 classifications below minimum rates. In the industries for 
 which no rates are given a special rate is fixed for each case, 
 depending upon the particular risk. 
 
 The figures under " Germany " are the average assessment- 
 rates in each given industry for the year 1908 there being con- 
 siderable differentiation for different establishments in each 
 association or section. (Where two figures are given for one 
 trade there are several classes in the trade with a different rate 
 for each.) ~Note that the German rates do not cover the 
 expenses of management of the insurance associations, which 
 are assessed separately, nor generally the employers' direct 
 liability for 16 2-3$ accident compensation between the fifth and 
 fourteenth weeks after injury ; (for particulars of this additional 
 liability see the German Workmen's Insurance Code of July 19, 
 1911, Arts. 573-7; Bulletin of the Bureau of Labor, No. 96.) 
 
 Norway England Germany 
 
 Boiler construction . . . 2.31 1.25-2.00 3.80 
 
 Brewery and malt works . . 1.43 .75-.S75 1.S6-3.30 
 
 Carpentry general contract- 
 ing 2.18 .75-2.50 2.32 
 
 Carriage factories . . . 1.54 -2.50 .84 
 
 Casting works Iron . . 1.47 .625-3.00 1.42 
 
 " " -Steel . . 1.47 .625-3.00 2.03 
 
 R. R. Construction exclud- 
 ing tunneling . . . 3.01 2.30 
 
 Drayage, rigging and heavy 
 
 and heavy moving . . .... 1.00 4.94 
 
 Electrical machinery plants 1.22 .... .98 
 
 installing lights, 
 
 etc .94 .50-1.50 1.10 
 
 Furnaces blast 1.47 .625-2.50 1.42-3.25 
 
27 
 
 Laundries power . 
 Locomotive works 
 
 Norway 
 
 .73* 
 1.36 
 
 England 
 
 1.00 
 .875-1.50 
 
 Germany 
 
 1.17 
 1.69 
 
 Machine and repair shops 
 
 1.36 
 
 .75-2.00 
 
 1.69 
 
 Painters exterior . 
 
 1.41 
 
 1. -3.00 
 
 1.01 
 
 Powder factories black 
 Rollin * mills .... 
 
 2.88*. 
 .95-1.92* 
 
 .625-2.50 
 
 4.04 
 1.42-3.25 
 
 Sawmills ..... 
 
 1.99 
 
 1.25-2.50 ' 
 
 4.19 
 
 Stonecutting on buildings 
 Tanneries ..... 
 
 2.40 
 .76 
 
 2.50 
 
 .75 
 
 1.51 
 
 8.23 
 
 Tool makers .... 
 
 .80 
 
 .75-2.00 
 
 1.62 
 
 Turning factories iron 
 " " -wood 
 
 1.47 
 1.44 
 
 .625-2.50 
 
 .84 
 1.50 
 
 Wood pulp factories . 
 
 1.57 
 
 1.25 
 
 2.55 
 
 The comparison is not exact for three reasons : (1) Because 
 the scales of compensation differ. But the comparison is more 
 than fair to Norway and Germany, for their scales of compen- 
 sation for injuries only, beginning from the end of the fourth 
 and thirteenth week respectively, cost less respectively than the 
 English scale of compensation for both injuries and trade- 
 diseases, beginning sometimes from the date of injury and 
 sometimes from the end of the first week. (2) The rates for 
 Germany do not represent the cost of insuring compensation dur- 
 ing the current year, but rather that proportion of the cost of 
 maintaining the insurance scheme which happened to be assess- 
 able that year. But the comparison is not unfair to Germany-, 
 for certainly the rates for 1908 were far below the normal 
 i. e. what they will be when the steady increase in rates due to 
 the deferred assessment method of insurance will have ceased 
 and rates will have reached a stage of equilibrium. (3) The 
 English premiums cover all the cost of insurance. The Nor- 
 wegian premiums do not, the expenses of management, amount- 
 ing to 11^ +, being paid by the state. And the German pre- 
 
 * Experience has shown that these rates have been far below cost; and 
 the Norwegian insurance office has doubtless raised them. 
 
28 
 
 mi urns do not cover any of the expenses of management, and do 
 not procure complete insurance. Therefore the comparison is 
 unfair to England. To calculate approximately comparative 
 cost from comparative rates 11$ + x$ should be added to the 
 Norwegian rates and 16$ + y$ to the German rates. 
 
 The conclusion from a study of comparative rates is that 
 the English system of voluntary insurance in private companies 
 in spite of the heavier expenses of management costs little more, 
 if not less on the average, than state or compulsory mutual insur- 
 ance, and costs much less for well equipped and well conducted 
 establishments than state insurance. 
 
 In dismissing this topic it should be emphasized that free 
 competition does not necessarily result in sound and cheap insur- 
 ance. How to bring about that result is another problem. 
 What is here contended is that that problem has been solved in 
 Great Britain, and that the British form of insurance is the 
 desideratum, and consequently should not be rejected on the 
 score of cost, if it is otherwise more sound and satisfactory. 
 
 Accident Reduction. Employer's individual liability for 
 compensation which as has been shown is the basic 
 principle of nearly all the compensation laws, is an effective 
 regulation for accident reduction. Those w T ho advocate that 
 law for that purpose are rightly wary of insurance schemes, 
 because insurance defeats that purpose if the rate of insurance 
 in any trade is below the cost of the direct liability, or, where 
 insurance is compulsory, if the rates for competitors in the same 
 trade are not so differentiated as to be closely proportionate 
 to the risks in each establishment. To be exact, the harm from 
 such improper insurance rates varies under different conditions. 
 It is immaterial in many miscellaneous unorganized employ- 
 ments wherein the employers have really little or no control over 
 the occupational risks. But in the organized and hazardous 
 industries generally, that is, in those very industries wherein 
 the inordinate increase of work-accidents has caused the pre- 
 vailing demand for reform in the law of employer's liability, 
 it is most serious. 
 
29 
 
 The bad effect of too cheap a rate for insurance in organized 
 hazardous trades is illustrated by experience in Austria, where 
 nearly all the insurance institutions, by fixing rates too low 
 for some large hazardous industries with strong political 
 influence, have clearly encouraged the use of dangerous means 
 and methods of production in those industries. 
 
 The bad effect of a " flat rate " may be illustrated by an 
 actual case under the operation of the insurance law of 
 Washington. There are or were in that State, when the law 
 took effect, three powder mills the Dupont Company's and 
 two others which for convenience will be designated A, B, 
 and C. Powder mills are in a class by themselves and workmen 
 injured therein must look for compensation to a fund raised by 
 a tax upon the payrolls of such mills alone.* Of those three 
 mills, A (the Dupont Co.'s) had an annual payroll of $144,000 
 and its annual tax was $14,400. B had a payroll of $15,000 
 and its tax was $1,500. C had a payroll of $9,000 and its 
 tax was $900. This being the first year of the scheme the 
 fund is limited to the amounts received from these three items 
 of taxation. A is a branch of one of the largest powder manu- 
 facturers in the United States. It employs none but competent 
 and experienced workmen, and its operations are supervised by 
 a staff of highly skilled experts. It avoids the use of com- 
 pounds and methods which experience has shown to be too 
 unsafe to be used in the manufacture of powder. It has 
 spread its buildings over a large tract of ground and has 
 so segregated its departments that a general disaster is almost 
 impossible. f On the other hand C was what may be termed 
 a " wild cat " concern, and was conducted with cheap labor, 
 regardless of experience and in non-compliance with state 
 regulations. An explosion occurred in C, which almost wiped 
 it out of existence and killed eight workwomen. The exact 
 
 * It should be noted that this does not distribute the risk adequately, 
 and consequently is vitally defective as insurance. In this respect the 
 Washington law is much worse than anything to be found abroad. 
 
 f See " A Xovelty in Legislation," by Will G. Graves, of Spokane, 
 Wash. 
 
30 
 
 amount of compensation due the dependents of these deceased 
 workwomen is in dispute, but it might have been $32,000 ; 
 in which event A would have been taxed $14,400, and would 
 be liable to an additional assessment of almost equal amount 
 to pay for the consequences of C's bad methods of business. 
 As a matter of fact A has not paid its assessment, but is liti- 
 gating or proposes to litigate to test the constitutionality of the 
 law.f Assuming the foregoing statements to be correct and 
 if they happen to be inexact it does not Affect the argument, 
 until that litigation is terminated all of the compensation, ex- 
 cept a few hundred dollars actually paid into the fund, must 
 be paid by -B or not paid at all, or be assessed on employers gen- 
 erally. If eventually A and B be compelled to pay, the result 
 will be a crushing tax on their payrolls for the encouragement 
 of wildcat competition. As for the future, let us suppose that 
 B operates with medium safety so as in the long run exactly to 
 consume its contributions to the fund, then what will be the 
 effect on A ? Undoubtedly there will be a succession of minor 
 competitors like C, without capital or experience, that will 
 run every risk for the chance of profit. Certainly their ratio 
 of losses will far exceed A's, and A will have to pay the 
 lion's share of that excess. Can it stand such competition, or 
 will it be induced to skimp its expenditures for safety and thus 
 be drawn down towards the level of its competitors ? Economic 
 sense points emphatically to the conclusion that it will be 
 drawn down. 
 
 There is an idea prevailing that the state can prevent any 
 such consequence by factory inspection and safety regulations. 
 To a limited degree only is that practicable. In the above 
 described case establishment C was operating in violation of 
 
 f It is an amusing illustration of the obtuseness of bureaucrats to 
 the imperfections of their schemes, that the Washington insurance officials 
 are indignant at the Dupont Company for resisting the gross injustice 
 attempted to be inflicted upon it; and that their retort to the complaint 
 of that company is in effect that it is a wicked trust. (Human Engineer- 
 ing, April, 1912, p. 20). 
 
31 
 
 official regulations and orders,* but A has to pay the penalty 
 therefor. It is true that in a long course of years factory 
 inspection may force all establishments like C to be con- 
 ducted with the medium degree of safety which we have sup- 
 posed characterizes B, but it certainly cannot force establish- 
 ments of the classes of B and C up to the high grade of safety 
 which characterizes A. Police laws and police can no more 
 make perfect factories than they can make perfect men ; they 
 can only prevent specific acts of wrong. To make perfect fac- 
 tories i. e. factories that are as safe as practicable the 
 law should bestow an economic advantage upon safety. " Flat 
 rate " insurance, where imposed by law, on the contrary, legally 
 penalizes it. 
 
 It should be understood in this connection that it is not the 
 opinion of industrial experts that either the direct liability 
 for compensation or insurance at proper rates by itself will 
 have any great and continuous effect in reducing accidents. 
 To produce that result the compensation liability must be con- 
 joined with proper safety regulations and expert inspection 
 and enforcement. But, on the other hand, insurance at im- 
 proper rates does have a powerful negative effect in discouraging 
 accident prevention, f In other words the way to danger is 
 easier than the way to safety. 
 
 Great Britain and its colonies depend for accident pre- 
 vention upon the employer's direct liability for compensation 
 in conjunction with state regulations and factory inspection. 
 
 The conclusion of the British Departmental Committee 
 on Accidents upon the effect of this system in accident re- 
 duction, are summarized in the Annual Report of the Chief 
 Inspector of Factories for 1910, p. vii (Parliamentary Papers 
 for 1911, Cd. 5963), as follows: "They find that while the 
 accident risk probably remained almost constant in the decade 
 1897-1907, any increase due to extended use of machinery and 
 
 * See semi-official statement (Human Engineering, Apr. 1912, p. 21). 
 f See Address by the writer before Massachusetts' Bar Association, 
 Dec. 28, 1911. 
 
32 
 
 greater pressure* being counteracted by improved inspection 
 and by the greater care resulting from the Workmen's Com- 
 pensation Act, it has decreased since 1907, owing to the causes 
 named above and to the experience of employers in the efficient 
 guarding of machinery. They regard the increase of reported 
 accidents up to 1907 as due almost entirely to improvement in 
 reporting, which since that date has been less marked, so that 
 the effect of lessened risk has shown itself in the statistics." 
 
 Mr. John Calder, a leading expert in industrial safety, 
 in a brief filed with the Congressional Employers' Liability 
 Commission (Report of Hearings, Pt. 2, p. 768), describes 
 the effect of the British compensation acts as follows : 
 
 (1) An immediate increase in the total volume of 
 reported accidents. 
 
 (2) An immediate and large increase in the volume 
 of reported trivial and non preventable accidents, followed. 
 by a continued but not so large annual increase. 
 
 (3) An improvement in safeguarding and safe working 
 precautions due to the attention of factory inspectors being 
 concentrated on safety measures, to the pressure from, the 
 skilled inspectors of the insurance underwriters and to 
 differential insurance rates being conceded in return for 
 proved reduction of risks, etc. 
 
 (4) A reduction in the rate of serious and preventable 
 accidents, irregularly varied for particular industries by 
 temporary increases due to trade pressure in busy seasons; 
 this reduction in rate being obscured by a slow but 
 perceptible rise in the annual total of such accidents, due 
 to an increase in the number of people employed. 
 
 That the compensation liability has had a powerful effect 
 in the line of accident prevention see also testimony of Messrs. 
 
 * It should be borne in mind that the first stage in accident prevention 
 is to check the progressive increase in the ratce of work accidents incident 
 to the modern developments in industries. How much beyond that accident 
 prevention can effect is uncertain. 
 
33 
 
 Gill and Clynes, M. P. before the New York Employers' lia- 
 bility Commission (Minutes of Evidence, 1910, pp. 81, 89). 
 
 In Germany accident prevention in industries rests largely 
 with the employers 7 mutual accident insurance associations. 
 These associations having a strong interest to reduce the 
 number of accidents, the law has conferred on them the power, 
 subject to approval by the appropriate authorities, to prescribe 
 preventive rules and regulations, and to send inspectors at 
 any time into any factory or establishment in the association 
 to see that these rules and regulations are complied with. The 
 inspectors of each association are experts in its line of work, 
 and are in no way subject to politics. On their reports and 
 according to actual rates of accidents the establishments in 
 each association are assigned to the various classes in its risk 
 tariff ; and, as before stated, the rates of assessment are graded 
 according to such risk tariff. 
 
 The results in the industrial associations from 1888-1907 
 have been as follows: 
 
 (1) While the total volume of fatal injuries has steadily 
 increased, the ratio thereof to the number of persons em- 
 ployed has remained nearly constant at about O.fiS per 
 1,000. 
 
 (2) The total volume of injuries causing permanent 
 total disablement has been largely reduced, the ratio thereof 
 being reduced from 0.43 to 0.06 per 1,000. 
 
 (3) The number of injuries causing permanent partial 
 disability compensated for has trebled and the ratio thereof 
 has increased from 2.38 to 3.36 per 1,000. 
 
 (4) The number of temporary injuries compensated 
 for (lasting over 13 weeks) * has increased tenfold and the 
 ratio thereof has increased from 0.68 to 4.26 per 1,000. 
 
 The results from 1890 to 1907 in the agricultural associa- 
 tions (which cover forestry) have been as follows: 
 
 Over 78% of all injuries reported lasted less than 13 weeks. 
 3 
 
34 
 
 (1) The ratio of fatal injuries has remained nearly 
 constant at about 0.25 per 1,000. 
 
 (2) The ratio of injuries causing permanent total dis- 
 ability has remained nearly constant at about 0.05 per 
 1,000. 
 
 (3) The ratio of injuries causing permanent partial 
 disability compensated for has increased from 0.67 to 2.42 
 per 1,000. 
 
 (4) The ratio of temporary injuries compensated for 
 has increased from 0.60 to 2.88. 
 
 A comparison of items (2) and (3) indicates that accident 
 prevention has been far less successful in the agricultural 
 than in the industrial associations. 
 
 For more comprehensive data on this subject see Report 
 of Imperial German Government Commission on Workmen's 
 Insurance. (Eeichstag Doc. No. 340, 12th Leg. Period, 2d 
 Session, 1909-10). 
 
 In Austria the insurance associations are organized by 
 territorial districts instsad of by industries, and their rates 
 have been unfair; and the conduct of factory inspection is 
 bureaucratic. The following is a comparison of the ratios of 
 injuries per 1,000 " full-time workers" in 1890 and 1906. 
 (Note that agriculture is not covered). 
 
 Requiring compensation. Not requiring compensation 
 
 Fatal Not fatal (Lasting less than 4 weeks) 
 
 1890 0.67 7.52 11.3 
 
 1906 0.63* 17.59 44.97 
 
 Allowing for differences in the method of calculation and 
 tabulation these figures are less favorable than those of 
 Germany for industrial accidents. 
 
 In France there is state inspection and regulation and the 
 direct liability for compensation. Published insurance rates 
 
 * The ratio of fatal accidents has not really decreased, but has varied 
 from year to year the year 1905 showing a ratio of 0.68. The increase 
 in the other ratios has been steady. 
 
35 
 
 have been rather " flat," but the companies discriminate, favor 
 good risks and decline or penalize bad ones. 
 
 The results from 1904 to 1910 are as follows : 
 
 The ratio of fatal injuries has remained nearly constant. 
 The ratio of injuries causing permanent disability has 
 remained nearly constant. 
 
 The ratio of temporary injuries has increased about 50$. 
 (See Market World & Chronical, 1912). 
 
 In Norway there has been no co-operation between the state 
 insurance office and the government department of inspection. 
 And admittedly the Norwegian insurance can have no effect for 
 accident reduction. (Frankel and Dawson, p. 50.) Un- 
 fortunately statistical data of accidents in Norway are not 
 available in any language known to the writer. 
 
 In The Netherlands the insurance is said to be ineffective 
 for accident prevention; (Frankel and Dawson, p. 61). 
 
 In Italy a voluntary association of employers for the pre- 
 vention of accidents and the introduction of safety devices is 
 reported to have been most effective. (Frankel and Dawson, 
 pp. 87-881). 
 
 Comprehensive scientific investigation of industrial ac- 
 cident prevention is still in its infancy; and statistics of in- 
 dustrial accidents are not yet sufficient to demonstrate much 
 in regard to the relative efficiency of the various laws in the 
 line of accident reduction. Consequently in arriving at con- 
 clusions on this question it is proper to rely principally upon 
 the opinions of experts in industrial safety. The prepon- 
 derance of such expert opinion is that the British and German 
 laws have been the most effective in that direction; and that 
 the Norwegian and Austrian laws are comparatively in- 
 efficient. And such statistical data as is available confirms 
 such opinion. 
 
 Adjustments and Litigation. A principal purpose and 
 advantage of the compensation law is that it reduces the waste 
 
36 
 
 and burden of litigation incident to the administration of the 
 old law of negligence. 
 
 In Great Britain and its colonies (New South Wales ex- 
 cepted) adjustments are made directly between the employer 
 or his insurer and the injured workman or his dependents. In 
 case of dispute the questions at issue are determined judicially, 
 under special and appropriate rules of practice and procedure. 
 
 In France the general practice is the same; but there 
 is more bureaucratic supervision and interference. And the 
 same is true of some other of the direct liability countries on the 
 continent. 
 
 In Denmark claims are adjusted by the state insurance 
 office ; and the employer or his insurer is bound to make pay- 
 ments according to such adjustment. In Sweden the practice is 
 similar. 
 
 In The Netherlands all adjustments are made by the Royal 
 Insurance Bank; but an appeal lies to the courts from its 
 awards. 
 
 In Germany awards are made in first instance by the em- 
 ployers' insurance associations, ex-parte ; but are often preceded 
 by something closely resembling a trial. From such awards 
 appeals lie to Courts of Arbitration.* And from a decision of 
 any such court an appeal (called a " recourse ") lies to the 
 Imperial (or State) Insurance Office. 
 
 In Norway the State Insurance Office makes all adjustments, 
 generally through communal officials; and its awards are final. 
 
 It is claimed that the method of adjustment resorted to in 
 Norway and Denmark is the best, that the German method 
 breeds litigation, and that the English method has increased 
 litigation even over the old negligence law. 
 
 The assertion that the English compensation law has in- 
 creased litigation is founded upon a confusion of ideas. Be- 
 cause the compensation acts of 1897 and 1906 in the aggregate 
 have increased nearly tenfold the number of cases in which some- 
 
 * As to practice on review of revisions of awards, see Code of 1911, 
 Arts. 1600-7. 
 
37 
 
 thing is recoverable for work-injuries they have naturally 
 increased the number of cases which appear on the court 
 dockets for trifling motions, etc. And each act in turn gave rise 
 to a number of cases involving questions of construction, which 
 for a short time increased litigation. But now. the ratio of 
 litigation has much decreased, and the volume and delays of 
 litigation have both enormously decreased. Official returns for 
 1909 give the ratio of claims settled judicially as less than 20$ 
 in fatal cases and less than l/o of 1$ in cases of disablement. 
 (N. Y. Journal of Commerce, Oct. 25, 1910.) And the figures 
 for one insurance company for the year 1908 (cited by Mr. 
 Packer in Appendix to Report of Congressional Employers' 
 Liability Commission, p. 103) show that out of 10,343 acci- 
 dents there were only 55 claims (0.5 per cent.) for " damages " 
 under the retained law of negligence, and only 123 arbitrations 
 before a judge (1.2 per cent.) under the compensation act. 
 And the expert testimony of Messrs. Gill and Clynes, M. P., be- 
 fore the N. Y. Employers' Liability Commission (Minutes of 
 Evidence, 1910, pp. 77, 81, 82, 86, 90) was to the effect that 
 litigation has very much decreased that adjustments are 
 generally automatic.* 
 
 In Germany the question is more complex. There is endless 
 red tape and much complaint of litigation. Herr Friedensburg 
 declares that appeals are fostered by the Imperial Insurance 
 Office. And the workpeople complain of the ex-parte awards of 
 the employers' associations. But there is some exaggeration in 
 these complaints. Strictly the original awards, while more 
 cumbersome and less automatic than the direct adjustments 
 under the English law, do not involve litigation ; real liti- 
 gation commences with appeal to the Courts of Arbitration. 
 According to Herr Brodsky (" The Survey," !N". Y., May 4, 
 1912), in 1910 17.5$ of awards were so appealed; and 30$ of 
 the decisions of the Courts of Arbitration were again appealed 
 to the Imperial (or State) Insurance Office. This, he declares, 
 
 * Note that compensation is even now, 'May, 1912, being adjusted for 
 losses on the Titanic. 
 
38 
 
 is a decrease in the ratio of appeals to the lower courts and no 
 increase in the ratio of appeals to the higher. Moreover, he 
 points out that a large proportion of the cases so appealed deal 
 with the difficult matter of revision of pensions due to changed 
 conditions on the part of the beneficiaries* a most important 
 matter which is more or less ignored in the laws of other bureau- 
 cratic countries, but a matter in which there is grave danger of 
 abuse, if, as in Germany, frequent applications upon trifling 
 grounds are tolerated without penalty. 
 
 The Norwegian and Danish method of adjustment and 
 conclusive awards by administrative officers practically elimi- 
 nates all formal litigation, and so far as we know there being 
 little information available of the actual workings of the law 
 in those countries and what little there is coming from official 
 and prejudiced sources there is little complaint. But 
 although this method eliminates litigation it leaves the ad- 
 ministrative officers open without check to irregular appeals 
 to their discretion and subject to various improper influences. 
 An award of compensation, whether the compensation is payable 
 from a fund for which employers or a group of employers are 
 taxed or by an employer directly, takes the property of one 
 person or group of persons and gives it to another person. Ex- 
 perience demands that before that should be done the party or 
 group to be deprived of property should have a reasonable 
 opportunity to submit the facts and to be heard upon the law, 
 and that the application of the law to the facts should be 
 determined judicially. There is no more justice or expediency 
 in the proposition that a person or persons should be taxed to pay 
 compensation in a given case according to the unbridled discre- 
 tion of administrative officers than that a person should be com- 
 pelled to pay damages for an alleged wrong to a stranger or for 
 a breach of contract, in like discretion. If this method of de- 
 termining rights and liabilities be sound and expedient, then 
 all judicial procedure should be abolished; for administrative 
 procedure is quicker and cheaper than judicial procedure. It' 
 
 * See Code of 1911, Arts. 608, 1600-7. 
 
39 
 
 is to be noted that when the practice of administrative adjust- 
 ments and awards was adopted in the Ohio law, it was modified 
 by a provision that the claimant may appeal from such ad- 
 ministrative decision. In other words, it was deemed right 
 not to conclude claimants by such a doubtful method of de- 
 termination. Why then, in common fairness, should the 
 liabilities of those who have to pay the bills be so concluded? 
 NOT is it just or expedient that the parties liable for compensa- 
 tion should be wholly dependent upon the care and means of 
 uninterested bureaucratic officials for protection from the bur- 
 den of frauds and exaggerations. Employers directly liable and 
 their insurers, having an immediate interest, are on the watch 
 to detect fraudulent and exaggerated claims in a manner which 
 cannot be expected of state officials. That they meet with 
 undue favor and thereby succeed unduly in resisting claims 
 is contradicted by all experience. Whatever, therefore, may 
 be the success which is uncertain of the Norwegian and 
 Danish method of adjustment, under the peculiarly favorable 
 conditions in those countries, that method is nevertheless far 
 too dangerous a model to imitate. 
 
 Abuses. Like every other good thing the compensation 
 law has its specific abuses. The principal are malingering, 
 simulation, etc., " doctors' graft " and discrimination in employ- 
 ment against the aged and infirm. There are, naturally, no 
 accurate data of the extent of these abuses; but, upon the 
 principle that where there is much smoke there must be some 
 fire, undoubtedly they are common. 
 
 The inclination upon slight excuse to take an occasional 
 vacation at half pay is common to human nature; and conse- 
 quently the compensation laws give rise to much malingering, 
 except where there is a " waiting period " sufficiently long to 
 check it. Complaints of malingering are loudest in France and 
 Italy, where the waiting periods are short, and are common in 
 England where the right to compensation reverts back if 
 malingering be continued long enough. There is also pome 
 complaint of it in Germany, in spite of the fact that compensa- 
 
40 
 
 tion for the first 13 weeks is dispensed principally from the 
 sickness insurance funds, to which the workmen contribute 
 heavily. 
 
 Simulation, exaggeration and various forms of fraudulent 
 impositions find their most fertile fields where compensation 
 is dispensed by governmental routine. Admittedly they are the 
 bane of the statet-insurance institution of Italy. And they are 
 said by Herr Friedensburg to be increasing under the German 
 system, owing to a disposition on the part of the state officials 
 to treat the right to compensation, not as a juridical question 
 to be determined according to the law, but as a matter in which 
 every doubt is to be resolved in favor of charity. If such a 
 disposition is manifested in Germany, against the opposition of 
 the employers' associations, a yet more " liberal " policy of 
 awards is to be feared from purely political insurance systems 
 like those of Norway, Sweden, France, Italy, and The 
 Netherlands. It does not appear that the state insurance offices 
 of those countries go to sufficient expense to guard against im- 
 positions. Certainly they do not do so if their true total 
 " expenses of administration " are of the low ratio claimed. 
 Either they are not guarding sufficiently against these most 
 serious abuses, or there is a most important item omitted from 
 their estimates of " expenses of management." It would appear 
 that the desire to show low expenses of management has induced 
 them to neglect precautions against imposition. 
 
 " Doctors' graft " under the French law is an abuse almost 
 equivalent to " ambulance chasing " in America. Generally 
 it is attributed to the fact that under that law an injured work- 
 man may choose his own physician. But probably it is un- 
 avoidable under any law which entitles an injured workman to 
 medical attendance at his employer's expense " whenever 
 necessary " ; for then any physician may attend in the absence 
 of the employer's physician, and before a jury his word will 
 be as good as any one's that his attendance was necessary. This 
 abuse is checked where there is separate sickness insurance, 
 and where, as in Italy, the employer's liability is for " first 
 
41 
 
 aid " only. And it does not exist where, as in England, there 
 is no compensation liability for medical care. And English 
 experience leaves it doubtful whether there is any need for such 
 a liability, the employer being under strong incentive, from his 
 liability for compensation, to furnish all proper medical treat- 
 ment and the best treatment. 
 
 Discrimination in employment against the aged is com- 
 plained of in England, but is an evil of disputed proportions. 
 That it exists at all is more generally denied (see testimony 
 of Mr. Gill, M. P., before N. Y. Employers' Liability Com- 
 mission, " Minutes of Hearings, 1910," p. 76). But it is more 
 reasonable to suppose that employers do so discriminate con- 
 siderably, not only because the aged are somewhat more liable 
 to injury as would appear from the German statistics but also 
 and more particularly because accidents to elderly persons often 
 lead to permanent disabilities caused not so much by the in- 
 juries as by old age, and which consequently obligate the em- 
 ployers to pay what are in effect old age pensions in addition 
 to compensation for the injuries. It is difficult to form an 
 estimate of the extent of this discrimination, because there 
 is, independently of this cause, a universal preference for 
 younger men in taking on new workmen, particularly in the more 
 hazardous industries. But whatever may be the extent of this 
 discrimination elsewhere, it is almost entirely avoided in Nor- 
 way and New South Wales, because there individual employers 
 are not much concerned financially with the number and conse- 
 quences of injuries to their respective employees; and probably 
 it is reduced in Germany by the fact that work-accident disability 
 and old age disability are there distinguished, and each is pro- 
 vided for by a separate system of e^Scompensation. 
 
 State-Insurance in competition with Private Insurance. 
 
 In France, The Netherlands, Sweden and New Zealand the 
 state sells compensation insurance in competition with private 
 companies. In Italy a state supervised and favored association 
 of savings banks does the same. 
 
 In France the state insures against the liability for death 
 or permanent disability only. Naturally this partial insurance 
 
42 
 
 is seldom taken, and about 99^ of the insurance is placed else- 
 where principally in stock companies. 
 
 In Italy private insurance is handicapped in competition 
 with the National Accident Insurance Fund by the facts that 
 the latter is not operated for profit, escapes many items of ex- 
 pense in management by the free co-operation of the Post Office 
 and of local officials, and is favored by a remission of 
 taxes. In The Netherlands private insurance is handicapped 
 by the fact that those who insure in private companies are never- 
 theless taxed for the expenses of management of the state in- 
 surance office (other than one-half the salaries of employees, 
 which are paid by general taxation.) And in Sweden private 
 insurance is handicapped by the fact that the expenses 
 of management of the state insurance office including com- 
 missions to agents are paid by general taxation, whereas the 
 expenses of management of the private companies must be paid 
 by the policy holders. And in all these countries private insur- 
 ance is further handicapped by the fact that only insurance in 
 the state insurance office discharges the employer's individual 
 liability. In New Zealand alone is the competition fair. 
 Under these conditions private companies are winning the field 
 in New Zealand, holding their own in Italy and The Nether- 
 lands and yielding ground only slowly in Sweden. If this 
 experience leads to any conclusion it is that private companies, 
 through superior knowledge and efficiency, sell cheaper or more 
 satisfactory insurance. The trouble with state-insurance under 
 competition has been that the state insurance office gets nearly 
 all the bad risks and the risks in those lines in which it acci- 
 dentally places its rates too low, and then has to compete with 
 the private companies for the good, paying business. 
 
 The avowed objects of state-insurance are to eliminate profits 
 and to keep down rates. In competition with private insurance 
 state-insurance has not demonstrated its effectiveness for the 
 latter purpose. It is therefore being sought in Italy and 
 Sweden, by increasing the privileges of and the favors to the 
 state insurance office, to eliminate private competition, with a 
 view to arriving ultimately at a state monopoly, as in Norway. 
 
43 
 
 And this movement, actuated on the part of the state officials by 
 a desire to reduce expenses of management by eliminating 
 the expenses of competition, etc., is being aided by a political 
 tendency towards socialism. The choice, therefore, seems to lie 
 between monopolistic state-insurance on the one hand and no 
 state-insurance at all on the other. 
 
 Tendency. There is a common impression in America that 
 the European work-accident compensation laws have been de- 
 veloping in the direction of state-insurance. This impression 
 is far from being accurate. The various compensation laws 
 were enacted in the following order: 
 
 Germany, 1884. 
 Austria, 1887. 
 Norway, 1894. 
 Finland, 1895. 
 
 Great Britain, 1897. 
 Denmark, 1898. 
 France, 1898. 
 
 Italy, 1898. 
 
 Spain, 1900. 
 Greece, 1901. 
 Netherlands, 1901, 
 
 Sweden, 1901. 
 
 Luxemburg, 1902. 
 Eussia, 1903. 
 Belgium, 1903. 
 
 Hungary, 1907. 
 
 (Compulsory mutual insurance.) 
 / a a a \ 
 
 (Compulsory state-insurance.) 
 (Compulsory insurance or se- 
 curity. ) 
 (Simple liability.) 
 
 ( " " o 
 
 (Direct liability with compulsory 
 guarantee- and competitive 
 state-insurance.) 
 
 (Compulsory insurance and com- 
 petitive state-insurance. ) 
 
 (Simple liability.) 
 
 (Compulsory mutual insurance.) 
 
 (Compulsory insurance or se- 
 curity and competitive state-in- 
 surance. ) 
 
 (Simple liability and competitive 
 state-insurance. ) 
 
 (Compulsory mutual insurance.) 
 
 (Simple liability.) 
 
 (Direct liability with compulsory 
 guarantee-insurance. ) 
 
 (Compulsory mutual insurance.) 
 
44 
 
 
 British Colonies: 
 
 New South Wales, 1900. (Compulsory mutual insurance.) 
 New Zealand, 1900. (Simple liability and competitive 
 
 state-insurance. ) 
 
 South Australia, 1900. (Simple liability.) 
 
 West Australia, 1902. ( " " ) 
 
 British Columbia, 1902. ( " " .) 
 
 Queensland, 1905. ( " " .) 
 
 Cape of Good Hope, 1905, ( " " ' -) 
 
 Transvaal, 1907. ( " .) 
 
 Alberta, 1908. ( " .) 
 
 Quebec, 1909. ( " ) 
 
 Starting in Europe with a system of compulsory mutual in- 
 surance in Germany, which was promptly (but imperfectly) 
 copied in Austria, compensation next appeared in the com- 
 pulsory state-insurance law of Norway. It is generally admitted 
 that this form of insurance was not adopted with any idea that 
 it was an improvement upon the German system, but because 
 the employers' mutual associations of that system would be im- 
 practicable in Norway. Thereafter there came a reaction. 
 First, Finland permitted employers to insure in any one of 
 several ways; and Great Britain and Denmark stopped short 
 with the simple liability. Since then the majority of the other 
 countries have adopted the law of employer's direct liability 
 supplemented by various provisions designed to secure its pay- 
 ment. Luxemburg and Hungary have merely followed their big 
 neighbors, Germany and Austria. And while Italy, Sweden, 
 and The Netherlands have adopted and maintained competitive 
 state-insurance institutions under conditions that manifest a 
 tendency to revert to monopolistic state-insurance in the Nor- 
 wegian form, Spain, Russia, and Belgium on the contrary 
 the first two countries by their laws and the last by the action 
 of its insurance officials have followed the conservative 
 models. 
 
 In the British Colonies the tendency away from state- 
 insurance has been decided. New South Wales started off with 
 
45 
 
 compulsory mutual insurance, supplemented by state aid, for 
 its miners. Xew Zealand adopted the simple liability along 
 with competitive state-insurance. The reaction from these 
 empiric social experiments was prompt ; and all the other 
 colonies that have since adopted compensation laws have fol- 
 lowed the example of the mother country in choosing the simple 
 liability. 
 
 Leaving aside the manifest tendency towards greater assur- 
 ance, and towards more general provision of insurance against 
 sickness, etc., and confining ourselves strictly to our subject of 
 work-accident compensation, the conclusion is that the foreign 
 compensation laws do not show any tendency towards state- 
 insurance. . 
 
 The British Law. As has been stated, the British compen- 
 sation law* is a direct liability law, which imposes no obligation 
 upon and offers no inducement to the employer to insure. 
 Nevertheless insurance is general although not universal 
 many large establishments, the railroads particularly, carrying 
 their own insurance. Insurance is principally in stock com- 
 panies, but there are some important mutual associations and 
 establishment funds. 
 
 The advantages of this Jaw are: 
 
 (1) It is the simplest and least experimental first step in 
 the line of departure from the obsolete law of negligence, and 
 at the same time is the form of compensation law most readily 
 adaptable to development in any line that future experience 
 may dictate. 
 
 (2) It contests with the German " industrial accident insur- 
 ance " law for the supremacy in efficiency in accident preven- 
 tion. 
 
 (3) It interferes least with the accustomed liberties of the 
 private parties affected. 
 
 (-i) It avoids the abuses and dangers of bureaucracy in- 
 cident to all forms of compulsory and state insurance. 
 
 * Now contained in Act. of Dec. 21, 1906 (6 Edw. 7, c. 58), which con- 
 solidated and extended Acts of 1897 and 1901. 
 
46 
 
 (5) It adheres to the pre-established practice of judicial 
 determination of juridical questions. 
 
 (6) It has resulted in a system of cheap, satisfactory and 
 sound insurance. 
 
 The proposition that it has led to " satisfactory " insur- 
 ance, to be exact, requires qualification. Employers nowhere 
 are satisfied with the insurance rates charged them. But 
 compared with the Norwegian or German employer the 
 English employer has this advantage, that if he be dissatis- 
 fied with a rate given him he is free and may reject it, and 
 that if he be rightly dissatisfied therewith he can generally 
 arrange cheaper insurance; whereas the Norwegian or Ger- 
 man employer, under similar conditions, is bound and 
 helpless. 
 
 The fact that insurance does not discharge the employer's 
 liability is an advantage of the English law, because it tends 
 to sound insurance. When selecting insurance the English 
 employer does not unqualifiedly pick out the insurer with 
 the cheapest rate, but demands of his insurer assured 
 solvency. On the contrary where insurance in any approved 
 company discharges his liability, the employer naturally 
 seeks the approved company with the cheapest rate; and 
 that practice inevitably leads to entire dependence for 
 solvency upon state supervision and regulation of insurance. 
 In America, if we adopt compensation laws, it would be the 
 reverse of prudent to trust altogether to that one method of 
 securing sound insurance. For then many " mushroom " 
 liability insurance companies would probably spring up, 
 and induce extreme competition and dangerously low rates 
 (of which we have a warning example in France). 
 
 The principal objections to the British system are as 
 follows : 
 
 (1) It provides no certain security to injured workmen for 
 the payment of their compensation. It is to be noted that this 
 criticism is not included in the severe arraignment of the Eng- 
 lish law by Mr. Miles M. Dawson, in his brief filed with the 
 
47 
 
 Congressional Commission on Employers' Liability (1911) J 
 and the significance of this omission is that in actual experience 
 in England there has been almost no loss from the omission of 
 any requirement of security (see testimony of Mr. Gill before 
 N". Y. Employers' Liability Commission, " Minutes of Evidence, 
 1910," p. 81). Looking at the subject practically, it is obviously 
 a hundredfold more needful to require of employers security 
 for their contingent liabilities for " damages " under our exist- 
 ing American negligence law?, than it is to require security for 
 the contingent liabilities for compensation under the English 
 law, and yet we have never thought it necessary to do so.- 
 Why then merely because one liability is substituted for an- 
 other should the addition of a requirement for security be 
 deemed essential? It is true that accrued liabilities for long 
 continuing pension* payments under the compensation law sub- 
 ject the beneficiaries to the risk of their respective employers 
 continuing solvent during such periods ; but it is easy to require 
 security for accrued liabilities without requiring general in- 
 surance in advance; (see " Security accrued liabilities"). 
 It is also possible that dummy corporations may be resorted to to 
 defeat the liability (a practice more probable in America than 
 in England) ; but in that event a particular remedy can be 
 adopted to meet that particular evil. It is also probable that 
 in America compulsory security may prove to be advisable 
 in some trades. It would be absurd, however, to subject all in- 
 dustries to unnecessary bureaucratic domination or to launch 
 the state in an uncertain and expensive actuarial experiment 
 merely to forestall the possibility of an abuse that has not arisen 
 in actual practice. 
 
 (2) The English system of insurance entails heavy ex- 
 penses of management, which mean economic waste. As has 
 already been pointed out (see "Cost") a part of these 
 expenses is the price paid for the advantages of competition. 
 
 * In Great Britain compensation to dependents is payable in lump 
 sums. In Denmark and Italy compensation for permanent injuries also is 
 payable in lump sums. There are some abuses incidental to lump sum 
 payments, but they do not affect this discussion. 
 
48 
 
 That price can be saved only by accepting the alternative dis- 
 advantages of monopolistic insurance. 
 
 But a part of the high expenses of management in England 
 is due to the difficulty of adjustment of the compensation in 
 particular cases, which in turn is due to the fact that the scale 
 of compensation in the British law requires an inquiry into the 
 average earnings of each injured person for a year. The alter- 
 native practice is to use the day's wage for the day of injury, 
 multiplied by a certain arbitrary number of days, to estimate 
 the yearly earnings, and to have a fixed schedule of compensa- 
 tion for particular injuries. In a law applying to one trade 
 only (e. g. the Sutherland Bill, now pending in Congress) 
 it is practicable to incorporate such a rule and schedule; but 
 in a law applying to many trades it would work gross inequality 
 and injustice. Nevertheless it is possible to work out such a 
 rule and schedule for each particular trade and to apply it in 
 practice ; and that has been done more or less in Germany* 
 by the trade associations in co-operation with the Imperial In- 
 surance Office, and by the State Insurance Office in Norway. 
 But only slight progress has been made in that direction in 
 England; and private insurance in stock companies does not 
 lend itself to that end. Consequently the adjustments in Eng- 
 land are a little slow, difficult, and expensive. The English 
 rule is nevertheless retained because it is calculated to effect 
 more even and exact justice; and the difficulties in adjust- 
 ments do not seem to be serious. The testimony of 
 Messrs. Gill and Clynes before the N". Y. Employers' Liability 
 Commission (Minutes of Evidence, 1910, pp. 77, 90) was to 
 the effect that compensation in England is prompt and " auto- 
 matic." And on the other hand the German practice sometimes 
 results in compensation exceeding previous earnings. 
 
 (3) This system starts with a maximum strain upon indus- 
 tries. The meaning of this is that, upon the adoption of the 
 direct compensation liability, employers, if they insure, must 
 
 * In Germany 300 times the, daily wage for the day of injury is the 
 general rule prescribed in the law for estimating yearly earnings. 
 
49 
 
 start in abruptly to pay premiums sufficiently high to establish 
 reserves to cover the capitalized values of liabilities accruing 
 during the period paid for which premiums will undoubtedly 
 be so much higher than for insuring the liability for negligence 
 as to cause some embarrassment at first; whereas under the 
 German system only payments due for the first year need be 
 provided for by the first year's assessment-premiums, and the 
 future payments upon accrued pension liabilities may be left 
 to be provided for by future assessments, and the increase in 
 premiums is thereby made gradual. But there are serious 
 objections* to the German method, it is too much like issuing 
 bonds to pay for current expenses. And it is to be noted that 
 British industries have passed through the period of initial 
 strain without material embarrassment, and now have the ad- 
 vantage of solvent insurance. And it is also to be noted that all 
 other countries except Germany have elected to meet the initial 
 strain of the increased liability at once, without attempting to 
 distribute it. 
 
 (4) This system withdraws a maximum amount of capital 
 from industries. This objection is simply a corollary of the 
 proceeding, and means that the heavy premiums paid into in- 
 surance reserves are withdrawn from industry, whereas under 
 the German system employers are allowed to retain and use in 
 their industries a large part (i. e. that part not yet due and 
 payable to the beneficiaries) of the moneys for which they are 
 indebted for compensation. The economic theory underlying 
 this objection requiries demonstration; for it is the general 
 opinion that the money paid for insurance reserves is not locked 
 up in vaults, but is invested, and that a fair proportion of it 
 finds its way back into industry. 
 
 (5) This system causes discrimination in employment 
 against the aged. This subject has already been fully con- 
 sidered; (see "Abuses"). If the objection is to be deemed 
 material, it may easily be avoided by minor amendment to per- 
 mit old men to contract for a sliding scale of compensation, 
 
 * See " The German Law," post. 
 
50 
 
 dependent upon age, as is now being advocated in England. 
 And it is to be noted that none of the compensation laws, except 
 possibly those of Norway and E~ew South Wales, altogether 
 escape it. 
 
 The following additional criticisms of the English law are 
 sometimes advanced. 
 
 (1) That the British working people are dissatisfied with 
 it. Against this assertion may be cited to the contrary the testi- 
 mony of Messrs. Gill and Clynes, Laborite members of the 
 British Parliament, before the E"ew York Employers' Liability 
 Commission; (see "Minutes of Evidence, 1910", pp. 75, 76, 
 84). Mr. Gill testified, however (p. 82), that there was some 
 " slight " agitation for state-insurance. The reasons for this 
 agitation deserve notice. The demand for state-insurance comes 
 principally from the more socialistic labor unions. The avowed 
 reasons for it are that under state-insurance adjustments would 
 be made by state officials instead of by insurance companies or 
 employers and would therefore be " fairer ", that there would 
 be no discrimination in employment against the aged and in- 
 firm, and that there would be absolute security for the payment 
 of compensation. But behind these alleged reasons lies con- 
 cealed the principal motive of those who promote the agitation, 
 which is that general, bureaucratic state-insurance is the next 
 step on the program of the Eabian socialists in the direction 
 of complete socialism. 
 
 (2) That the International Social Insurance Congresses 
 (held in Borne in 1908 and at The Hague in 1910) have de- 
 clared that compulsory insurance is the best and most efficient 
 means of reducing human and economic loss from sickness, 
 work-accidents and disability. Although in sympathy with the 
 general thought and conclusions of these congresses it should be 
 noted, (1) that the direct liability for compensation is itself in- 
 surance and complies with the requirements of this doctrine 
 so far as the absence of further security does not result in 
 loss of compensation benefits, and (2) that the attendance at 
 these congresses has been composed principally of enthusiasts 
 
51 
 
 in " social insurance " and consequently that their declarations 
 on the technical subject of prevention of work-accidents have 
 not the weight due to the opinions of experts in industrial safety. 
 
 The French Law. The compensation law of France has 
 developed piecemeal and is to he found in various statutes. So 
 much of it as applies to the principal industries* may be sum- 
 marized as follows : The employer is directly liable for compensa- 
 tion to his injured workmen the liability including an obliga- 
 tion to provide or pay for all medicines, surgical appliances 
 and medical and surgical treatment made necessary by the in- 
 jury. The employer may free himself from this contingent lia- 
 bility by insuring in an approved mutual aid or guaranty asso- 
 ciation or insurance company. He may also free himself from 
 his contingent liability for fatal or permanent injuries by in- 
 suring in the National Accident Insurance Fund. He may 
 discharge his accrued liabilities for pension payments for fatal 
 and permanent injuries by the purchase from the said fund of 
 annuities covering such pensions. He may also free himself 
 from his contingent liability for compensation payments and 
 for medical care, ete., during a period not exceeding 90 days 
 following injury, by procuring his employees to belong to a sick- 
 ness insurance scheme to cover such period, provided that he 
 contributes at least one-third towards the expenses of such in- 
 surance. All employers covered by the law are taxed by the 
 state for a guarantee fund, out of which compensation for death 
 or permanent injury is payable where the employer or insurer 
 liable defaults. An injured workman is given a preferential 
 claim for the amount of his compensation against the assets of 
 an uninsured employer. And where the guarantee fund pays 
 the compensation it is given a like preference against the assets 
 of the employer or insurer liable. 
 
 The French law emphasizes the distinction between perma- 
 nent and temporary injuries. It was apparently supposed that 
 the cost of compensating for temporary injuries would be 
 comparatively light and that employers would be able to defray 
 
 * Laws of 1898, 1902, 1905, 1906, 1907. 
 
52 
 
 it as part of current expenses without material embarrassment, 
 but that for the heavy burden of the charges for long continuing 
 pensions for fatal and permanent injuries it was desirable to 
 provide some special means of insurance. Accordingly the 
 National Accident Insurance Fund was organized to sell in- 
 surance covering such injuries at cost, and another special fund 
 was set up to guarantee the payment of compensation for such 
 injuries. But in practice the cost of compensating for tem- 
 porary injuries including the cost of providing medical care, 
 etc., has far exceeded all calculations. In 1910 it was 
 estimated to be 29. 71$ of premiums 10.05$ of the total being 
 for medical expenses alone. (See " Cost of Workmen's Compen- 
 sation ", Market World & Chronicle, 1912, pp. 13. 14.) Conse- 
 quently insurance in the National Accident Insurance Fund 
 has become negligible; and insurance in France is distributed 
 as follows (roughly) : 
 
 French mutual societies 25$ 
 
 French stock companies 51$ 
 
 French trade syndicates 8$ 
 
 Foreign stock companies 16$ 
 
 Unfortunately, however, these companies have under- 
 estimated the cost of compensation, and have persistently kept 
 their rates too low. Although they have raised them from an 
 average of 1.53$ (of payrolls) in 1901 to 1.85$ in 1906 and 
 to 2.32$ in 1907, nevertheless in 1910 they still showed de- 
 ficiencies of expenditures and liabilities over premium receipts 
 to date, ranging from 26$ for the French stock companies up 
 to 79$ for the trade syndicates. French employers in the 
 hazardous industries are now complaining bitterly of the burden 
 of the high rates and of the abuses of the law. But it is mani- 
 fest that the rates must go higher; and it seems probable that 
 political influences will prevent a correction of the abuses. The 
 opinion on the ground, so far as the writer could gather it from 
 confidential sources, is that the French law is a good law al- 
 though a little " messy " gone wrong through politics. 
 
53 
 
 Coming on top of the direct liability, the tax for the guar- 
 anty fund (see " Guarantee Insurance ") is not submitted to 
 amiably by employers. It is a light tax, but bothersome ; and 
 much of it is consumed in the expenses of collection. It con- 
 tinually and uselessly raises the often doubtful question of 
 permanency of injury. It leads permanently injured workmen 
 to look primarily to the state for the collection for their dues. 
 And manifestly the method of maintaining the fund is less fair 
 than the Belgian method and less beneficial industrially than 
 the Italian.* Whether or not a somewhat similar system of 
 taxing all employers to guarantee all compensation would be sat- 
 isfactory in a state where employers are not otherwise harried 
 to death by multiplied taxation and bureaucratic exactions, may 
 be a doubtful question. But it is the writer's emphatic opinion 
 that, unless the workmen contribute substantially, it would 
 work badly. 
 
 The German Law. The German system of workmen's 
 insurance is a P r ductpf gradual but systematic growth and 
 extension. It is now^alrincorporated in the Workmen's Insur- 
 ance Code of July 19, 1911f (to take effect January 1, 1913). 
 That codification has made no important changes in the prior 
 laws ; but in the minor particulars in which changes have been 
 made the Code is followed Jierein. 
 
 The Workmen's Insurance Law is divided into three parts: 
 the sickness insurance law, the work-accident compensation 
 insurance law, and the disability insurance law. Each of these 
 three constitutes a distinct branch of law, although all three 
 (and more especially the first two) are intimately correlated.^: 
 
 The accident compensation insurance law is in turn divided 
 into three branches: the industrial accident insurance law, the 
 
 * See " Guarantee Insurance," supra. 
 
 f See Bulletin of The Bureau of Labor, No. 96. The earlier work- 
 accident insurance laws were enacted in 1884, 1886, 1887, and 1900. 
 
 t Nevertheless they are so imperfectly correlated that there are many 
 incidental abuses and excessive red tape. The drift of opinion is in the 
 direction of extending sickness insurance to cover accident insurance; but 
 how to do that without abandoning all the >good points of the accident 
 insurance law is an unsolved problem. 
 
54 
 
 agricultural accident insurance law, and the navigation insur- 
 ance law. The first is the law which is held up for emulation 
 in comparison with other compensation laws, which has been 
 referred to as " the German law " throughout this paper, and 
 to which we will principally devote out attention. The third is 
 comparatively unimportant. The second will be referred to 
 briefly later. 
 
 The organization and methods of the industrial accident 
 insurance associations have already been partially described; 
 (see "The Liability' 7 ; "Security"; "Mutual Insurance 7 '; 
 "Bates"; "Iteserves"; "Cost"; "Accident Reduction"; 
 "Adjustments ", etc.). Besides in the " associations ", accident 
 compensation insurance for their workmen is carried by the 
 Empire, the Federal States and other public bodies, and, for 
 petty employers in certain trades, by " branch-institutes ". The 
 associations are all self-governing bodies, managed by the con- 
 tributing employers, but over which the state exercises control 
 and supervision. The branch institutes are managed by the 
 governing body of the association of which they are respectively 
 branches. By starting work in any trade an employer becomes 
 ipso facto a member of an association or branch-institute. 
 
 The advantages of the German industrial accident compen- 
 sation insurance law are as follows: 
 
 (1) It results generally in approximately fair rates. 
 (See "Bates"). 
 
 (2) The delegation of quasi-public powers of regulation 
 and inspection to the employers' associations is most effec- 
 tive for accident prevention. The associations' regulations 
 are less arbitrary and more elastic and efficient than state 
 regulations;* and their inspection is better. Under this 
 system specialists of a high grade devote all their time to a 
 study of the hazards of a particular industry. The thought- 
 less popular criticism that such inspectors do not cover the 
 field of social uplift, but concentrate their efforts upon 
 preventing accidents, " in the interests of employers in order 
 
 "* Of. Shadwell on " Industrial Efficiency. 
 
55 
 
 to reduce the costs to them/' is itself evidence of proper con- 
 centration of purpose. 
 
 (3) The joint liability of groups of employers through 
 their respective associations gives adequate security of pay- 
 ment and yet enables employers, by omitting " capitalized- 
 value reserves " from their association insurance funds, to 
 retain the use of that much more money in their operations. 
 This practice, however, is subject to the disadvantages and 
 dangers hereinafter explained. 
 
 (4) Compulsory insurance in this one form for all elimi- 
 nates the extra expenses incidental to competition in insur- 
 ance, and yet escapes many of the dangers and abuses of 
 monopolistic state-insurance. 
 
 (5) The well known efficiency of German workmen is 
 often cited as a result of and such result as an advantage 
 of this law. But that claim begs a doubtful question. Prob- 
 ably the broad system of workmen's insurance has had a ma- 
 terial effect in increasing the efficiency of the German work- 
 men. But would it have been any less effectual had that part 
 of it relating to work-accident compensation been in the 
 English form or in any other successful form rather 
 than in its actual form ? That question cannot be answered 
 with certainty in the affirmative. In forming a judgment on 
 this question it must be remembered that German efficiency 
 was already famous before the workmen's insurance laws, 
 and that it is generally attributed primarily and principally 
 to the German character, to compulsory military training and 
 to widespread vocational .education. 
 
 The principal disadvantages of and objections to this law 
 are as follows : 
 
 (1) The practices of the associations in the adjustment 
 of compensation are irritating to the workpeople, involve 
 much red-tape, and lead to much litigation. They are ap- 
 parently less satisfactory than the freer and more direct 
 negotiations of the English employers and their insurers. 
 
 (2) The review and final determination of awards by 
 
66 
 
 administrative officers of the Insurance Office has led to 
 many abuses complained of with some exaggeration per- 
 haps by Herr Friedensburg. All the facts available indi- 
 cate that the administration of the insurance law is power- 
 fully influenced by a desire to exercise liberality towards the 
 unfortunate and is governed by the spirit of benevolence 
 rather than of law. Experience everywhere shows that such a 
 policy produces demoralizing effects and carries with it grave 
 danger of fraud and abuse. Throughout all civilization such 
 questions as are involved in the review of awards generally 
 are determined judicially, that is by courts of justice. There 
 is no wisdom in depriving the parties of their right to 
 judicial determination of such questions ; for administrative 
 boards do not furnish adequate guaranty of impartiality and 
 strict adherence to the law. (See Henry W. Farnam and 
 Ernst Freund, The Survey, May 4, 1912, pp. 243, 245; 
 contra H. L. Slobodin, who defends the practice from the 
 standpoint of socialism, id., p. 247.) It should be noted that 
 this tendency to administer charitable relief, not contem- 
 plated by the law, is to some extent checked in Germany by 
 the employers' associations. In the Norwegian practice, on 
 the contrary, it is without check. The contention in miti- 
 gation that the perversion of a law of private rights to pur- 
 poses of public charity reduces the volume of necessary poor 
 relief is not supported by figures. 
 
 (3) The system of compulsory membership in trade asso- 
 ciations has this advantage, that all classifications of trades 
 are necessarily arbitrary, and consequently that it is fre- 
 quently an uncertain question in which of several associa- 
 tions an establishment should properly be classed ; and that 
 between those associations there are often serious differences 
 in rates. The matter of assignment to an association and 
 of transfer from one association to another rests in the 
 discretion of the insurance office. There are consequently 
 constant appeals for transfers; and the officials are subject 
 to diverse and strong political influences in regard thereto. 
 
57 
 
 And transfers, where made, entail serious embarrassments 
 and more or less injustice in the adjustment of accrued 
 liabilities. 
 
 (4) The legalized practice of the majority of the insur- 
 ance associations in omitting to carry " capitalized value " 
 reserves, and in depending upon current assessments to 
 meet the payments upon accumulated pensions as they fall 
 due (see "Reserves"), is subject to the following objec- 
 tions : 
 
 (a) While it starts off with pleasingly low rates, it must 
 eventually result in unduly high rates. The universal satis- 
 faction at first felt Avith the German law was consequently 
 ephemeral. That condition has passed. There are now 
 loud complaints from employers, and their dissatisfaction 
 will increase, as rates continue to rise, as they must for 
 many years to come. The rates in Germany today average 
 about double what they were in the beginning. It is cal- 
 culated that they will not reach their stable maximum until 
 some 20 years more. How much higher they will then be 
 no one knows, but the majority guess is that they will again 
 double.* 
 
 (b) This practice conceals the cost of insurance. No one 
 knows what is the true cost of, as distinguished from the 
 current price charged for, insuring compensation in any 
 given trade in Germany today. 
 
 (c) This practice once embarked upon, the law cannot 
 be changed without serious embarrassments; for there are 
 heavy liabilities to be liquidated. The figures for the 
 industrial associations alone are not available; but the out- 
 standing capitalized liabilities of all the German accident 
 associations in 1910 were estimated at 1,142,000,000 marks 
 ($271,900,000), their reserves at 318,900,000 marks 
 ($75,930,000), and their deficiencies at 823,100,000 marks 
 ($195,970,000). The English law, per contra, could be 
 radically changed tomorrow, if deemed desirable, without 
 disturbing existing insurance. 
 
 Schwedtman and Emery, pp. 146-7. 
 
58 
 
 (d) This practice handicaps new establishments by com- 
 pelling them to assume the liability for and to pay a material 
 proportion of the losses of their pre-established competitors. 
 And it imposes upon successful establishments the burden of 
 liability for pensions for injuries incurred in establishments 
 of defunct and insolvent competitors. This may have been 
 the cause of the abnormally high rates in some associations ; 
 e. g. tanneries. It is obvious that if a large proportion of 
 establishments in any trade should shut down the financial 
 liability thereby dumped upon the survivors would be 
 ruinous. In this respect the dangers and defects of the 
 German industrial accident insurance are analogous to those 
 of voluntary mutual life insurance with which we in 
 America are familiar. 
 
 (e) Finally this practice is subject to the danger that the 
 accumulated liabilities of the associations, which are in 
 effect mortgages on the various branches of industry, may 
 become so burdensome in a period of depression and 
 contraction, as to crush the industries of the country 
 affected in competition with the industries of other coun- 
 tries not similarly burdened. To meet the increasing cost 
 of overhead charges for past indebtedness in a period of 
 continued prosperity, rising prices and expanding industry, 
 such as Germany has enjoyed for many years, is compara- 
 tively easy. But to liquidate a heavy indebtedness, carried 
 over from the past, under opposite conditions is an entirely 
 different matter, and may hurt. 
 
 (5) It is a disputed question whether insurance in each 
 and all of 'the German trade associations adequately " dis- 
 tributes the risk." Probably those associations are all large 
 enough to do so. But in a smaller state e. g. in Norway 
 or in a majority of the states of the United States there 
 would be many trade classes in which there would be too 
 few establishments with too small aggregate assets to pro- 
 vide anything like adequate risk distribution. Truly unfor- 
 tunate would be the plight of a responsible manufacturer 
 who should be forced into a blind pool with a few compara- 
 
59 
 
 tively irresponsible competitors and saddled with a joint 
 liability for the risks of all. A good illustration of the evil 
 of insufficient risk distribution is the case of the Dupont Co. 
 in Washington, explained above under the head of " Acci- 
 dent Reduction." 
 
 (6) **An objection, not to this law per se, but to our using 
 it as a model for imitation, is that it is not suitable to con- 
 ditions in America. It rests upon a basis of complete 
 bureaucracy, and the trade associations derive all their 
 efficiency from a delegation of governmental powers, for- 
 bidden by our constitutions and political principles. (See 
 Erank E. Law, Adelbert Moot and Hugh E. Eox, the Survey, 
 May 4, 1912, pp. 241-3-8; contra C. W. Doten, E. C. 
 Schwedtman and Chas. R. Henderson, id., pp. 246-8-9.) 
 In this connection it should be borne in mind that the legal 
 power of control over the establishments of their members 
 is the vital feature of the industrial associations, and that 
 without that power compulsory mutual insurance would 
 inevitably be seriously harmful. A sufficient objection to 
 present consideration of this law as a model for imitation is 
 that no one in America has ever been able to formulate 
 anything like a suitable adaptation. Whatever may be con- 
 tended for the compensation laws of Washington, Ohio and 
 Massachusetts, certainly none of them resembles the German 
 law we are considering either in principles or in essential 
 methods.* 
 
 Allowing due weight to the foregoing objections to the 
 industrial accident insurance law of Germany, it should never- 
 theless be recognized that many of them relate to details, which 
 if deemed objectionable, could be corrected without affecting the 
 essence of the system. 
 
 The German Agricultural accident insurance law 
 differs radically from the industrial law. Employers are or- 
 ganized into associations by territorial districts, rates are levied 
 
 * For further objections see Report of Congressional Commission on 
 Employers' Liability, p. 58, 
 
60 
 
 uniformly like taxes, and the management is largely confided 
 to local officials and is becoming more and more bureaucratic 
 and political. The abuses of this law may be exaggerated by 
 Herr Frieclensburg, but they are certainly far more serious 
 than is officially admitted. And this form of insurance has no 
 effect in the direction of accident prevention, except to pro- 
 duce the data upon which to base police regulations. It is sig- 
 nificant that when the German accident compensation law is 
 held up for our admiration, it is always the industrial accident 
 law that is described. 
 
 The Norwegian Law. Under this law the employer is 
 relieved of all individual responsibility for compensation. The 
 state has assumed the direct liability therefor, and pays all com- 
 pensation out of a fund maintained by taxing all employers in 
 the industries covered. The state insurance office assigns the 
 establishments in those industries to different trade-classes, and 
 taxes them according to a rough estimate of the risk in the re- 
 spective classes. The state pays the expenses of management 
 of the insurance office, adjustments are made by communal 
 officials, premiums are likewise collected by them, and compen- 
 sation payments are made through the Post Office. The in- 
 surance fund is required to be maintained on a reserve or 
 " capitalized value " basis as distinguished from an assessment 
 basis. In the desire for cheapness rates were at first placed too 
 low, with the result that a deficit of about $100,000 was soon 
 incurred, which was made good by appropriation from the 
 general funds. Since then the fund is supposed to have been 
 maintained approximately solvent. 
 
 The one advantage* of the Norwegian system is that it is 
 suitably to the peculiar conditions in Norway. Norway is a 
 thinly populated country with small scattered communities and 
 industries, and with difficult means of intercommunication. 
 The German system, after which it was the original intention 
 
 * The idea that the Norwegian system would have an advantage for 
 us in avoiding constitutional objections was fairly disposed of before the 
 Congressional Commission on Employers' Liability; see the writer's brief 
 before that commission, Hearings, pp. 599, 608. 
 
61 
 
 to model the Norwegian law, was thought to be impracticable 
 there because the few widely distributed employers in each 
 trade could not co-operate effectively in organization, and be- 
 cause there are not enough employers with sufficient assets in 
 each trade to provide an adequate distribution of the risks. For 
 similar reasons private insurance would be inconvenient and 
 expensive. Under such conditions general co-operation and 
 the use of existing state machinery has special advantages, while 
 on the other hand the principal abuses of state management, 
 exaggerations and impostures on the part of workmen, and 
 favoritism to particular employers, are Jess to be feared, be- 
 cause less apt to escape public attention. 
 
 Combined security and cheapness are also alleged ad- 
 vantages of this system; but these alleged advantages are to be 
 questioned. Probably the Norwegian is the cheapest method 
 to provide insurance under the particular conditions; and cer- 
 tainly state monopolistic insurance avoids the multiplication of 
 some expenses, incidental to competition. But, s has already 
 been noted, insurance costs employers about as much in Norway 
 as in England, although the expenses of management in Norway 
 are shifted onto the public while in England they are included 
 in the rates; (see " Cost of Insurance "). 
 
 Against these advantages, real or alleged, the Norwegian 
 system as a model for imitation is subject to the following grave 
 objections. 
 
 (1) By flat rates the employer is relieved from all in- 
 dividual financial responsibility for injuries incurred in his 
 employment, and consequently from all material inducement 
 to prevent accidents therein. On the contrary, where his trade 
 is given too low a rate and up to recent date the rates of the 
 Norwegian insurance office for a large proportion of trades were 
 far below cost the employer is encouraged to maintain cheap 
 methods and practices of production which are unnecessarily 
 hazardous. It is true that the state insurance office may study 
 as the Norwegian office is studying to fix its rates correctly ; 
 but in the controlling desire for cheapness of management it is 
 too apt to neglect as the Norwegian office has neglected 
 
62 
 
 the expensive investigations required to ascertain what are the 
 proper rates.* Of course the state insurance office may adopt 
 the alternative practice of differentiating rates for particular 
 establishments in its discretion. But the mere suggestion that 
 rates may be so shaded for the benefit of individuals would give 
 rise to charges of favoritism and suspicions of graft that would 
 neutralize any benefits from the pracice. And this is so evident 
 that the Norwegian insurance office has never ventured to dis- 
 criminate between establishments in the same trade class. It 
 may be contended plausibly that the state's office can solve this 
 problem by further differentiation in its schedules ; but experi- 
 ence is convincing that no hard and fast schedules of rates can 
 be framed that will result in such proper differentiation between 
 competitors as prevails in Great Britain and Germany and as is 
 essential to accident prevention. Moreover to arrive at a gen- 
 eral and fair differentiation of rates would require such an 
 expensive addition of experts in the field and office forces as 
 would sacrifice the cheapness of management which seems to be 
 the sole aim and advantage of Norwegian insurance. So far 
 as experience goes political insurance schemes are irremediably 
 inconsistent with accident prevention. And for that reason, if 
 for no other, they will be, in the long run, the most expensive. 
 (2) The individual employer is absolutely at the mercy of 
 a bureaucratic administration, which may assign his establish- 
 ment to whichever of several classes of industry, with widely 
 different risk rates, it chooses, and may fix the premium rate for 
 his industry as it chooses. We have no reason to suppose that 
 the Norwegian Insurance Office has intentionally misused its 
 discretion in this regard; but the opportunities for favoritism 
 and oppression in this particular are tremendous for a dif- 
 ference in rates between two similar establishments in close 
 competition may be destructive to one of them. If a board of 
 
 * It is not meant to be intimated that rates can be correctly fixed 
 without long and wide experience. But there is a vast difference in fair- 
 ness betwen rates fixed by careful investigations of actual conditions in 
 the field and rates fixed by guesswork in the office. 
 
63 
 
 " ward heelers " should get control of such an office, its friends 
 would he enriched and its enemies ruined. 
 
 (3) The insurance office makes adjustments and awards 
 through its administrative agents. The weight of political 
 influence will almost always he in favor of an award, although 
 the claim may be most doubtful, and of the highest amount 
 claimed. And particularly strong will he the neighborhood 
 influence and the tendency to stretch the law, where local 
 officials are entrusted blindly with the function of making ad- 
 justments and awards. There is simply no limit to the per- 
 version of the law probable under such a practice if the govern- 
 ment officials are lax, corrupt, subject to political influences or 
 imbued with altruistic ideas of dispensing indiscriminate 
 charity with other people's money. It is largely because state- 
 insurance has this tendency and furnishes so facile a method of 
 draining private wealth into the pockets of the " proletariat ", 
 regardless of the truth and legality of their claims, that socialists 
 demand it. It is perfectly obvious that if we do not want to 
 build up a class of parasites on industry this method of adjust- 
 ment must be avoided. 
 
 (4) Between the tendency on the one hand to favor em- 
 ployers with low rates and on the other hand to favor workmen, 
 with liberal awards all political insurance (of which this is the 
 purest form) is peculiarly apt to result in deficiencies in re- 
 serves ; and, where a deficiency exists, to shift the burden thereof 
 on to taxpayers generally. That is a miscarriage of the law, and 
 contrary to its whole purpose and intent. It amounts in effect 
 to subsidizing hazardous industries. Such a miscarriage has 
 already occurred in Norway, where a deficiency of about 
 $100,000 was made good out of the general funds; and while 
 that amount may seem trifling, under conditions in Norway, 
 it is the equivalent of about $1,000,000 in New York State or 
 $5,000,000 in Great Britain. Heavy deficiencies now exist in 
 the reserves of the politically controlled accident insurance asso- 
 ciations of Austria; and consequently a political struggle is 
 going on there to shift those deficiencies onto the public. Under 
 
64 
 
 a direct liability law or the German system there is little or no 
 danger of such perversions of the compensation law. 
 
 (For a more elaborate presentation of the political dangers 
 of state-insurance, see the writer's brief, filed with Congressional 
 Commission on Employers' Liability, 1911 (Hearings, Pt. 2, 
 p. 590) ; and also articles by Henry E. Seager, Frank E. Law 
 and Adalbert Moot (The Survey, May 4, 1912, pp. 239-244).) 
 
 Bibliography. 
 
 Willoughby, W. F. Workingmen's Insurance. Crowell & Co., 
 
 1ST. Y., 1898. (Out of date, but a good introductory to the 
 
 problems of compensation insurance.) 
 Zacher, Georg. Die Arbeiter Versicherung im Auslade. (An 
 
 analysis of nearly all the European laws.) 
 Aronson, V. R. The Workmen's Compensation Act of 1906. 
 
 London; Unwin; 1909. (An analysis of the British law.) 
 Foot, Alfred. The practice of Insurance against Accidents and 
 
 Employer's Liability. London, 1909. 
 Farnani, Henry W. Articles on German Workmen's Insurance. 
 
 Yale Insurance Lectures, 1904; and Yale Review, 1904-5. 
 Frankel & Dawson. Workingmen's Insurance in Europe. 
 
 INT. Y., Charities Publication Committee, 1909. 
 Schwedtman and Emery. Accident Prevention and Relief. 
 
 New York, 1910. 
 
 Friedensburg, Ferdinand. The Practical Results of Working- 
 men's Insurance in Germany. 
 " Cost of Workmen's Compensation ", Market World & 
 
 Chronicle, E". Y., 1912. (Some recent data on European 
 
 insurance. ) 
 Bulletin of Bureau of Labor, No. 90. (A compendium of the 
 
 foreign compensation laws, with data by Mr. Dawson on 
 
 insurance. ) 
 " The Survey " E". Y., May 4, 1912. (Contains a reply to Herr 
 
 Friedensburg by Dr. Brodsky, and a symposium on the 
 
 German compensation insurance law.) 
 Report of and Hearings before the Congressional Employers' 
 
 Liability and Workmen's Compensation Commission. (Dis- 
 
66 :'"" -'- : :::v- :': :: - 
 
 cussion of the question of insurance, and briefs by Mr. 
 Dawson in favor of the German system of insurance, by Mr. 
 Sherman against state-insurance, and by Mr. C alder on the 
 subject of accident prevention.) 
 
 Report of Imperial German Government Commission on Work- 
 men's Insurance. (Reichstag Document No. 340, 1909-10.) 
 
 Report of Departmental Committee on Accidents; Summary 
 of conclusions in Annual Report of the British Chief In- 
 spector of Factories & Workshops, p. vii, Parliamentary 
 Papers for 1911, Cd. 5963 (5535?). 
 
 Graves, Will G. A Novelty in Legislation. (Pamphlet) (A 
 criticism of the Washington Law.) 
 
 " Human Engineering ", Vol. II, 'No. 1. Cleveland, 1912. 
 (Contains an appreciative summary by the Washington in- 
 surance officials of the operations of their law.) 
 
 Sherman, P. Tecumseh. Workmen's Compensation Acts. 
 An address before the Massachusetts Bar Association, Bos- 
 ton, 1911. (Pamphlet) (The effect of the compensation 
 liability on accident prevention.) 
 
 Lord, J. Walter. Proceedings of Dep't on Compensation of 
 Xat. Civic Federation, Dec. 8, 1911. (A comparative esti- 
 mate of the direct compensation liability and of the Mary- 
 land miners' insurance law). 
 
 Randolph, Carman F. Brief on the Legal Aspects of Sys- 
 tematic Compensation for Industrial Accidents. New York. 
 1910. (Contains an instructive, although somewhat hostile, 
 analysis of the compensation laws.) 
 
INDEX. 
 
 PAGE. 
 
 Abuses ........ 39 
 
 Accident Reduction ...... 28 
 
 Adjustment and Litigation ..... 35 
 
 Bibliography ....... 64 
 
 British Law, The . , . .... 45 
 
 Compensation, The ...... 3 
 
 Cost of Insurance ....... 22 
 
 Compensation Insurance, Purposes of . . . 11 
 
 French Law, The . ..... 51 
 
 German Law, The ....... 53 
 
 Guarantee Insurance . . . . . . 17 
 
 Mutual and Establishment Fund Insurance . . . 15 
 
 Liability, The . ..... 5 
 
 Norwegian Law, The ...... 60 
 
 Premiums . . . . . . . 18 
 
 Security ........ 9 
 
 Rates ....... 18 
 
 Reserves ........ 21 
 
 State Insurance . . . . . . . 13 
 
 State Fund Insurance . . . . . . 14 
 
 State Insurance in Competition with Private Insurance . . 41 
 
 Stock Company Insurance . . . . . . 16 
 
 Tendency 43 
 
 67