Published by EH.Net (November 2002)
Warren, Kenneth, Big Steel: The First Century of the United States Steel
Corporation, 1901-2001. (Pittsburgh: University of Pittsburgh Press, 2001)
pp. xvii + 405.
Though by 1900 the United States ranked as the greatest steel-producing nation,
the leaders of its major firms despaired of achieving financial success to
match their industry’s stature. Output had nearly tripled since 1880, but
customers, not producers, seemed to benefit. Productivity-enhancing technology
encouraged an even faster rate of investment than sales, as did the relatively
low cost of “rounding out” existing plants. Then, during recessions, demand
plunged wildly, taking down output, prices, and profits. Initiated by Charles
M. Schwab of Carnegie Steel, who publicly addressed the advantages of combining
competitors to rationalize production, in early 1901 negotiations among J. P.
Morgan, Elbert Gary, Andrew Carnegie, and Charles M. Schwab himself created
United States Steel.
The new corporation combined three significant finishing firms (American Tin
Plate, American Steel and Wire, and National Tube) with two major integrated
companies, Carnegie Steel and Federal Steel, itself a recent merger of Illinois
firms with Minnesota mining interests. Its size was enormous: capitalized at
$1.466 billion, it included 213 manufacturing plants, one thousand miles of
railroad, and forty-one mines. In 1901, US Steel accounted for 65.7% of
national output, and almost 30% of the globe’s. During World War I, its annual
production exceeded the combined output of all German and Austro-Hungarian
firms. However, at the century’s end, the corporation fought for its very
existence, as imports and mini-mills undercut its sales in one product line
after another. Spun off by a very diversified company in 2001, US Steel
reemerged in 2002 with plants in three American locations (plus one in
Slovakia) that employed fewer than one-tenth the 168,000 workers of 1902.
Big Steel is Kenneth Warren’s attempt to narrate the chief events at US
Steel and to explain the almost continual decline in its share of the national
market. Well acquainted with the secondary literature and the industry
generally from his previous study, The American Steel Industry,
1850-1970 (University of Pittsburgh Press, 1988), Warren is an emeritus
fellow of Jesus College, Oxford. For Big Steel, he used corporate
archives and benefitted particularly from studies conducted for the
corporation. The result is a well-reasoned volume of lengthy paragraphs
overflowing with information and helpful statistics, something that judicious
editing might have transformed into a truly remarkable read.
Elbert Gary, Charles Schwab, and other founders clearly sought prosperity
through size. As Warren recognizes in the early chapters, larger size promised
many advantages. Larger units provided greater capital, labor, and managerial
productivity, and they conserved energy. Rather than producing multiple
products in one mill, the larger firm could specialize and thus reduce costs.
It could also increase the level of research, smooth the production of
specialized units, and reduce cross-hauling on the increasingly expensive
railroads. Finally, the US Steel chairman, Judge Gary, (but not his former
Carnegie executives) clearly expected market share to enable the firm to hold
prices during economic downturns. This philosophy of steady public prices,
acknowledged geographic patterns, and informal cooperation with other firms
earned the label “Judge Gary’s umbrella” for a policy that benefitted the
Nevertheless, Warren concludes that its great size harmed US Steel from the
start. Its management started with far too many plants, scattered irrationally
(some 100 in Pennsylvania alone). Its unwieldy managerial structure failed to
overcome the traditions and defensive attitudes inherited from some of the
merged firms. In the early years, earnings on capital and per ton of output
fell below those of the predecessor companies, particularly Carnegie.
Size also imposed a tremendous constraint on the firm’s market behavior. Not
until 1920 did the federal government abandon serious consideration of breaking
up the firm on grounds of monopoly. As a result, for its first two decades the
company carefully avoided predatory market behavior. In the process it probably
over-reacted and created an economic environment congenial to new firms, which
sought the faster-growing sectors of the industry.
Size also hampered US Steel’s geographical distribution. Because it cost only
$100-$200/ton to “round out” existing facilities (in 1950s prices), but
$300/ton to build a greenfield plant of similar size, the company’s
concentration of plants around Chicago and Pittsburgh led to further investment
in those localities. As demand shifted, the firm did acquire and expand an
integrated works in Alabama (chapter 5), but US Steel never gained prominent
market share in the West or on the East coast , even in the 1950s after it
purchased facilities in Utah from the government and built the Fairless
integrated plant near Philadelphia (chapter 15).
However, other factors besides size also contributed to lower profits and
market share. For nearly three decades, Judge Gary dominated the company with
an emphasis on financial factors. While his biographer, Ida Tarbell, credited
him for strengthening mutual interest, cooperation, and good will in American
business, Warren quotes approvingly an unidentified (and uncited) critic’s
label for the chairman, “restricted in imagination.” Gary proved unable to
retain the loyalty of experienced steel executives, and key personnel left the
firm. Chief among them was Charles M. Schwab, who soon founded a more
innovative rival, Bethlehem Steel.
Under Judge Gary, the firm moved slowly into growth areas and lagged behind its
competitors technologically. Warren focuses on these issues in chapters six,
ten, eighteen, and twenty, and he demonstrates clearly the severe failures.
Until the mid-1920s, the firm hesitated to adopt the new universal beam mill,
with its vertical and horizontal rollers, and when it did so, Schwab discovered
that it infringed on a Bethlehem patent. Decades later, it ignored the superior
technology of the oxygen converter for bulk steel production, pointing out the
waste of scrapping relatively new open hearth furnaces. Management remained
silent on the steel capacity urgently needing replacement.
Warren provides two explanations for the technological lag. First, in general,
large firms may be less responsive to technological opportunity, perhaps to any
opportunity, because bureaucracies change slowly, and advocates of change must
convince more layers of the virtue of the risk. Second, executives at US Steel
remained arrogant about the superiority of American techniques, even though by
the 1950s capacity was expanding much more rapidly abroad, giving foreign
producers more opportunity to experiment with new methods.
Readers with interests in social history will find it appalling that the
12-hour day/68 hour week existed into the 1920s, made worse by the “long turn”
of 24 hours when shifts changed from day to night. So poor were labor relations
at the firm that when conditions finally improved, the impetus came from a most
unlikely source: the President of the United States, Warren G. Harding, who
wrote to Judge Gary about abolishing the 12-hour day.
Big Steel focuses on corporate strategy rather than biography, but
Warren particularly admires the leadership of two chairmen while noting the
failure of others (especially Gary, Roger Blough, and Edgar Speer). Myron
Taylor guided the company through the Great Depression. His program of
rationalizing production replaced 30% of capacity with modern mills, and not
for another half-century would the firm experience — and benefit from — such
wrenching change. By improving labor relations, Taylor also avoided becoming a
target of the 1937 sit-down strikes.
David Roderick guided the corporation through perilous times the half-century
later. In 1979 he replaced Edgar Speer as chairman, and halted his
predecessor’s treasured dream of building a greenfield integrated plant on Lake
Erie. That alone did not save the company from the bankruptcy experienced by
many of its competitors. Roderick also halted the pattern of dribbling
investment funds in plants across the corporation, instead targeting only those
units capable of meeting the world’s most efficient standards and slashing the
rest. He took control with capacity at 35 million tons; the year following his
retirement in 1989 it amounted to only 16.4 million tons. Only three integrated
works remained, at Fairfield (Alabama), the Monongahela Valley, and Gary. Even
those areas suffered severe job losses. By 1984 greater Pittsburgh had lost
25,000 of its 30,000 jobs four years earlier. Through such surgery, though,
Roderick saved a much-reduced US Steel, to compete with surging imports and
competition from mini-mills.
In conclusion, Kenneth Warren’s business history is valuable for both its
detail and its interpretations. The supporting material – tables, maps,
appendices and bibliography – reflect fine scholarship. Nevertheless, one
senses a desire to “include it all,” and non-specialist readers may tire of
relentless details and technical jargon. A glossary of steel terms would have
been useful. Those considerations aside, Big Steel undoubtedly fills an
important place in American business history, and it will be valued by
specialists in a number of sub-disciplines.
Malcolm Russell is a generalist on the economics faculty at Andrews University.
His most recent publication is The Middle East and South Asia, 2002.
|Geographic Area(s):||North America|
|Time Period(s):||20th Century: WWII and post-WWII|