Bethlehem Steel: Builder and Arsenal of America

Published by EH.NET (April 2009)

Kenneth Warren, Bethlehem Steel: Builder and Arsenal of America. Pittsburgh: University of Pittsburgh Press, 2008. xix + 322 pp. $45 (hardcover), ISBN: 978-0-8229-4323-5.

Reviewed for EH.NET by Paul Tiffany, Haas School of Business, University of California, Berkeley.

Kenneth Warren, an emeritus professor of history at Oxford, has written yet another of his monographs concerning the iron and steel industry. Warren appears to have again fruitfully mined the available data for his research on this work chronicling the rise and fall of Bethlehem Steel, once the second-mightiest of America?s iron and steel giants. Tracing the origins of the firm through the emergence of the anthracite coal industry of the Lehigh Valley of northeastern Pennsylvania (and its principal city, Bethlehem) in the 1830s to the eponymous firm?s demise in 2003, the author weaves a tale involving geographical legacy, technological change, organizational expansion, and corporate leadership failures.

The sixteen chapters and epilogue of the book are spread over three sections. The first chronicles the rise of the predecessor firm from it origins in 1857 through 1899, and consists of the details of technological change and locational factors in the emerging mass production American steel industry. Part Two covers the twentieth century years of Bethlehem Steel?s rise to become the number two supplier, behind U.S. Steel, through the 1950s, while the last section (?Triumph, Crisis, and Collapse?) brings the story to a close with the gradual descent of Bethlehem to the point when it finally ceased to exist on December 31, 2003 after its sale to a ?vulture capitalist? who subsequently sold off most of its remaining assets.

As in most of his prior works, Warren commits a large portion of his scholarship to the detailing of mills, furnaces, ovens, and converters ? when they were constructed, their capacities, their outputs in production tons and their technological specificities ? and access to raw materials necessary to their operation. Perhaps too many pages of this study are sacrificed to these listings (especially in Part Two) and too few are devoted to the flesh-and-bones decisions taken by real people whose actions ultimately shaped the fortunes, and misfortunes, of Bethlehem Steel over the course of its long history.

This firm was dominated by the overarching personalities of two men, Charles M. Schwab and Eugene G. Grace (though one might make a case that Joseph Wharton ? a founder and chairman of the predecessor firm Bethlehem Iron ? might be added to this duo). Warren has previously produced a biography of Schwab, so perhaps this was a reason why he limits his coverage of the flamboyant Carnegie prot?g? who forged Bethlehem into a global giant from his purchase of the firm in 1901 until he effectively stepped down from day-to-day supervision in the 1920s. The views and values espoused by Schwab, however, proved to be indelibly imprinted onto his successor Grace, and they remained intact until the firm?s last days of existence. Indeed, as the author emphasizes (too lightly in this reviewer?s opinion), it was an inability to redefine the by-now obsolete policies and strategies of the past that proved to be Bethlehem?s undoing in the post-World War II global era of steel.

One wishes that Warren had focused more on these personalities than on the at-times mind-numbing iteration of capacity, production, and financial figures (though primary data constraints no doubt prevented this). It is only during the last forty or so years of the firm?s history that we see specific linkages between managerial behavior and subsequent corporate action, and it is only in those pages that the tragedies of the firm take shape in a way that makes sense to us today. Warren is unsparing in his criticism of these corporate leaders when the documentary sources permit, and his conclusions after evaluating their actions ring with authenticity. But there is simply not enough of this kind of reporting to offset the earlier chapters that are much too heavy on structural data and too light on behavioral detail.

The message that emerges, however, is one of manufacturing myopia and managerial failure. In a telling comment (p. 194), Warren notes that the relative geographic isolation of Bethlehem was mirrored in the narrow-mindedness of its senior executive team. In denial over the changing dynamics of the industry as it evolved from a nation-centric to a truly global industry in the latter stages of the twentieth century, Bethlehem?s leadership continued to follow a course of action that essentially said that the erection of production capacity was the fundamental determinant of industry success. That same leadership failed to make peace with a labor force whose self-serving actions would be devastating to the firm in its last years, and it stubbornly clung to a belief that the changes roiling the global economy could somehow ? and should ? be kept from the shores of America through governmental prophylactics on the tenets of free trade. Moreover, Bethlehem also failed to address the reality of disruptive new technologies in steel making that would render its existing capacity uneconomic if not totally obsolete (as well as the environmental implications of steelmaking technology and a growing public demand for redress). While these errors of both commission and omission were industry-wide among the major integrated steelmakers of America in the latter half of the twentieth century, Warren?s detailing of specific decisions by Bethlehem?s succession of top leaders from the time of the retirement of company chairman Eugene Grace in 1959 onward (he started with the firm in 1899 and served as its leader for forty-four consecutive years) are telling.

It is here that I wish the author had veered more sharply from his traditional focus on capacities, tonnages, geographic location, etc. to explain the rationale of corporate decline. The concept of ?organizational culture? to explain the success or failure of a firm has been a subject of scholarly analysis for nearly thirty years now, and it bleeds through the pages of Warren?s story even if he does not acknowledge it with any degree of formality. Steel output ? ever larger ? was the mantra of Grace and by extension the entire firm (e.g., see p. 160), and this belief flowed through every vein and sinew of the firm throughout its history. Yet steelmaking capacity itself ? size for the sake of size ? would prove to be an illusory foundation as the industry evolved and global competition arose. Indeed, size became the fundamental factor of Bethlehem?s ultimate demise ? a fact that Warren clearly acknowledges in the last paragraph of his study. The question that he raises but does not fully dissect, however, is whether the pursuit of scale was driven by necessity or by other factors (personal ego, follow-the-leader mentalities, bad industry analytics, stupidity, etc.). While he scolds management throughout the post World-War II years of the firm?s existence, he nevertheless ? and somewhat frustratingly ? states that these men were ??intelligent, hard working, and loyal employees who had striven to save the company? (p. 263). One wishes, given the tenor of his critique on other pages, that the author would have more convincingly stated a case that managerial failure was at the root of the firm?s ultimate demise. Alas, he does not.

Paul Tiffany is a senior lecturer at the Haas School of Business of the University of California, Berkeley where he teaches courses in global and competitive corporate strategy. He is the author of The Decline of American Steel (Oxford, 1988) and has contributed numerous reviews of works regarding the American steel industry. He can be reached at: tiffany@haas.berkeley.edu.