Big Steel: The First Century of the United States Steel Corporation, 1901-2001

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

entire industry.

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.