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Big Steel

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

Kenneth Warren
Copyright Date: 2001
Pages: 424
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  • Book Info
    Big Steel
    Book Description:

    At its formation in 1901, the United States Steel Corporation was the earth's biggest industrial corporation, a wonder of the manufacturing world. Immediately it produced two thirds of America's raw steel and thirty percent of the steel made worldwide. The behemoth company would go on to support the manufacturing superstructure of practically every other industry in America. It would create and sustain the economies of many industrial communities, especially Pittsburgh, employing more than a million people over the course of the century.

    A hundred years later, the U.S. Steel Group of USX makes scarcely ten percent of the steel in the United States and just over one and a half percent of global output. Far from the biggest, the company is now considered the most efficient steel producer in the world. What happened between then and now, and why, is the subject ofBig Steel,the first comprehensive history of the company at the center of America's twentieth-century industrial life.

    Granted privileged and unprecedented access to the U.S. Steel archives, Kenneth Warren has sifted through a long, complex business history to tell a compelling story. Its preeminent size was supposed to confer many advantages to U.S. Steel-economies of scale, monopolies of talent, etc. Yet in practice, many of those advantages proved illusory. Warren shows how, even in its early years, the company was out-maneuvered by smaller competitors and how, over the century, U.S. Steel's share of the industry, by every measure, steadily declined.

    Warren's subtle analysis of years of internal decision making reveals that the company's size and clumsy hierarchical structure made it uniquely difficult to direct and manage. He profiles the chairmen who grappled with this "lumbering giant," paying particular attention to those who long ago created its enduring corporate culture-Charles M. Schwab, Elbert H. Gary, and Myron C. Taylor.

    Warren points to the way U.S. Steel's dominating size exposed it to public scrutiny and government oversight-a cautionary force. He analyzes the ways that labor relations affected company management and strategy. And he demonstrates how U.S. Steel suffered gradually, steadily, from its paradoxical ability to make high profits while failing to keep pace with the best practices. Only after the drastic pruning late in the century-when U.S. Steel reduced its capacity by two-thirds-did the company become a world leader in steel-making efficiency, rather than merely in size.

    These lessons, drawn from the history of an extraordinary company, will enrich the scholarship of industry and inform the practice of business in the twenty-first century.

    eISBN: 978-0-8229-7059-0
    Subjects: History, Business

Table of Contents

  1. Preface
    (pp. xvii-xviii)
    Kenneth Warren
  2. Introduction. Preeminent Size: The Economies and Diseconomies of Scale
    (pp. 1-4)

    The large industrial operation typically enjoys many economic benefits compared to smaller rivals. Some of these advantages are technical, resulting from larger units of equipment in which the ratio of inputs such as energy or labor and the outputs of saleable products are favorable in relation to the size, capital, and operating costs of the physical plant. For the big firm, particularly if it is a multiplant operation, there may be other gains, including savings on the management and sales accounts, a greater capacity to support research and to utilize its results, and the ability to allocate orders so as...

  3. Part One. The Gary Era

    • 1 Origins: The Creation of the United States Steel Corporation
      (pp. 7-21)

      On 1 April 1901 the United States Steel Corporation was incorporated under the laws of New Jersey. It was far and away the nation’s biggest steel company and the largest industrial organization of any kind worldwide. The capital involved was $1.1 billion, though, as in other trusts of the time, this figure was grossly inflated with “water”—that is, much of its nominal capital was not represented by physical plant. The origins of this gigantic agglomeration of capacity and capital may be traced through a range of forces—some general, many peculiar—to the particular stage reached in national economic...

    • 2 Early Years of Industry Leadership, 1901–1904
      (pp. 22-31)

      When asked why he had helped in the formation of US Steel, John Warne Gates replied, “To convert a lot of doubtful assets into cash,”¹ He had been hurt by J. P. Morgan’s refusal to include him on the Board of Directors. Even if this showed in the frank cynicism of his statement, there was at least an element of truth in Gates’s words, for much of the nominal capital did not represent tangible assets. Like most combinations of the time, US Steel was grossly overcapitalized. It is true that, shortly after trading began, Schwab set the value of its...

    • 3 Judge Gary’s “Umbrella”: The Advantages and Disadvantages of a Managed Industry
      (pp. 32-50)

      The steel industry, during the quarter-century beginning with the establishment of US Steel, had as its unquestioned leader the imposing figure of Elbert H. Gary. He epitomized not only the might of the preeminent operator in what was still the nation’s leading manufacturing sector, but, as even those who disagreed with many of his policies accepted, he also presented an impressive public face for the company and industry, one of dignity, responsibility, and rectitude. As W. B. Dickson, who had previously worked for Carnegie Steel and was often in disagreement with Gary, recognized, in its early years, US Steel “was...

    • 4 The Changing Balance of Locational Advantage and Expansion: The Rail Trade and the Gary Project
      (pp. 51-63)

      At the end of the nineteenth century, it was not at all easy to foresee how the distribution of the American steel industry would change over the next few years. Many observers, extrapolating from the production patterns of the 1890s, were convinced that the East was played out, a conclusion soon to be dramatically disproved. A few, deeply impressed by its close juxtaposition of iron ores, coal, and limestone in contrast to the long distances separating Great Lakes ore from Appalachian coal, felt the future lay in the Birmingham area. The British expert J. S. Jeans, on a visit to...

    • 5 Government, Business, and Industrial Development: The Cases of Duluth, Birmingham, and a Canadian Plant
      (pp. 64-85)

      Despite a firm, frequently reiterated, national commitment to free enterprise, government had always played a most important role in the growth of the iron and steel industry. The most sustained form of involvement was in tariff policy. Types and levels of duties changed, but the fact of protection, in early years from larger and better endowed national industries and later from those that had much lower labor costs, was generation after generation an essential backdrop to the industry. In some instances, as with the iron-rail business in the second quarter of the nineteenth century, Bessemer rails in the 1870s, and...

    • 6 Entrepreneurial Failure? Technological Backwardness, Constructional Steels, and the Universal Beam Mill
      (pp. 86-97)

      It might be expected that a prominent advantage of a giant corporation would be an ability to pioneer in the best technology, either by using the inventions of others or by applying the results of its own researchers. Carnegie Steel had led in the large-scale adoption of the basic open hearth and had always shown a readiness to scrap and rebuild in order to equip its mills with state-of-the-art plant and equipment. At its projected Conneaut works, it had planned to be technologically so far ahead of its rivals as to produce tubular products at far below the costs of...

    • 7 The Interlude of World War I
      (pp. 98-105)

      On 28 June 1914, while a US Steel Finance Committee meeting was underway in New York City, the Archduke Franz Ferdinand of the Austro-Hungarian Empire was assassinated in Sarajevo. The aftermath of this far-away event marked a major stage in the fortunes of US Steel. World War I more or less coincided with a watershed in the American industrial economy—in Walt W. Rostow’s terminology a time of transition from the drive to economic maturity to the age of mass consumption, a change over from an economy of coal, steel, and railroads to one dominated by petroleum, steel, and the...

    • 8 Labor Conditions and Relations during the Gary Years
      (pp. 106-120)

      From the start, the United States Steel Corporation employed a huge workforce, and its numbers for many years grew roughly in proportion to the increase in output. Average employment in 1902 was 168,127 men. Highs were reached at times of high activity—210,180 employees in 1907, 228,906 in the boom of 1913, and a World War I annual peak of over 268,000. In times of difficulty, men were thrown out of work, though the declines were much smaller than the shrinkages of output. In 1903–1904 the utilization rate for raw steel capacity averaged 77.3 percent as compared with 97.2...

  4. Part Two. The 1920s, Depression, and Reconstruction

    • 9 The Changing Shape of Competition and the End of the Gary Years, 1919–1927
      (pp. 123-131)

      When in the course of 1920 the postwar boom began to turn toward depression, Elbert H. Gary was already in his seventy-fifth year. Under his guidance US Steel met these new challenges in time-honored style. Whereas other top steel producers, led on this occasion by the Midvale Steel and Ordnance Company—headed by his former Carnegie Steel colleagues William Corey. Alva Dinkey, and William Dickson—decided to cut prices, the Corporation was reluctant to do so. Whereas shipments and employment fell sharply, it firmly maintained dividend payments. During this first postwar depression, it even managed to increase its share of...

    • 10 ERW Pipe and the Wide Continuous Strip Mill: Instances of Delayed Innovation
      (pp. 132-142)

      In its extensive 1936 coverage of US Steel,Fortunemagazine recalled that the Corporation’s policy had once been summarized as “No inventions: no innovations.” If true, then the interwar years provided a most inappropriate setting for the practice of such a business article of faith, because change, efficiency, and competitiveness were now more important than inherited size and previous growth. As Charles M. Schwab confided to a press correspondent sometime during 1935 or 1936, the chairman of US Steel had recently admitted to him that the Corporation, in fact, had missed every “new thing” in steel.¹

      At the time when...

    • 11 Crisis and Response: The Achievements of Myron Taylor, 1927–1938
      (pp. 143-163)

      In the late 1930s, students of business realized not only that the national economy was at last emerging from the greatest of depressions but also that the ways of doing business were and would always be different from what had gone before. The director of the Pittsburgh Bureau of Business Research recognized something of what this implied for the leading local industry: “The past ten years or so may be looked on as years of transition for the American iron and steel industry—transition from youth with its vigorous growth and rapidly expanding markets to the stage of economic maturity,...

    • 12 Labor Relations under Myron Taylor and Philip Murray
      (pp. 164-169)

      In the 1930s there were major developments in the relations between US Steel and labor. During the worst part of the Depression, the Corporation introduced the policy known as “share the work.” This was sensible and humane, though take-home pay was inevitably reduced severely. Steel shipments in 1932 were only a little over one-quarter those of 1929, but the average monthly number of employees was 64.6 percent as high and average weekly earnings about half as much as three years before. Employment costs in 1932 totaled a little over one-third the 1929 level. By the boom of 1937, output, employee...

    • 13 New Regions: US Steel and the Changing Geography of the National Market
      (pp. 170-190)

      Through the early decades of the twentieth century, it was clear that demand for steel was not only growing and changing in composition but also undergoing major alterations in distribution. Some parts of the industrial core of the nation—now for the first time referred to as the Manufacturing Belt—were, relatively speaking, in decline, while others were improving their standing. New England and, to a lesser degree, Pennsylvania were examples of areas declining, while the Midwest and especially Michigan represented the surging regions. The West, and particularly the Far West, was steadily increasing its share along with the South....

  5. Part Three. Expansion, Prosperity, and Increasing Problems

    • 14 Government-guided Growth: US Steel in World War II
      (pp. 193-200)

      In summing up the situation of US Steel as he left its chairmanship in spring 1938, Myron Taylor alluded to the Corporation’s significance to the nation. His assessment may be difficult to grasp from a modern perspective in which the whole nature of society, economy, and technology has changed almost beyond recognition: “There is a national aspect. The presence of the Corporation gives a measure of protection to the nation, both in peace and war. For it is not without significance for the nation to have always at call the developed facilities of the Corporation and always to be assured...

    • 15 Filling Out the Production Map: US Steel beyond Pennsylvania and the Great Lakes, 1945–1970
      (pp. 201-213)

      Until after World War II, US Steel had no major facilities outside the two major national ore and fuel production systems—the almost thousand-mile-long movements between the head of the Great Lakes and the Appalachian coal plateaus and the much tighter pattern of supply and production in the Birmingham area. In the East it had locally important manufacturing operations at Worcester, Massachusetts, and Pencoyd, Pennsylvania; fabricating works; and service centers. Over the huge areas of the West, the Corporation controlled a number of small steel operations, above all that at Pittsburg, California, near the mouth of the Sacramento River, and...

    • 16 Triumph and Marking Time, 1945–1960
      (pp. 214-230)

      By the late 1940s, the American steel industry occupied an exceptional position in the world. The material base of the military victory recently won by the Allies had depended at least as much on the United States’s preeminent position in iron and steel as on any other sector of its economy. At the same time, the course of World War II had left much of the capacity in other parts of the globe in ruins. American 1945 output of almost 80 million tons of raw steel amounted to an estimated 62.4 percent of the world total, a share not approached...

    • 17 A Time of Transition, the 1960s
      (pp. 231-242)

      The seeds of future problems for the American steel industry were sown in the choices made during the expansion of the 1950s; the harvest was reaped in operating losses, plant closures, and the lay-off of tens of thousands of workers through the 1970s and 1980s. Between these two periods were approximately ten years of fairly high-level production in the midst of increasing uncertainty. From 1950 to 1959, national steel capacity increased by a remarkable 46 million tons. In tonnage terms, the United States industry still dominated the world of steel at the end of the decade. However, as may be...

  6. Part Four. Decline, Reconstruction, and Prospects

    • 18 Response to a Technological Revolution: The Large Blast Furnace, Oxygen Steel Making, and Continuous Casting
      (pp. 245-258)

      During the course of the 1950s, the United States began to fall behind the best world steel manufacturing practices in a number of respects. Much of this was for very practical reasons, but the long-term implications were serious. Into the middle of that decade, the United States had the biggest blast furnaces, but after that others pushed ahead. In steel technology and the early stages of further processing, the nation’s steel makers were also falling behind the improved, indeed ultimately revolutionary, processes first introduced elsewhere. America had led the noncommunist world in expansion of capacity for many decades. Now the...

    • 19 Long-term Changes in Corporate Organization and Location
      (pp. 259-278)

      From the beginning, the operations of the United States Steel Corporation were expected to benefit from a more efficient coordination of operations in which there would be economies of scale, a removal or at least decrease in duplication of production facilities, and reduced cross-hauling. Given the size, complexity, and structure of what took shape in spring 1901, the realization of these sensible aims understandably proved difficult. US Steel was a holding rather than operating corporation, and the early challenge was to strike a balance between the continuing ambitions of those who controlled its individual companies and a logical new strategy...

    • 20 The National Steel Industry since 1970
      (pp. 279-294)

      Early in 1970 the former president of Crucible Steel was quoted as looking toward expanding world market prospects for steel with scarcely contained enthusiasm: “Just imagine what’s going to happen in a place like Nigeria. Its the ninth most populous country in the world and these people aren’t going to be walking around in T-shirts much longer. All over South East Asia people are going from pushing a wagon to getting a bicycle. My god, if every Chinese had a bike.” A few months earlier, the International Iron and Steel Institute had held its annual meeting in Tokyo. In his...

    • 21 The Chairmanships of Edwin H. Gott and Edgar B. Speer
      (pp. 295-308)

      In 1969 Roger Blough was succeeded as chairman and chief executive by Edwin H. Gott, who four years later was replaced by Edgar B. Speer, who in turn was forced by illness to retire in spring 1979. In such a large organization as US Steel, it is tempting to assume that a single individual cannot move and give direction to the whole, that what happens is a product of collective thought and decision making. Nevertheless, earlier experience with Elbert Gary, Myron Taylor, or Benjamin Fairless suggests that the times call forth the man responding to opportunities or capable of tackling...

    • 22 The Rationalizing of US Steel after 1979
      (pp. 309-339)

      In April 1979, when the rapidly failing health of Edgar Speer forced his retirement, David Roderick replaced him as chairman of US Steel. The Annual Report for 1978 had referred to a continuing “weeding out process” that had brought about the permanent shutdown of “several marginal units”; there had, in fact, so far been relatively little of this. US Steel policy soon made a discernible shift, though, involving large reductions of capacity and disposal of assets, including reserves of raw materials. Although steel production and sales were now falling, the timing of the change in policy indicates that the transfer...

    • 23 Labor on the Defensive during the Rationalization of the 1980s and 1990s
      (pp. 340-346)

      During the last two decades of the twentieth century, there have been quite remarkable changes in the labor situation at US Steel. The shrinking capacity; the installation of new, high-capacity, low-labor-input equipment in both furnace operations and above all oxygen steel making and continuous casting; and the use of more highly automated rolling mills have reduced the work force and the significance of labor costs in the overall expenses of production. Employee numbers, after varying relatively little through the late 1960s and the 1970s, fell very sharply as a result of these changes.

      In the early 1980s, as both US...

  7. Conclusion. United States Steel in the Long View
    (pp. 347-356)

    The United States Steel Corporation came into being as a wonder of the manufacturing world, its largest industrial firm and dominating what was then the key sector of the economy. Yet, from the start it was not a rationally conceived, rounded creation but rather an agglomeration of businesses. It was commercially successful because of its huge size and predominating power in the marketplace. Even in the early years, the Corporation was outmaneuvered by some of its smaller competitors and as a result underwent a sustained if slow decline in market share. For the well over one-quarter of its history during...

  8. Appendix A. Statistical Tables
    (pp. 357-366)
  9. Appendix B. Chief Officers of US Steel, 1901–2000
    (pp. 367-368)