The first two decades of the 20th century was a time of maturation for American industry. The hard work, the risks, and the planning of the postbellum entrepreneurs were paying dividends that would propel the United States into a global economic power. Most observers at the turn of the century recognized the enormous potential of the American economy but it still required entrepreneurs to adapt and exploit business practices to turn the potential into a actual productivity. Henry Ford’s innovative mass production techniques is one example, but there were others in different industries. Charles M. Schwab was this type of individual and his story reflects both the nature of the postbellum era as well as the economic dynamism of the early 20th century. Specifically, Schwab’s career in steel and shipbuilding illustrated two fundamental aspects in the new American economic landscape in the 20th century: the integral role of organized labor (unions) and the expansion of corporations as a business model especially in heavy industries.
Schwab remains an icon of the American steel industry and its associated manufacturers. Not to be confused with the Charles Schwab of modern finance, he was the epitome of the rag-to-riches entrepreneur symbolizing the American dream. Beginning on the factory floor of one of Andrew Carnegie’s steel mills, Schwab rose to become president of the Carnegie Steel Company in 1897 by the age of thirty-five.[1] Carnegie recognized early Schwab’s abilities as an engineer and leader; he was equally skilled in metallurgy and managing people. The two developed a mentorship and close friendship that would last their lifetime. Early on, Schwab established himself as a technical expert with his frequent experiments on the chemical composition of steel and developed a reputation for his thoroughness and knowledge. He also developed new methods and process which improved the speed and safety of production.[2] By the turn of the century, Schwab was president of U.S. Steel and helped found the abortive United States Shipbuilding Company which unfortunately ended in scandal and resignation.[3] However, Schwab recovered by 1905 and proceed to develop the Bethlehem Steel Company and its subsidiary, the Bethlehem Shipbuilding Corporation, into industrial leaders over the next decade.
One of the hallmarks of the new era was the recognition of the power of labor as an institution. Both managers and laborers appreciated the industrial dependency on labor, and this leverage gave workers a bargaining power which had not previously existed. By the 20th century, unions were an integral part of large enterprises and just like resources or capital, this aspect of business required a skilled hand to manage. Early in his career, Schwab earned a reputation for maintaining a positive relationship with his workers; he knew everyone by name regardless of shift or position. Schwab improved worker safety and offered good wages; for those that distinguished themselves, he granted promotions as well as pay raises.[4] Unlike other industrial leaders, Schwab saw labor as an investment rather than merely a cost that needed to be minimized. He demanded much from his workers but did so in a positive encouraging manner and promoted friendly competition among shifts. Teamwork and tangible rewards were his preferred method of motivation. Schwab did not support the formation of unions, mostly because he believed that interpersonal relations was a better approach. To a degree, Schwab was correct, but as an enterprise grew, the gulf between top leadership and workers naturally widened. In 1910, a workers strike at Bethlehem Steel revealed the inadequacy of Schwab’s personal touch. As president, Schwab sought to resolve labor’s grievances through personal intervention and meetings, but he lacked the full confidence of the workers, and the strike grew into a national affair. Although Schwab ultimately succeeded in resolving the disputes, the entire episode demonstrated that organized labor (unions) negotiating with management was the way of the future.[5]
The emergence of the corporation was another hallmark of the changing American economic landscape. Although corporations per se were not new, the expansion of the corporate model was unprecedented in uniting disparate business around the nation. For Schwab, his term as president of U.S. Steel exemplified this and set a pattern for his later success at Bethlehem. The concept of the corporation was that a single entity oversaw and coordinated the activities of several smaller companies which reduced costs and boosted profits. The corporation enabled the different companies to share each other’s burdens and to utilize each other’s resources. A single iron foundry or steel mill in the Midwest might have trouble meeting a surge in demand but the corporation could utilize excess production elsewhere to fill orders without losing customers to a competitor. Schwab wholly embraced this model and used it to lower costs which ultimately benefited both consumers and profits. In the case of shipbuilding, Bethlehem initially owned two yards, one on each coast, which previously had been separate companies; by 1920, seven yards were now managed together. Corporations were controversial and a target for anti-trust legislation (often for good reason) and Schwab was frequently in the news as a result.[6] While Schwab did not endorse monopolies, he believed that consolidation of small enterprises played a valuable role in creating a healthier business climate and that diversification of a company’s production ultimately created a stronger enterprise. By pooling resources in a trust, more businesses would profit and have the means to achieve Schwab’s primary goal: bringing high quality goods to the largest market at the cheapest price.[7]
Schwab’s leadership of Bethlehem Steel and Bethlehem Shipbuilding Corporation proved highly successful. During World War I, the steel firm filled large European orders for munitions as well as armor plate for the US navy. With America’s entry into the war, President Woodrow Wilson asked Schwab to lead the wartime shipbuilding effort which he accepted after some hesitancy. Assured that he would not be beholden to political concerns or extraneous regulations, Schwab also demanded that he not be forced into circumstances where a conflict of interest or charges of favoritism would be raised regarding Bethlehem. He further stipulated that he would operate on the same principles which had made his enterprises successful. The president agreed and shielded Schwab from unjust criticism; regarding Bethlehem, a special committee was formed to handle all contracts and excluded Schwab per his request. Criticisms proved moot when many competitors, such as Bath Iron Works, received prime contracts over Bethlehem. Pursuing the same labor and corporate philosophies from his business experience, Schwab led the United States to construct over 300 warships in a few years and crafted the model for the massive shipbuilding program of World War II. Schwab’s legacy remains an inspiration to many entrepreneurs as well as example of the changes in American industry in the early 20th century.[8]
Sources
“All Are Millionaires.” Morning Times, January 1, 1896. https://www.loc.gov/resource/sn84024442/1896-01-01/ed-1/?sp=2&q=%22Charles+M.+Schwab%22&r=0.249,1.002,0.47,0.291,0.
Are you working with Schwab? / Thomsen-Ellis Co., Baltimore, New York. ca. 1917. Photomechanical print. Library of Congress. https://www.loc.gov/item/00652939/.
“Carnegie Company Changes. J. G. A. Leishman Resigns the Presidency Because of Ill Health.” Sun, February 13, 1897. https://www.loc.gov/resource/sn83030272/1897-02-13/ed-1/?sp=1&q=%22Charles+M.+Schwab%22&r=0.266,0.305,0.394,0.244,0.
“Changes at Homestead. Schwab Becomes Superintendent – Potter’s New Position.” Evening World, October 18, 1892. https://www.loc.gov/resource/sn83030193/1892-10-18/ed-2/?sp=6&q=%22Charles+M.+Schwab%22&r=0.585,0.746,0.413,0.255,0.
Charles M. Schwab, 1862 - 1939. July 6, 1918. BW Photograph. Library of Congress. https://www.loc.gov/item/2002715784/.
Friedman, Norman. U.S. Destroyers: An Illustrated Design History. Rev. ed. Annapolis, MD: Naval Institute Press, 2004.
Hessen, Robert. Steel Titan: The Life of Charles M. Schwab. Pittsburgh, PA: University of Pittsburgh Press, 1975. http://ezproxy.liberty.edu/login?url=https://www.jstor.org/stable/j.ctt6wrdvd.1.
“How Morgan Got Into Ship Deal: Charles Steel, One of His Partners, Tells on Witness Stand About the Sale of the Bethlehem Plant; Schwab Sold It to Firm, Then Bought It Back. Paid Morgan & Co. $7,000,000 and Immediately Sold It to the Shipyard Trust for $30,000,000.” Evening World, December 17, 1903. https://www.loc.gov/resource/sn83030193/1903-12-17/ed-1/?sp=1&q=%22Charles+M.+Schwab%22+AND+%22Bethlehem%22&r=0.084,0.131,0.561,0.347,0.
Monks and Johnson. NH 43162 Bethlehem Shipbuilding Corporation, Squantum, Massachusetts. ca. 1919. BW photograph, Naval History and Heritage Command. https://www.history.navy.mil/content/history/nhhc/our-collections/photography/numerical-list-of-images/nhhc-series/nh-series/NH-43000/NH-43162.html.
“Prosperity Not Due to Demands of War: Bulk Comes From Ordinary Business Channels, Declares Charles M. Schwab.” Liberal Democrat, October 27, 1916. https://www.loc.gov/resource/sn85029856/1916-10-27/ed-1/?sp=9&q=%22Charles+M.+Schwab%22+AND+%22Bethlehem%22&r=0.357,-0.033,0.556,0.344,0.
Roland, Alex, W. Jeffrey Bolster, and Alexander Keyssar. The Way of the Ship: America's Maritime History Reenvisoned, 1600-2000. Hoboken, NJ: John Wiley and Sons, 2008.
Thiesen, William H. Industrializing American Shipbuilding: The Transformation of Ship Design and Construction, 1820-1920. Gainesville, FL: University Press of Florida, 2006.
Walters, William D., Jr. "Geographical Record: American Naval Shipbuilding, 1890-1989." Geographical Review 90, no. 3 (July 2000): 418-31. https://www.proquest.com/docview/225327380/fulltextPDF/AB9D5E07CE2D4933PQ/1?accountid=12085
[1] “Changes at Homestead. Schwab Becomes Superintendent – Potter’s New Position.” Evening World, October 18, 1892. https://www.loc.gov/resource/sn83030193/1892-10-18/ed-2/?sp=6&q=%22Charles+M.+Schwab%22&r=0.585,0.746,0.413,0.255,0.; “All Are Millionaires.” Morning Times, January 1, 1896. https://www.loc.gov/resource/sn84024442/1896-01-01/ed-1/?sp=2&q=%22Charles+M.+Schwab%22&r=0.249,1.002,0.47,0.291,0.; “Carnegie Company Changes. J. G. A. Leishman Resigns the Presidency Because of Ill Health.” Sun, February 13, 1897. https://www.loc.gov/resource/sn83030272/1897-02-13/ed-1/?sp=1&q=%22Charles+M.+Schwab%22&r=0.266,0.305,0.394,0.244,0. [2] Robert Hessen, Steel Titan: The Life of Charles M. Schwab (Pittsburgh, PA: University of Pittsburgh Press, 1975), 27 – 28, http://ezproxy.liberty.edu/login?url=https://www.jstor.org/stable/j.ctt6wrdvd.1. [3] “How Morgan Got Into Ship Deal: Charles Steel, One of His Partners, Tells on Witness Stand About the Sale of the Bethlehem Plant; Schwab Sold It to Firm, Then Bought It Back. Paid Morgan & Co. $7,000,000 and Immediately Sold It to the Shipyard Trust for $30,000,000.” Evening World, December 17, 1903. https://www.loc.gov/resource/sn83030193/1903-12-17/ed-1/?sp=1&q=%22Charles+M.+Schwab%22+AND+%22Bethlehem%22&r=0.084,0.131,0.561,0.347,0. [4] Hessen, Steel Titan, 127, 186 – 187. [5] Hessen, Steel Titan, 194 - 196.
[6] “Prosperity Not Due to Demands of War: Bulk Comes From Ordinary Business Channels, Declares Charles M. Schwab,” Liberal Democrat, October 27, 1916. https://www.loc.gov/resource/sn85029856/1916-10-27/ed-1/?sp=9&q=%22Charles+M.+Schwab%22+AND+%22Bethlehem%22&r=0.357,-0.033,0.556,0.344,0. [7] Alex, W. Roland, Jeffrey Bolster, and Alexander Keyssar, The Way of the Ship: America's Maritime History Reenvisoned, 1600-2000 (Hoboken, NJ: John Wiley and Sons, 2008), 243 – 244. [8] Hessen, Steel Titan, 127, 238, 241 - 243.; Roland, Bolster, and Keyssar, The Way of the Ship, 268 – 269, 272 – 273.
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