STANLEY S. LITOW is a global thought leader on critical policy issues including education, jobs, and the economy. He has had a lengthy high-level career in business, government, education, and civil society. Serving under three CEOs, he led IBM's corporate citizenship programs and the IBM Foundation, where he created some of the world's most innovative corporate social responsibility efforts. At IBM he organized and helped lead three National Education Summits for the U.S. president, the nation's governors, CEOs, and education leaders. Before his IBM career he served as deputy chancellor of schools for the City of New York where he pioneered significant education reforms. He also founded and led a major think tank, Interface, that helped the City of New York cope with its last fiscal crisis. Prior to that he served under the mayor of New York City as executive director of the New York City Urban Corps, the nation's largest college intern program, and served on a range of advisory panels for the president of the United States and the governor of New York, where he chairs the State University of New York's Academic Affairs Committee.
The Good, Bad, and Ugly: A History of Corporate Behavior
In the late nineteenth century, Carnegie Steel was one of the world's most well-heeled and effective businesses, expanding its workforce in large numbers and growing rapidly across the United States. It came close to being a monopoly, and its success enriched its founder, Andrew Carnegie, who first gained prominence in the railroad industry. With the financial support of J. P. Morgan, Carnegie leveraged his knowledge and experience to build a massive business in steel, to the point where by 1885 he was producing most of the steel that built America's tools, factories, tall buildings, ships, streetcars, and machines. He was an iconic American business leader. Carnegie's personal wealth approached that of John D. Rockefeller, reaching far beyond any nineteenth-century standard of wealth. In today's world, Carnegie would be more than just a billionaire; his wealth would be at the Bill Gates or Warren Buffett level. To put the success of Carnegie's business into context, when he sold Carnegie Steel in 1901, it netted him nearly $500 million, which today would equate to more than $15 billion. And this was not value that would accrue to shareholders, investors, and executives; it represented Carnegie's personal enrichment, building on his already extensive wealth. And Carnegie's personal wealth grew subsequent to the sale, allowing him eventually to become one of the world's most generous philanthropists, on a scale equal to that of Rockefeller.
Carnegie didn't just give out money via his philanthropy. He had a vision of what he wanted and executed it effectively, pioneering America's public library system, which contributed to the nation's literacy and its transition from agriculture to a manufacturing-based economy. Carnegie's transformative private foundation survives to this day and plays a vital role in the support of public education and civil society. Its impact has truly been significant. Carnegie is a brand with strong positive impact. And yet the success of his company depended not a scintilla on philanthropy, sound business ethics, solid labor practices, or the support of community. Quite the contrary. Carnegie and the company he founded focused with laserlike attention on the economics of building and sustaining the business, which he did at any cost.
The company did provide benefits to the American economy. It pioneered steel production at massive levels, effectively competed with international geographies, and enriched a range of companies, including the railroads that it did business with. Most important, it created a large number jobs for Americans at a time when industrialization was on the rise. But in that period of industrialization, economic success depended heavily on the productivity of, and the company's relationship with its core asset, its workforce. Carnegie and the tight group of executives he had chosen to manage and lead the company in the late 1880s became increasingly worried and concerned about the influence of its fledgling labor union, the Amalgamated Steel Workers. The union representing these skilled workers saw the increasing size and scope of the company, and its astounding financial success, and saw an opportunity to increase wages, limit the workweek, and improve working conditions.
Work conditions at Carnegie's company were certainly not unique: it had a six-day and in some cases seven-day workweek, twelve- to fourteen-hour or longer workdays, unsafe working conditions, low wages, incidences of child labor, and offered no vacation days or overtime pay. This Industrial Revolution was a time of increased focus on working conditions and worker pay across American industries and around the world. This was intensified by an economic slump in the early 1890s that was part of a range of global economic trends largely beginning in Europe. Carnegie and his company chairman, Henry Clay Frick, who was in charge of the company's Homestead plant in Pennsylvania, felt the need to act and act promptly to reduce and not increase their labor costs. (Incidentally, Frick also donated his personal wealth at the end of his work life, in his case to create the Frick Museum on Fifth Avenue in Manhattan, which survives to this day.)
Carnegie and Frick and their tight circle of very well-compensated managers and investors were convinced that increased labor costs and any labor demands to improve working conditions and employee benefits would damage the fiscal future of the company and cut into the financial well-being of Carnegie Steel. This was top of mind to Carnegie because steel markets were in a brief decline. The consequences of their actions on the workforce were more than secondary, they were profound. As a result, in 1892 discussions with the union, Carnegie and Frick proposed not only to turn a deaf ear to any and all demands by the union, but to go one step further and reduce the minimum wage in the new contract. And beyond that, they aimed to abolish the bargaining power of the union entirely.
When the negotiations faltered, Carnegie and Frick ceased their negotiations with the Amalgamated Steel Workers and instead aimed to beat the union, or more explicitly, to break it. Their plan had nothing whatever to do with effective negotiation tactics, fairness, or even long-term success. They conceived and executed a strategy that began with employing hundreds of strikebreakers to replace the company's striking workforce; in record time, they built a ten-foot fence around the workplace to prevent interruption of work. But perhaps most important, they hired the Pinkerton Detective Agency to engage in swift, armed conflict with the strikers. The Carnegie and Frick strategy resulted in the deaths of dozens of workers, with over a hundred more injured, and effectively ended the worker strike and opposition to the company's labor practices.
They developed and executed their strategy swiftly and without remorse. The action effectively accomplished their goal-it broke the union. While Frick never regretted the action, Carnegie did. He later wrote, "No pangs remain of any wound received in my business career save that of Homestead." Perhaps some of his commitment to philanthropy served as a reaction to those events. However, in response to Carnegie's personal philanthropy in the creation of libraries, the president of Dartmouth College at the time, William Jewett Tucker, referring to Carnegie's efforts, opined that it was a "belated gospel . . . and too late for a social remedy," and one of Carnegie's steelworkers at the Homestead plant said, "What good are libraries to me, working practically 18 hours a day?"
Carnegie and Frick's reaction to their workers organizing to improve labor practices was not unique. The Pullman Strike in 1894, the 1902 anthracite strike, the 1913 Paterson silk strike, and the 1914 Colorado coal strike grew out of similar circumstances. Workers organized to improve working conditions and compensation, and in swift reaction employers beat back their demands with planned and calculated violence.
The actions that led to the Colorado strike and what happened afterward, known as the Ludlow Massacre, are particularly illustrative. Brooklyn-born John C. Osgood established a very successful mining company in Colorado called Colorado Fuel and Iron. Osgood has been characterized as one of a generation of business leaders known as the "robber barons." Though CF&I was actually owned in the main by John D. Rockefeller, Osgood played a major role in the company and had broad influence over the entire mining industry. Initially he seemed to be a progressive business figure, establishing the town of Redstone, Colorado, as a "company town" and investing in housing for its employees and even building a school for Redstone children and their parents. But after a strike by the workers, similar to what led to Carnegie and Frick's brutality, Osgood embarked on a publicity campaign to discredit the workers. He engineered actions by the National Guard to break the strike and break the union through violence. Two dozen people were killed in Redstone, leading to further violence. While the union was broken and these industrialists prevailed in the short run, a growing negative reaction by American citizens began to develop, leading to organizing and political advocacy at the state and national levels that ultimately brought about passage of child labor laws and the eight-hour workday.
Carnegie and Frick as well as Osgood and Rockefeller and many others were successful, at least in the short term. In the case of Carnegie and Frick, they and the company created some economic benefit, to be sure, but they enriched themselves greatly and cared little about the consequences. Carnegie's business grew rapidly through the end of the nineteenth century into the beginning of the twentieth. The business practices he followed with respect to his workforce were reprehensible. And, sadly, they had their influence on the practices of many other businesses. Jay Gould, a man of outsized wealth, legendary for his greed and lack of ethics, and importantly an investor in CF&I, summed up his views regarding labor practices as follows: "I can hire one half of the working class to kill the other half." Gould's actions went far beyond breaking unions. He engaged in stock fraud, manipulated the gold market, and rightly...