Sunday, September 21, 2014

Charles Schwab: Steel Maker and a Tragedy

Charles M. Schwab
One of the most desired resources during the Industrial Revolution was steel. Most countries that wanted to become industrialized must be able to produce their own steel. And the United States, one of the most industrialized and advance countries during the late 19th century, had produced their steel. Several men managed to capitalize on the need of steel and became rich. Among these men were Andrew Carnegie. But within the mist of Carnegie, another man grew to become an iconic industrialist. His name was Charles Schwab.

Charles Schwab born to the state that served as home for many steel mill. In 1862, Charles Schwab was born to a well off family. He was able to attend St. Francis College in Loretto, Pennsylvania. After studying college, during the late 1870’s, he worked as a small time worker in the Edgar Thomson Steelworks, a subsidiary owned by Andrew Carnegie. He worked for years with $2 per day salary. His years of hard working labor caught the eye of the management, and in 1887, Carnegie appointed Schwab as a manager of the Homestead Steel works in Pennsylvania. In 1889, he was transferred to Thompson Plant.

His transfer could not have been a good timing. Three years after his transfer, a tragedy occurred in the Homestead plant. During his absence management and labor relations deteriorated rapidly. Henry clay Frick managed the problems heavy handedly. A massive strike and lock down happened to the plant in 1892. Frick hired the Pinkertons retake the steel plant for the management. The confrontation between the workers and the Pinkertons turned bloody. Both sides, the workers and the Pinkertons, suffered casualties. Later, the state governor of Pennsylvania sent the state militia to restore order. Negotiations underwent and by 1892, the strike was over. However, the management, under Henry Frick, as well as Carnegie suffered public condemnation and outcry.

After the disastrous Homestead Strike, Carnegie brought back Schwab as manager of the Homestead Plant, giving him the task of repairing the severed management and labor relations. Schwab proved to be efficient. His work in Homestead restored workers morale as well as productivity. And because of his efforts in homestead, in 1897, Andrew Carnegie placed Schwab, who was only 35, to become the President of Carnegie Steel. His presidency allowed him to earn a million dollars every year.

During his presidency of the Carnegie Steel, he would be a major player for the creation of the first billion dollar corporation in the world – US Steel. In 1900, Schwab made a speech discussing his vision of an efficient and profitable steel company. He advocated vertical integration of companies, from iron ore to coal mines to distribution and specialized steel product makers. Among those who carefully listened and attracted to his speech was the financial mogul J.P. Morgan, and his companion, another financial expert, Elbert Gary. Morgan, who already ventured into different industries, from railroad to electric, and other modern innovation, targeted the steel industry to be added to his portfolio. And after listening to Schwab, he saw him as a mediator for a buyout of Carnegie Steel. Meanwhile, Carnegie was becoming older and felt tired of running a business. He wanted to pursuit a more humanitarian works through philanthropic activities. It was a good timing for Schwab and Morgan. Through Schwab, Morgan was able to obtain Carnegie’s price for his steel company, about $500 million. Morgan reluctantly agreed to the price.

In 1901, a merger of Carnegie Steel and other big steel company resulted to formation of United States Steel. It had a capital worth of a billion dollar. And at its helm, it’s first President, Charles Schwab. Under Schwab, he controlled over 168,000 employees and owned over 200 steel plants across the United States.

But Schwab’s position in the US Steel won’t last long. Management style between the President of US Steel, Charles Schwab, and the chairman of the board, Elbert Gary, did not matched. Gary wanted to expand further the market share of the US Steel in the US market. Schwab on the other hand wanted to improve and make US Steel more efficient and stable. For two years after the foundation of US Steel and conflict between Gary and Schwab, in 1903, Gary took the upper hand and Schwab was forced to leave US Steel. For a year, Schwab remained obscure in the American steel industry.

After a year leaving US Steel, Schwab returned to the steel industry. In 1904, Schwab bought a small steel company in Bethlehem, Pennsylvania. The company was Bethlehem Steel. Schwab bought the company with the aim of developing Bethlehem Steel into a major competitor of US Steel. He modernized steel facilities and made it more efficient. He hired young talents and paid them handsomely. He also gave bonuses to workers when productivity was high. He also made his vision in 1900 a reality by buying mines of iron ore in Cuba and coal mines as well. He also made Bethlehem Steel a producer of steel products like ship and railroad tracks. During World War I, Schwab saw an opportunity to increase his steel company’s sales. He went to Britain and secured a contract with the British government worth $500 million. From ships and submarines, Bethlehem Steel products were used to produce weapons.

By the 1920’s, Schwab also diversified his activities. He invested in International Nickel and Chicago Pneumatic Tools. Also, he became the President of the Iron and Steel Institute. He was also able to buy a huge mansion in New York.

But his wealth would disappear by the end of the 1920’s. The stock market crashed in 1929, bringing the United States into the Great Depression. Schwab in particular was drowned with debt. All his holdings became worthless, like his stocks and mansions. In 1939, Charles M. Schwab passed away a poor man in New York.

See also:
Andrew Carnegie
Andrew Mellon
John Warne Gates

Rogers, R. An Economic History of American Steel. New York: Routledge, 2009.

Geisst, C. Encyclopedia of American Business History. New York: Facts on File, 2006.

Greenberg, B. et. al. Social History of the United States. California: ABC-CLIO Inc., 2009.

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