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Monday, September 10, 2012

Who Built America?

"The welfare state is not really about the welfare of the masses. It is about the egos of the elites." — Thomas Sowell.

Lately there has been much debate over who built America — government or entrepreneurs with vision taking a risk. Last month in one of his numerous campaign speeches President Obama stated:

“If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen.”

Obama’s statement was actually an expansion on what Elizabeth Warren, the Democrat candidate of the U.S. Senate in Andover, Massachusetts in 2011 when she proclaimed:

“I hear all this, you know, ‘Well, this is class warfare, this is whatever.’ No. There is nobody in this country who got rich on his own — nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”

This is pure Marxist thinking. The men who built this country did not look to or depend on government to build their enterprises. For starters let’s look at Henry Ford, a person who built an auto empire when there were very few roads or bridges. In fact it was the production of his affordable automobiles that caused the public to demand — and pay for — the roads and bridges needed to drive their automobiles on.

Modern Americans know Henry Ford as the man behind Ford Motor Company, and most would probably credit him with the invention of the modern assembly line. Ford’s contribution to (and effect upon) American manufacturing in general is much more grand and goes beyond the mechanics of assembly. His vision, and the manner in which he approached achieving it, is truly his legacy.

Like most new technologies, automobiles were initially built and sold as dalliances or even appliances for the wealthy. Today, we recognize how so-called early adopters pay more to be the first to have the latest high-tech gadgetry. Things weren’t so different 100 years ago when “horseless carriages” first appeared. However, Ford’s entire approach, from the company’s method of manufacture to the eventual reductions in the price of his products, was part of an overall effort to sell to the masses.

Ford recognized that the ability to sell great quantities would multiply the profits they were capable of generating. His constant quest for manufacturing efficiency would also contribute directly to the bottom line, and this driven desire would rival his engineering acumen. One of the better-known examples of this does not even relate to the assembly-line process as we know it, but rather to Ford’s interest in the materials of which his vehicles were made.

Naturally, Ford relied upon subcontractors to supply some of the components used in his new cars. As part of their contractual agreement, Ford specified the dimensions and even the type of wood to be used in the crates in which these parts were to be shipped. Once the crates arrived at the assembly plant, Ford forbade the use of crowbars to open them. Rather, he insisted they be carefully disassembled.

In those early days of the automobile, wood was a common material used throughout the body, doors, and especially for the running boards. This was particularly evident in the legendary “Woody” station wagons produced from the 1920s through the early 1950s. The wood reclaimed from the shipping crates was reused for this purpose, and in many cases was already sized properly (per Ford’s contracted specifications). Not wanting to waste any wood, what few scrap pieces were left over were then further compressed into usable charcoal “briquettes.” There was a large enough quantity of charcoal being produced that Ford decided to create a business to market it, and thus the Ford Charcoal was born. Today, we know this enterprise as Kingsford Charcoal, named after a Ford relative of who brokered the site selection for Ford’s new charcoal manufacturing plant.

That kind of progressive development in the name of efficiency wasn’t limited to what went out the door at the massive Ford Motor Company factories. The way in which raw materials were supplied to the plant also grew into more efficient and streamlined processes over the years. Rather than relying upon outside suppliers for steel to build his vehicles, Ford built his own foundries at which raw ore could be smelted and forged into various components. Furthermore, Ford eventually purchased the iron ore mines and the ships used to transport the raw materials to the factory. In this way, Ford could absolutely minimize prices and maximize quality, resulting in an unprecedented level of manufacturing excellence on a scale never before seen, worldwide.

Interestingly, and importantly, Ford chose not to simply line his own with the ever-growing profits of his visionary leadership. Rather, he invested heavily in the growth of his own company and his own workforce, while simultaneously lowering the prices on many of the vehicles being produced. In 1909, a new Model “T” Touring car (the most popular model) could be had for $850 ($19,760 in today’s dollars). This was reduced to $490 ($11,226) in 1914, and by 1925 the price had been slashed to $290 ($3,796). Making the cars more affordable had a positive impact on sales, resulting in a significant jump in the quantity of vehicles sold.

With regard to the workforce, we must understand the challenges Ford was facing to fully comprehend the impact of his investment in this vital area. In the early part of the 20th century, a great percentage of the workforce consisted of unskilled immigrants. The typical solution was to break down assembly-line tasks into simple steps, and offer very low pay to several employees to accomplish each of them. The predictable result was that the workers would quickly grow bored of the mindless, repetitive tasks. Many workers would quit, and in 1913 it took the hiring of 963 employees for every 100 positions Ford needed to keep the assembly line working. Considering there were 13,600 employees in the plant at the time, the scope of the issue becomes apparent.

Ford’s solution was multifaceted. A broad array of benefits was created, including incentive bonuses, a medical clinic, and athletic fields and playgrounds for the workers’ families. Still, the challenge of retention persisted, and Ford’s next step was a huge one.

On Jan. 5, 1914, Ford announced all employees would receive a minimum of $5 ($115) pay for eight hours of work. This was more than double the previous $2.38 ($54) offered for a nine-hour shift, and was such a dramatic increase that it attracted workers from all over the nation. The tremendous response not only solved the retention issue, but profits increased as well. Between 1914 and 1916, the company’s profits doubled from $30 million to $60 million. The higher pay rate crossed another threshold, as workers could now afford the new Ford vehicles they manufactured, and many did.

Henry Ford’s contributions to American manufacturing were great, but beyond the obvious mechanics of the mass production assembly line, his visionary approach to maximum efficiency in all areas was just as important. Through a constantly evolving process of improvement, Ford set new standards for manufacturing that still reverberate today. In fact Adolph Hitler was so enamored by Ford’s methods he had his top designer, Ferdinand Porsche, design and build the famous Volkswagen in 1937.

I picked Hendy Ford not for his pleasant personality and tolerance, but for his foundational contribution to making America the leading industrial nation in the world. It was Ford’s production of inexpensive and affordable automobiles that not only provided high-paying employment for thousands of Americans and built the city of Detroit it also generated the demand for Rockefeller’s oil, Carnegie’s steel, and numerous other manufactures that produced the products ancillary to the automobile industry.

When Ford raised the wages of his workers to $5 dollars per day he did not do it for humanitarian or progressive reasons. He did it for his self-interest. He wanted reliable and skilled workers who could read manuals and lived moral lives. In fact he would send his managers to the homes of his workers to make sure they were not using alcohol and were living, to Ford’s standards, honorable and upstanding lives.

All eyes were on the elephant as it ambled across the Eads Bridge. The765px-Eads_Bridge_construction longest arch bridge in the world at the time, it stretched gracefully across the Mississippi River. The pageantry that accompanied the completion of the spectacular structure was matched with an equal amount of anxiety. Careers and reputations, not to mention lives, were on the line through the construction process. Over budget and months past its deadline, the bridge was among the most massive American construction projects to date. When it officially opened in 1874, less than a decade after the end of the Civil War, the bridge was important both practically and symbolically. The success of such projects could show that the United States was back, and open for business.

The man who provided the steel for the bridge, Andrew Carnegie, was a rising industrialist. His reputation seemed like it might rise or fall on the outcome of the project. With so many people skeptical of such a massive bridge, the “test elephant” was sent across to bring peace of mind to the American public that its structure was sound. The elephant survived the test—and so, too, did Carnegie. He would go on to become one of the nation’s foremost business tycoons having transformed himself from a young Scottish immigrant to a corporate leader and philanthropist whose name still echoes prominently throughout American society today.

By the early 1870s, Carnegie was focused on steel. Although he was not the Men2_lrgfirst steel pioneer, Carnegie was the first to introduce the Bessemer steelmaking process on a large scale in the United States. This process was the critical building block in the mass production of steel, making it possible to create structures on a grand scale. Carnegie also introduced the open-hearth furnace into his mills in the 1890s, making it easier to melt mass amounts of steel.

At the end of the Civil War the nation was in tatters, both financially and psychologically. Both North and South had poured resources into the war effort, draining the economy, not to mention the optimistic spirit, of the nation. The assassination of President Abraham Lincoln in April 1865, just days after the end of the war, dealt another blow to the American psyche. The nation mourned too many of its sons, and now, its president. Given this state of affairs, some would have predicted a deep national decline would follow. How, then, in the course of just a few decades after the war, did the United States become one of the world’s leading economic and political superpowers?

The Men Who Built America, a new series premiering on the History Channel in October, captures the astonishing growth of the United States in the wake of the Civil War, attributing this amazing industrial and national expansion to the prowess and grit of a handful of men: Vanderbilt, Carnegie, Rockefeller, Morgan, Frick, and Ford. Their names resonate throughout our society today, a testimony to the power and reach of the companies they built. Now, for the first time, viewers can see how exactly these men forged a nation from the ashes of Civil War, buoyed by their own determination to compete, take chances, and consolidate power. While their individual stories have been told many times over, this series explores the deep connections between these men, showing the behind-the-scenes deals and unexpected links that united—and, at times, divided—them in their thirst for success.

What Carnegie and other industrial leaders shared was an unceasing drive for success. Throughout the series, viewers hear from contemporary business leaders like Jack Welch, Donald Trump, Mark Cuban, Steve Wynn, and Russell Simmons. These modern-day corporate pioneers and philanthropists shed light on how their counterparts from an earlier era were able to achieve so much in a relatively short period of time. As Steve Wynn, chairman and CEO of Wynn Resorts, says, “These were very determined, high-strung focused men who had the capacity to be brutal competitors, swash-buckling entrepreneurs, and then turn around and be soft as butter, as generous as you can imagine anyone being.”

The Men Who Built America shows the interlocking ties between the nation’s industries. While Vanderbilt and Rockefeller had focused on transportation and oil, Andrew Carnegie (below) set his sights on building American infrastructure through steel. A Scottish immigrant whose family had settled in Allegheny, Penn., in the 1840s, Carnegie landed under the wing of Tom Scott, the superintendent of the Pennsylvania Railroad Company. Carnegie rose rapidly through the ranks and started investing in companies ranging from the Keystone Bridge Company to the Union Iron Mills. Carnegie, like other American industrialists, had quickly learned how to grow capital through investment.

In addition to challenges presented by workers, the American economy was also subject to instability in the midst of rapid expansion. One of the most severe depressions in U.S. history, known as the Panic of 1893, emerged as the result of unstable railroad financing and bank failures. A financier named John Pierpont (J.P.) Morgan, son of banker Junius Morgan, was ready to take his place on the national stage. J.P. Morgan helped restore the U.S. government’s gold reserves in exchange for a 30-year bond deal, helping alleviate the economic chaos unleashed by the 1893 depression. Morgan, of course, went on to become one of the titans of American banking and finance.

One of the fascinating angles explored in The Men Who Built America is the cases in which American business titans chose unity over division, working together to expand their enterprises. In the aftermath of the Homestead Strike, Carnegie had put a young engineer who had been a plant superintendent in charge of repairing relationships between workers and managers at Homestead. Charles Schwab excelled at the position, and Carnegie promoted him to president of the Carnegie Steel Company in 1897 at the age of 35. Just a few years later, in 1901, Schwab and J.P. Morgan united to form the United States Steel Corporation, otherwise known as U.S. Steel.

Perhaps President Obama and Elizabeth Warren should take a few hours out of their campaigning schedule and watch this series on the History Channel — they just might learn something about how this nation became the industrial leader of the world.

While not being angels these men all had one thing in common — they wanted to build industrial empires and accumulate great wealth. Yes, they were fierce competitors who would not take no for an answer, but anyone who has run a business, small or large knows that you must beat the competition in order to succeed. And when you succeed the people who work for you succeed.

The success of the Fords, Rockefellers, Carnegies, and Morgans provided the jobs for millions of Americans who could achieve the highest standard of living in the world with the highest percentage of people owning their own homes. These are the people who paid the taxes, fees, and tolls that built the roads, bridges, dams, and schools that Obama and Warren believe are responsible for our success.

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