Money and Power Part 4

Photos of John D. Rockefeller always seemed to make him seem so short that thin face, under that copious top hat but in fact he was tall for his time, all of six feet. Maybe that's one reason it was so easy to underestimate him.

J.P. Morgan had been born into a rich business that just got bigger and richer under his watch. John D. Rockefeller, by contrast, lived the economic saga of his times. He'd begun his work life in 1855, at age 16, as a bookkeeper with a Cleveland merchant house. In 1858, he quit to start a partners.h.i.+p called Clark & Rockefeller, a small grocery firm in an era characterized by such low-scale businesses. Five years later, still a grocer, Rockefeller made a $4,000 dollar investment in a fledgling Cleveland oil refinery. That was in 1863, when the petroleum business was the industrial equivalent of the wild, wild West.

The first oil field in the world had been discovered just seven years earlier, in 1856 by Col. Edwin Drake in t.i.tusville, Pennsylvania, and it was still the only one. The demobilization of troops following the Civil War would give the business the one thing it was missing up to then: a new army of toughened young men out to make their fortunes. By 1870, when Rockefeller founded the Standard Oil Company in Cleveland, t.i.tusville and the surrounding cities places with names like Oil City literally stank with crude and crawled with the men who brought it in, or failed to. Hundreds of derricks had been sunk, nearly all of them the work of individual companies. Because crude oil is virtually useless unless its refined, hundreds of refineries also sprang up at the other end of the industrial pipeline. In Cleveland alone, Rockefeller's Standard Oil was one of 26 refineries fighting for survival in a highly uncertain and hugely volatile single-source market: During the decade of the 1860s, the price of crude went as high at $13 a barrel and as low as 10 cents.

Rockefeller, in short, wasn't the first to realize the economic potential of the new industry. America was booming in population and economic vitality. Refined into kerosene, oil could help heat homes and light the streets of fast-growing cities. It could also power machinery, including the machinery that was the infrastructure of the newly connected nation. Steam-driven locomotives served by coal tenders were a constant fire threat in the dry and delicate gra.s.slands of the American prairie; steam locomotives powered by oil tenders were not.

Rockefeller probably also wasn't the first to realize that in a business sense, oil wasn't even the key part of the oil-refining industry. All oil from the same oil field and there was only one was essentially the same in physical properties. It essentially cost the same within any given moment in the widely fluctuating market. And all refining processes were largely the same, too. Impurities were being removed to make the crude usable; there was no value-added component to separate finished products in the marketplace. What created the critical cost difference in such a margin-driven industry was transportation. The cheaper a refiner could get the oil from the field to his refinery and from his refinery to the market and consumer, the more margin he had to play with. Conversely, the more expensive he could make transportation for his compet.i.tors, the less they had to play with.

For the pious and a.n.a.lytical side of John D. Rockefeller, such a realization practically had the force of scripture: Solve the transportation riddle in your favor, and you could bring order to one of America's most chaotic free markets. Otherwise, oil would always be an unacceptably volatile industry. "The oil business was in confusion and daily growing worse," he would later explain. "Someone had to take a stand." For Rockefeller's cunning and scheming side, the realization also seems to have had an irresistible draw: Solve the transporta tion riddle, and you could crush your compet.i.tion and dictate the terms of their surrender. Rockefeller would do both.

Through a conspiracy known as the South Improvement Company, Rockefeller made a pact with three railroad companies: They would get the lion's share of all oil traffic. In exchange, Standard Oil would be granted preferential rail rates at the same time that its compet.i.tors in the refinery business were being saddled with punitive rates. The pact was a secret one, but the secret didn't keep for long. As word leaked out in western Pennsylvania, torch-wielding mobs of refiners moved from t.i.tusville to Franklin, Oil City, and other oil-field towns, rioting, tearing railroad tracks apart, and raiding Standard Oil cars. Rockefeller had been barely known beyond his own business circle: The South Improvement Company deal would cause his name to appear in newsprint for the first time. Now, he was the "Mephistopheles of Cleveland" and he was far from through.

Barely two months after it was formed, the courts ruled Rockefeller's secret pact illegal. Before that happened, though, Rockefeller had already moved in for the kill. In less than 6 weeks, Standard Oil swallowed up 22 of its 26 Cleveland compet.i.tors, all at rock-bottom prices. Among the oil men ruined in what came to be known as "the Cleveland Ma.s.sacre" was the father of Ida Tarbell, the journalist whose McClure articles would so inspire Teddy Roosevelt to go after the man responsible.

As Standard Oil gained momentum, the Cleveland acquisitions were followed in quick order by others. Rockefeller would pick up 53 refineries in all and close down 32 of them, retaining only the most efficient. Thus the momentum grew even greater thanks to its new economies of scale, Standard Oil could cut the cost of refining oil by two-thirds, from 1.5 cents a gallon to .5 cents a gallon and as momentum grew, market share soared.

"I have ways of making money you know nothing about," Rockefeller had warned one of the Clevelanders who tried to hold out against his juggernaut, and in fact, he did. At the time of the Ma.s.sacre, in 1872, Rockefeller controlled ten percent of the domestic refining industry. By the start of the 1880s, Standard Oil was refining 90 percent of all the oil in the world, and John D. Rockefeller was beginning to become very rich. There were still, however, two variables not safely under the company's control. To be refined, oil had to come from somewhere, and to have economic value it had to be sold somewhere. Until Rockefeller controlled both end points of the operation, he couldn't fully tame the market variables that affected the industry, nor could he fully maximize profits. It was time for the octopus to grow more tentacles.

To guarantee supply, the company moved backwards through barrel making, railroad cars, and pipelines until finally it was doing its own exploration and extrication. With supply stabilized, Standard Oil turned next to distribution and sales. Traditionally, oil had been sold to the market by independent middlemen who might skim as much as five cents off the price of a gallon of kerosene. To Rockefeller, it was both an unforgivable loss and an inefficient way for the company to control and grow its sales. "We had to create selling methods far in advance of what then existed," he would say much later. "We had to dispose of two, or three, or four gallons of oil where one had been sold before, and we could not rely upon the usual trade channels then existing to accomplish this."

For starters, Rockefeller disintermediated the independents and replaced them with his own distribution and sales force: He had more than enough clout now to call the shots almost at will. In their place, he provided a fleet of newly built company wagons, manned by company employees, to deliver company oil to hardware stores and markets across the country. Where the population was dense enough, the wagons even sold door to door, breaching the line between wholesale and retail, and further reinforcing the sense that all oil was Standard Oil. By the century's end, the company not only controlled nearly all domestic petroleum refining but pumped a third of America's crude oil, operated the country's second-largest steel mill, and controlled a fleet of thousands of railroad cars, barges, and s.h.i.+ps. By then, too, it had expanded its reach into coal and iron ore.

"By the 1890s the vertical integration was complete,"Jerry Useem writes in a review of Rockefeller's managerial practices for the May 1999 issue of Inc. magazine.

Oil now flowed from a Standard Oil wellhead, traveled through a Standard Oil pipeline, was cleansed in a Standard Oil refinery, was s.h.i.+pped in a Standard Oil tank car, and was even sold at the doorstep by a Standard Oil sales agent. By internalizing each transaction in the process ("everything being within ourselves," Andrew Carnegie had called it), Standard Oil was no longer at the mercy of uncooperative suppliers, incompetent distributors, or other vagaries of the marketplace. Rockefeller had achieved order.

From that point on, the money just poured in. Over the next several decades John D. Rockefeller would ama.s.s the world's greatest fortune: At a time when most Americans were lucky to be making two dollars a day, Rockefeller was earning almost $2 a second, more than $50 million a year.

John D. Rockefeller wasn't the only man of his age to swallow his compet.i.tors and fold them all into a vertically integrated corporation capable of controlling its product with an iron first. Trust, monopolies, octopuses call them what you will, they were all over the place. Rockefeller just did the controlling better, inventing virtually on his own a modern managerial organization to run his far-flung enterprise.

Technology helped him, certainly. By 1885, when Standard Oil moved into its new corporate headquarters at 26 Broadway in Manhattan, the telegraph had advanced the nation's communication network as surely as the completion of the Transcontinental Railroad had advanced its transportation network two decades earlier and as surely as the Internet would re-revolutionize communications a century later. From his rolltop desk at Standard Oil headquarters, Rockefeller could stay in touch with the whole enterprise he had created, on an hourly or even more immediate basis. The danger of micromanagement loomed. Part of Rockefeller's genius, though, was to resist the temptation.

Instead of trying to run his business through the exercise of his own ego or personality or through a cult of fear and other robber barons tried all three approaches Rockefeller ran Standard Oil by committee: The manufacturing committee saw to manufacturing, the purchasing committee to purchasing. Today, it sounds axiomatic to say such things; a century ago, Rockefeller's committee system was a bold creation tailor-made for the efficient supervision of the bold enterprise he had put together by dint of a ruthless will. Rockefeller's biographer, Ron Chernow, notes that even at executive committee meetings, where his word finally was the law, the boss made a point of sitting mid-table, rather than at the head.

"Having created an empire of unfathomable complexity," Chernow writes, "he was smart enough to see that he had to submerge his ident.i.ty in the organization." And smart enough, too, to realize that he had loosed upon the world something it had hitherto not known, what business historian Alfred D. ChandlerJr. has called "a new subspecies of economic man the salaried manager." Between 1880 and 1920 roughly the time span of John D. Rockefeller's ultimate ascendance and global domination the number of professional managers in the United States soared more than sixfold, from 161,000 to more than a million, according to the Brookings Inst.i.tution. To meet the rising demand, in 1898 the University of Chicago and the University of California both launched another new subspecies, this one of education: the business school. By the start of the new century, New York University and Dartmouth were both in the business-education business. The Harvard Business School opened its doors in 1908.

Standard Oil, Rockefeller said late in life, had been "the origin of the whole system of economic administration. It has revolutionized the way of doing business all over the world." Beyond doubt, he was right, but as he frequently did in his later years, Rockefeller was also sanitizing a good many unsavory moments along the way. In a remarkable series of interviews undertaken between 1917 and 1920 with New York newspaperman William Inglis, Rockefeller offered a point by point reb.u.t.tal to virtually every accusation leveled against him and Standard Oil by his critics, especially Ida Tarbell. Whether the interviews were ever meant to be seen they were never aired until 60 years after his death or were meant simply to ease Rockefeller's conscience and prepare him for his maker is unclear. Either way, they paint a history often at odds with fact. It's not by accident, one suspects, that when Nelson Rockefeller asked to interview his grandfather for a Dartmouth senior thesis meant to vindicate the Mephistopheles of Cleveland, grandfather sent back word that he'd just as soon not. How hard it would have been for him to lie to a grandson who shared his birthday.

John D. Rockefeller was fond of noting that the law seemed to be applied ex post facto to his person and his business. The secret railroad deal that led to the Cleveland Ma.s.sacre was, after all, not illegal at the time, although the courts would soon rule against it. Railroad rebates in general only became illegal with the creation of the Interstate Commerce Commission in 1887, and combinations in restraint of trade the lifeblood of vertically integrated trusts and octopuses weren't outlawed until the Sherman Ant.i.trust Act of 1890.

In fact, though, both Rockefeller and Standard Oil frequently operated on the fringes or even just over the fringes of the law. In researching his biography, Ron Chernow found numerous instances in Rockefeller's correspondence where he was simply paying off politicians to affect the outcome of legislation. The $250,000 to the 1896 McKinley campaign was only the most dramatic example of a practice Rockefeller seems to have regarded as a necessary business expense. Nor did the Interstate Commerce Commission or the Sherman Ant.i.trust Act necessarily affect Rockefeller's behavior. Rather, he seems to have redoubled his efforts to get around the legal annoyances imposed upon his company, and in Henry Flagler and John D. Archibald, he had powerful lieutenants even less troubled by the fine points of the law and ethics than he was.

In his own lifetime, the muckrakers Henry Demarest Lloyd and, most dramatically, Ida Tarbell a.s.sembled a d.a.m.ning amount of evidence of wrong and shady doings on the part of Rockefeller and Standard Oil, yet it wasn't until 1906-a year after Tarbell's McClure's series had concluded that Standard Oil hired its first publicist and set out to improve its public image. In part, perhaps, Rockefeller simply misjudged the groundswell of resentment against him, the power of the press, and the determination of Teddy Roosevelt to turn him into political capital: Having paid off politicians so much of his life, Rockefeller must have had trouble imagining any other way of dealing with them. In larger part, Rockefeller was able to ignore the storm because he saw himself in service to a higher calling: Purging business of its inefficiencies was service not just to the economy but to the nation and G.o.d.

Roosevelt was gone from office, replaced by William Howard Taft, by the time the law finally caught up with John D. Rockefeller. On May 15, 1911, after 21 years, 23 volumes of evidence totaling 12,000 pages, and 11 separate trials, the last one involving 444 witnesses, the U .S. Supreme Court ruled that the Standard Oil trust was indeed a monopoly and ordered the company broken up. The news reached Rockefeller on a golf course. His only response was to tell his golfing partners to buy stock in Standard Oil. It was among the sagest pieces of advice he was ever to give.

Standard Oil would be broken into 34 separate companies-among them the parent companies of such modernday industry leaders as ExxonMobil, BP Amoco, Conoco, Inc., ARCO, BP America, and Cheesebrough Ponds and J.D. Rockefeller would maintain control over each and every one of them. In 1911, when the Supreme Court decision came down, Rockefeller was worth around $300 million. Two years later, as a direct result of having been punished by the federal government, his worth had soared to $900 million. Losing the ant.i.trust case turned out to be the greatest windfall of his career. By then, too, oil had found a new use: the automobile.

Not only was John D. Rockefeller made far richer by the Supreme Court decision; he also seems to have been unrepentant about it. When some twenty thousand strikers were evicted from their company-owned homes at a Rockefellercontrolled coal mine in 1913, the state militia moved in, machine-gunned the strikers and set fire to the tent colony where they had taken refuge. More than a dozen women and children died in the blaze the infamous "Ludlow Ma.s.sacre." Echoing his father's sentiments, John D. Jr. blamed the strikers for the violence, for "recklessly" insisting on their right to a union.

How much money was $900 million in 1913? Somewhere in excess of $13 billion in current dollars, but as Ron Chernow points out, focusing on that number is only one way to look at the story. The entire federal budget for the year 1913 amounted to just $715 million, nearly $200 million less than one citizen's net worth. The federal debt then was $1.2 billion; Rockefeller could have retired three-quarters of that as well. Maybe most tellingly, Rockefeller's wealth equaled about 2.5 percent of the gross national product. Judged by the same measure, the net worth of the man most recently pursued by the federal government for ant.i.trust violations, Bill Gates, is only about onefifth of that, but Gates, in his defense, has been allowed to keep less of his earnings. Rockefeller turned 70 years old four days before Congress proposed the Sixteenth Amendment to the Const.i.tution, granting the government the power to levy an income tax.

Rockefeller once estimated that had he kept all the money he gave away, he would have been three times richer than he was, and trained to bookkeeping, he had a fine mind for figures. But the issue would seem to be academic at best: With John D. Rockefeller, getting and giving seem to have been two sides of the same gold coin.

9.

HENRY FORD.

Building Cars and the Markets for Them.

*REAT FORTUNES ARE THE TRAILING INDICATOR OF great industries, and as the twentieth century dawned, America's great fortunes had been built mostly on iron and steel, railroads, and oil. Andrew Carnegie was 12 years old when his family emigrated to western Pennsylvania from Scotland. Over the next six years, Carnegie would work as a bobbin boy in a cotton factory, an engine tender, and a telegraph messenger and operator before taking a job, at age 18, with the Pennsylvania Railroad. By the late 1860s, still in his 30s, Carnegie started making the steel from which the railroad cars were made, and by 1888 he controlled, in addition to his steel mills, coal and iron stocks to feed them, plus more than four hundred miles of track and a fleet of steams.h.i.+ps to connect the two. The next year, Carnegie published his famous essay, "The Gospel of Wealth," in which he argued that the first half of a rich man's life should be devoted to making money and the second half to giving it away in a manner that most benefited the commonwealth. A dozen years later, in 1901, a syndicate organized byJ.P. Morgan bought out Carnegie and consolidated his holdings into the U.S. Steel Company, and Andrew Carnegie, who pocketed $240 million in the deal, set out to distribute his fortune, most notably by providing public libraries throughout the United States and Great Britain.

Because it never was consolidated in the same way steel was, the railroad industry created more but lesser fortunes, many of them as memorable for the underhand way they were ama.s.sed as for the generosity by which they were distributed. Collis Huntington, Leland Stanford, and the others who profited mightily from the completion of the Transcontinental Railroad were only representative of their breed. Jay Gould andJames Fisk were masters of flooding the market with fraudulent stock to protect their rail interests. Cornelius Vanderbilt, who started out in the s.h.i.+pping business before switching his interests to trains, would lose millions battling Gould and Fisk for the Erie Railway. Vanderbilt still managed to ama.s.s an estate in the range of $100 million before his death in 1877, but his major bequest $1 million to endow Vanderbilt University in Nashville, Tennessee seems puny by comparison to Carnegie's largess.

Oil, of course, gave industry its greatest and one of its most ruthless consolidators and both the richest man of his day and the most generous: John D. Rockefeller. To produce history's first billionaire, though, would require the intersection of three things: a new invention that could do what the railroads couldn't do let people go wherever they had a mind to travel, whenever they had a mind to go there; a nation built on the aesthetic of wide open s.p.a.ces; and a man smart enough to marry ma.s.s production to ma.s.s consumption and to help provide the means for both. Horseless carriages would make the steel barons and Rockefellers richer still: They were made mostly of steel, after all, and they opened up a vast new market for Standard Oil and its refined petroleum. But the automobile would make Henry Ford richer than them all.

Self-propulsion is a dream as old as mankind, but it had also been a reality if not a terribly practical one for more than two centuries before Henry Ford unleashed his "Tin Lizzie" on the American public. A model steam carriage built by a Jesuit missionary had been demonstrated successfully in China in the late seventeenth century. Nearly a hundred years earlier, two-masted, wind-propelled land "s.h.i.+ps" in Holland were maintaining speeds of 20 miles an hour with up to 28 pa.s.sengers on board, so long as the weather cooperated. The eighteenth century saw successful experimentation in wound-spring engines (the clock method) and others powered by compressed air. The first forerunner of the modern auto would seem to be a steam-powered tricycle built by the Frenchman Nicholas Joseph Cugnot, and an imposing invention it truly was: A 1769 version capable of carrying four people ran for 20 minutes at 2.25 miles an hour. The four-stroke engine, a direct ancestor of today's internal combustion engines, was the brainchild of another Frenchman, Alphonse Beau de Rochas. Two German inventors, Gottlieb Daimler and Carl Benz, generally get credit for refining the gasoline-powered engine to a point where commercial production was feasible. Benz sold his first car to a Parisian in 1887. A few years later, Daimler got into the business. (Although the two men never met, their firms would be merged in 1926 into Daimler-Benz, manufacturers of the famous Mercedes-Benz line.) If Europe gets credit for the technical innovations that launched the auto industry, it was in the United States that the industry caught hold and flourished. Europe had more people, but by dint of its geography, the United States had the greater need and by the start of the twentieth century it also had the native capital to support the growth. Frank and Charles Duryea began installing gasoline-powered engines into old horse car riages in the early 1890s. By 1903, there were eleven thousand cars on the roads of America. The next year, in 1904, Ransom Olds added 5,000 more with his 3-horsepower Oldsmobiles and proved that it was possible to make a handsome living in the automobile trade. Beginning in 1903 and extended over the next 5 years, a full 20 dozen auto-manufacturing firms went into business in the United States, including one founded by a backyard Michigan inventor named Henry Ford.

Until Henry Ford came along, the automobile belonged to those rich enough to afford one: Ransom Olds' earliest 1900 models sold for $1,250, more than a hundred times the weekly wage of the average factory worker. Ford, though, had a different vision. Sell a car cheaply enough, and you'll create a market demand. Create a market demand, and the margin you fail to make on unit sales will be made back many times over on volume. Do all that, and instead of being a play thing of the rich, the automobile will become a necessity of the American Everyman.

In 1908, the Ford Motor Company began producing the Model T -faster than a horse, st.u.r.dy enough to withstand America's primitive roads, unremarkable as to its parts and looks, but at $825 closer to affordable for the working Joe and both car and vision ran like a dream. Ford sold more than ten thousand Model T's in its first year of production, bringing in more than $9 million to a company that had been capitalized with $28,000 only 5 years earlier and had set up shop with a dozen workmen in a plant all of 250 feet by 50 feet.

Born on a farm near Dearborn, Michigan, in 1863 and educated in one-room school houses, Henry Ford was barely able to handle his McGuffey reader when he quit formal education for good at age 15, but he was an ace at mathematics and he loved machinery. Ford was 16 years old when he walked to Detroit to take a job as an apprentice engineer, a position he was fired from in less than a week. Undaunted, he moved on to a job repairing watches and another working on s.h.i.+p engines, two skills he would never forget. Decades later --a billionaire and a global figure Ford still took delight in taking apart and rea.s.sembling his friends' pocket watches and in occasionally getting down on the factory floor with one of his greasy engines.

Automobiles, though, not watches or s.h.i.+p engines caught Henry Ford's greatest attention. A little after midnight on June 4, 1896, he finished building his first experimental car in a brick shed behind the duplex where he and his wife, Clara, were living. Dubbed a "Quadricycle" and a scant five hundred pounds in weight, the car ran on four bicycle tires. Three years later, he successfully demonstrated a second prototype by driving it roundtrip from Detroit to Pontiac, Michigan, and soon formed his first business, the Detroit Automobile Company, with $15,000 raised from a dozen shareholders. The company would last two years, during which time time Ford managed to build less than two dozen cars but his reputation in the nascent auto industry didn't suffer. By 1903, Ford had established himself as the premier designer of American racing cars and formed the Ford Motor Company.

Like nearly all other auto manufacturers of the time, Ford manufactured almost nothing. Cha.s.sis and engines both came from a machine shop run by two of his minority shareholders, Horace and John Dodge. Ford simply a.s.sembled the parts into a finished product. In 1905, though, Ford would take a first critical step toward separating his company from the teeming mult.i.tude. Other auto makers created, at best, loose a.s.sociations with dealers and left servicing up to the inventiveness of locals. The Ford Motor Company was barely two years old before it had factory-trained mechanics in the field. Simultaneously, Ford was working to bring the entire product under one roof. By 1912, the company was making its own crankcases, axles, and other critical parts. The next year, Ford bought out the Dodge brothers' interest in his company and began manufacturing his own engines and finished cha.s.sis as well. Now he could direct his attention not only to the product but to the entire means of production. Already on his way to being super rich, Henry Ford was about to become super famous.

Like the automobile itself, the principles of the a.s.sembly line were far from new by the time Ford came around to them. The French army had been experimenting with standardized musket parts even before the American Revolution. The year the revolution began, the Englishman Jeremiah Wilkinson had come up with the jig, which allowed workers to make identical parts in series. Ford himself would credit the inspiration for the a.s.sembly line to Chicago meat packers and the overhead trolley they used to carry carca.s.ses along a line while butchers, in effect, disa.s.sembled them. Ford simply took existing principles and married them to necessity. By the early 191 Os, his motor company had very nearly wrung the maximum potential out of traditional production methods. If he was going to create a true ma.s.s market for his automobiles, he would need to ma.s.s manufacture them, and that meant the a.s.sembly line. Ford never doubted that he could sell cars as fast as his people could make them. Production speed was the challenge. Solve that, and the ma.s.s market would take care of itself.

In his 1922 autobiography My Life & Work, one of three that Ford would collaborate on during his life, he described how the first automobile a.s.sembly line came to be. Initially, he wrote, a Ford car had been a.s.sembled "in exactly the same way one builds a house."

"We simply started to put a car together at a spot on the floor and workmen brought to it the parts as they were needed ... [but] the rapid press of production made it necessary to devise plans of production that would avoid having the work ers falling over one another." To do that, Ford went on, "we began taking the work to the men instead of the men to the work. We now have two general principles in all operations that a man shall never have to take more than one step, if possibly it can be avoided, and that no man need ever stoop over."

The principles of a.s.sembly are these: 1. Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finis.h.i.+ng.

2. Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place which place must always be the most convenient place to his hand and if possible have gravity carry the part to the next workman for his operation.

3. Use sliding a.s.sembling lines by which the parts to be a.s.sembled are delivered at convenient distances.

The net result of the application of these principles is the reduction of the necessity for thought on the part of the worker and the reduction of his movements to a minimum. He does as nearly as possible only one thing with only one movement.

Ford had already built and put into operation the most modern factory in the automobile industry the well-lit and well-ventilated Highland Park plant, which opened in early 1910. There, in April 1913, he launched his first experiment in a.s.sembly-line production, beginning with the flywheel magneto. (A magneto uses magnets to generate electricity in an internal-combustion engine.) Previously the job had been performed by a single worker who turned out magnetos at the rate of about one every twenty minutes. Now the same job was spread into 29 a.s.sembly line operations, with the result that average a.s.sembly time was cut by more than a third, to 13 minutes 10 seconds. A year later, the company raised the height of the a.s.sembly line 8 inches; this time, the average production time was lowered to 7 minutes. Further experimentation brought the time down to 5 minutes.

Simultaneously, the principles applied to the magneto were being applied to the engine as a whole. Instead of one man a.s.sembling an entire motor from start to finish, the work was split into 84 operations and productivity was raised threefold. Soon, the experimentation with parts of the production process was spreading to the process as a whole. Within months of full a.s.sembly-line production, the time needed to turn out a Model T had been cut from over 12 hours to under 2. By sweeping up the sawdust, metal shavings, and c.o.ke dust from the factory floors and feeding them to the steam-power plant, Ford found that he could save another $600,000 a year in fuel costs. With production costs slashed dramatically, Ford slashed the price of the car nearly twenty years after it was first produced, a Model T coupe would be selling for less than a third of what it had originally cost. As the price dropped, sales quadrupled: By the end of 1914, almost half of all cars sold in America were Henry Ford's Model T's.

"Time loves to be wasted," Ford had fumed back in the days when it seemed to take forever to turn out his automobiles. Now he was telling reporters that ma.s.s production was the "new messiah." As if to prove the practical application of his words, Henry and Clara Ford moved into "Fair Lane," a 2,000-acre estate near where he had been born their eleventh address in 23 years of marriage. Secure in his leaders.h.i.+p of America's next great industry and ensconced at last in a mansion worthy of his greatness, Ford proclaimed to the Chicago Tribune's Charles Wheeler that "History is more or less bunk.... The only history that is worth a tinker's d.a.m.n is the history we make today." Before he could turn the world industrial order completely on its ear, though, Henry Ford would have to solve his labor problems.

The executives of the Ford Motor Company and their beancounters loved the a.s.sembly line and the economies of scale it created. Ford's workers, though, had a different take on the process. "The reduction of his movements to a minimum" that Henry Ford wrote about must have pleased many of them, but "the reduction of the necessity for thought on the part of the worker" was very nearly insulting.

Even before the a.s.sembly line, Ford had been bothered by a high labor turnover: The company's productivity demands were among the most stringent in the business. With the coming of ma.s.s production known originally as "Fordism"-the labor turnover turned into a near plague. By the close of 1913, Ford had to hire nearly a thousand people every time it wanted to find another hundred permanent workers, and such was the success of its cars that it needed to expand the work force almost constantly.

To solve the problem and to thwart a unionization drive launched in the summer of 1913 by the Industrial Workers of the World, in 1914 Henry Ford introduced what was to be his second great industrial innovation: a $5 wage for an eight-hour day, about 15 percent more than the prevailing rate in the auto industry and well more than double the average manufacturing wage nationwide, for what was often a shorter day's work.

"In underpaying men," Ford would say, "we are preparing a generation of underfed children who will be physically and morally undernourished; we will have a generation of workers weak in body and spirit who, for this reason, will be inefficient when they come into industry. It is industry who will foot the bill."

The rhetoric was high-blown, as it often was with Ford, but the calculation was cold-blooded as well. Instead of a revolving employment door, the company now had men lined up for work; and it had a work force that, with diligence and thrift, could afford the product they were manufacturing. "Purchasers," Ford once explained, "are made, not born."

The five-dollar-day, Ford was later to write, "was one of the finest cost-cutting moves we ever made." Better still, from Ford's point of view, it gave him even more control over his workers. Within days of introducing the new pay scale, Ford fired up to nine hundred Greek and Russian Orthodox employees who had stayed away from work to celebrate Christmas on the day designated by the Julian calendar, according to their tradition. To the rest of the company's workers, the message was simple and clear: Extra pay would demand extra and greater allegiance.

To a.s.sure that its flow-production system ran unimpeded, the company restricted workers to a single 15-minute lunch break, including restroom time. On the job, men were forbidden to lean on machines, sit, squat, whistle, talk, or smoke. To make sure they complied, company "spotters" patrolled the factory floor. Soon workers were learning to communicate without moving their lips, a form of ventriloquism that became enshrined as the "Ford whisper." To avoid alerting prowling straw bosses, workers developed frozen expressions that came to be known as the "Fordization" of the face.

Neither Henry Ford nor his company stopped at the factory floor. Productive labor required a proper home environment and decent habits, and the $5 a day wage gave Ford and his men the entree to attack both. Officially called a "profit sharing arrangement," the wage plan split compensation into a base hourly rate of 34 cents an hour or $2.72 for an 8-hour day and an additional "profit-sharing" rate of 28.5 cents an hour. To qualify for the latter, workers had to perform satisfactorily both on and off the production line, and that meant meeting human quality standards as strict and as strictly enforced as the standards imposed on automobiles.

Ford promulgated a series of rules meant to a.s.sure that its employees were not just good workers but what it considered good citizens. Workers were expected to show thrift, to live in a proper house (in particular, a house that didn't take in boarders), to have no outside sources of income (including a working wife), to not a.s.sociate with nor allow their children to a.s.sociate with the wrong kind of people (union sympathizers and organizers most notably), to show progress toward learning English in the case of immigrant laborers, to neither drink nor smoke excessively, to avoid gambling, and to be guilty of no "malicious practice derogatory to good physical manhood or moral character." Through its newly created Sociological Department, Ford sent counselors out to advise workers and the families on how best to meet the requirements that would qualify them for the profit-sharing bonus; on the side, the counselors acted as spies, reporting back on those who seemed to be falling away from the secular faith.

About two in five Ford workers were disqualified from the plan in its early months; if they failed to mend their way within half a year, they were let go and their escrowed profit share was donated to charity. Within two years, the disqualification ratio had shrunk to about one in four, but the extra money they received for compliance was rapidly shrinking in value. By 1918, wartime inflation had brought the buying power of Ford's $5 day down to $2.80 in 1914 dollars, and Henry Ford himself was worrying less about the moral content of his work force than about union activity in his factories. The Socialization Department later renamed the Education Department was disbanded in 1921 and its records were burned. In its place arose the Ford Service Department, thugs and laborspies under the leaders.h.i.+p of an ex-boxer named Harry Bennett, charged with keeping Ford an open shop.

By then, too, Henry Ford could call the shots any way he wanted to. Ford succeeded in buying out the last non-family stockholders in 1919. As the 1920s began, he sat atop a tightly held, vertically integrated industrial behemoth with main plants at Highland Park and River Rouge; branch plants around the world, including a.s.sembly plants in Canada and England, iron mines and lumber mills, Brazilian rubber plantations, gla.s.s manufacturers, and a railroad, and fleet of s.h.i.+ps to move the cars to markets anywhere. Possessed of almost infinite wealth and power no man in the world had ever held in one grip so much industrial might Ford now set out to become a prophet as well.

Fifty years earlier, J.P. Morgan had overseen the ma.s.sive transfer of European capital to the United States. By the early 1920s,through his books and frequent interviews, Ford began to export back to Europe an entire philosophy of doing business. Labor should be rationalized through mechanization, work should be divided and specialized, and workers bought off with high wages to perform the dull, repet.i.tious tasks expected of them. Production management needed to be centralized, control needed to be hierarchical, and corporations should be vertically integrated wherever possible, employing a circle of subcontractors to help stabilize inevitable cyclical demand. Standardization and ma.s.s production meant lower costs, and lower costs meant greater profits. To protect all of the above, unionization needed to be fought with every available tool. Collectively, these and other tenets of the Fordist philosophy came to represent the new industrial order that would dominate corporate thinking for the better part of the century.

Henry Ford was no less quiet in his views on broader international affairs. An outspoken opponent of America's entry into World War I, he once promised to spend half his fortune if it could shorten the war by a single day. More practically, but perhaps only slightly more so, he set sail for Europe in late 1915 aboard a Ford-sponsored "Peace s.h.i.+p" bound for Scandinavia and the Netherlands with technical advisers, delegates to a peace conference, and a largely skeptical press pool. When Ford became sick and had to lay up in Oslo, the mission fell apart.

Back home, he formed a trade school and donated money to build a hospital, both named after him. He dabbled with educational theory as well, set up a series of rural shops where farmers could produce auto parts using water power, and threw his support behind a variety of "wholesome" undertakings, from square dancing to discouraging meat consumption in favor of soybean meal. All of it made news because no one in American business, then or since, has been so large a national figure.

Ford ran for the United States Senate in 1918, as a Democrat in Republican-dominated Michigan, losing by less than five thousand votes. By 1920, Ford for President clubs were springing up across the nation. Whatever the reality of Ford's $5 a day wage and whatever the truth of everyday life inside and outside the factory for a Ford employee, Ford's brand of welfare capitalism was magic with the public: Ford was seen as another Great Emanc.i.p.ator, a Lincoln of the working man. A nationwide poll for Collier's Weekly magazine in the summer of 1923 found Ford running far ahead of the sitting president, Warren Harding. The presidential boom ended when Ford announced in October 1924 that he would back Calvin Coolidge, who had succeeded to the presidency upon Harding's death, but Ford's popularity was barely diminished. In 1926, he announced the establishment of a radical five-day work week for his employees. Three years later, in late November 1929 with a cancer sweeping through the economy, Ford responded to a Herbert Hoover request not to lower wages by actually raising them to $7 a day. Typically in both cases, he accompanied the grand gesture with draconian cuts: As many as thirty thousand Ford workers were let go on the eve of his new "depression-beating wage," and those that remained were required to fulfill production quotas nearly 50 percent higher than the pre-salary-boost quotas. By the late 1920s, though, Ford had more to worry about than his public approval rat ings: After nearly two decades of dominating the auto business as few figures have ever dominated a major industry, Henry Ford finally had to acknowledge that Alfred Sloan and his General Motors were about to eat his lunch.

The Model T wasn't the first car Henry Ford produced: Models A, B, C, F, K, N, R, and S preceded it, some of them fairly expensive as Ford searched for the right marriage of product and market demand. But for a long time it seemed as if the Model T might be the last car the Ford Motor Company ever made. Behind Ford's obstinance lay both a philosophy and a rock-hard commitment: If you keep the model static while constantly improving and refining production methods, the unit cost will continuously fall, and the product will sell itself. Sloan had a different philosophy: Flood the market with a car for every price range, change the models marginally every year and substantially every three years, and spend millions of dollars on advertising to create consumer demand, and the public will beat a path to your door. By 1927, there was no denying that Sloan and GM were on to something.

In 1921, Ford had outsold GM's bottom-of-the-line Chevrolet the closest compet.i.tor to the Model T by a 13 to 1 margin, but as the 1920s wore on, demand for automobiles s.h.i.+fted from first-time purchases to replacement cars, and as that happened, auto buyers began weighing comfort, style, and mechanical innovation. Ford was still offering a bare-bones car built for rough turn-of-the-century roads, and he was still counting on the Ford name to bring buyers in. Under the leaders.h.i.+p of former Ford executive William Knudsen, Chevrolet meanwhile had been retooled and redesigned. Heavily promoted through ads, Chevrolet steadily closed the gap with Ford until by 1926 one Chevy was selling for every two Model Ts. The next year, on May 27, 1927, Model T production was halted and Ford plants closed while a successor was designed and the factories retooled to produce it. A little more than six months later, on December 2, 1927, the Model A was introduced.

To promote its new model, Ford spent more in one week on advertising than the company had spent collectively over the 19-year lifespan of the Model T. (Thanks to the sale of more than fifteen million Model Ts during that time and to its own stringent financial practices, Ford Motor Company had some $700 million in surplus cash with which to launch the Model A.) The campaign worked Ford recaptured the lead from GM in total car sales but for the rest of his life, Ford would resent the necessity of advertising.

"We are no longer in the automobile business," he once grumbled. In the auto industry as elsewhere, image was becoming everything, and Ford's own image was fading fast.

"Ford talks like a Socialist," one Wall Street operator had complained to another in a popular joke of the mid-1920s. "Yes," the other answered, "but he acts like one of us, and he gets away with it." As the Roaring'20s limped into the Depressed '30s, though, the dual nature of the great auto maker was becoming more apparent, and his difficult aspects far harder to ignore.

On the labor front, Ford's increasingly violent reactions to attempts at union organization began to run against the new spirit of the times. During the March 1932 Ford Hunger March by union-minded Ford workers, Dearborn, Michigan, police fired at point-blank range on the demonstrators, killing 3 and wounding 50, including a New York Times photographer shot in the head. Ten years earlier, the public might have been tempted to look the other way. By 1932, though, deprivation was everywhere, and the public was becoming more aware of the price Ford workers had had to pay for the "New Prosperity" that had been visited upon them. Henry Ford "is hated by nearly everyone who has ever worked for him, and at one time was wors.h.i.+pped by nearly everyone who has not," the social critic Jonathan Leonard wrote that year. Note the phrase "at one time."

Ford's reemergence as the auto sales leader was only temporary as well. For all the hullabaloo that surrounded the Model A's arrival, it was highly conventional car in both its looks and its machinery. Technically, the company would take another gigantic stride in 1932 when it introduced the Model 18 V-8, with its single-unit cast engine block, the prototype for decades of engines to follow, but Ford and its founder had missed a larger message: Even in hard times, buyers were interested in style, comfort, and convenience.

Internationally, Henry Ford was to become even harder to justify, or swallow, as the 1930s went along. The Dearborn Independent, a magazine backed financially by Ford and edited by William Cameron, was among the most vitriolic of the antiSemitic tracts that sprang up in America after World War I, and one of the most insistent at publicizing the scurrilous, Russian-born, anti-Jewish tract The Protocols of the Elders of Zion. Ford's own contributions to the Dearborn magazine were collected into the book The International Jew, which, like The Protocols, charged Jews with plotting the destruction of Christian civilization. Across the ocean, Ford found increasing favor with the leader of Germany's National Socialist Party and his minions. The leader of the Hitler youth movement would testify after the war that he learned to hate Jews not from the rantings of Adolph Hitler but from the writings of Henry Ford. Ford is also the only American to win plaudits in Hitler's Mein Kampf. To underscore his admiration, Hitler sent his own thanks along with the Third Reich's Grand Cross of the Supreme Order of the German Eagle to the automaker on the occasion of his 75th birthday, in July 1938, and Ford was glad to receive both. Addled by a severe stroke earlier that year, he had become convinced that Franklin Roosevelt was a war merchant controlled by GM and the Duponts.

Not nearly so generous in his life as John D. Rockefeller and Andrew Carnegie had been, Henry Ford in death would give away billions of dollars through the Ford Foundation, and the Foundation itself would save his heirs over $300 million in federal inheritance taxes. In time, too, the Foundation's generous support of a variety of liberal and social-welfare programs causes Ford himself might well have loathed would help buff the image of the automaker and rescue him from the consequences of many of the actions of his later years. And therein might lie the final irony of a very conflicted and conflicting life: A product, Henry Ford always felt, should be able to sell itself.

10.

ROBERT WOODRUFF.

The Brand's the Thing.

*HE INDUSTRIAL REVOLUTION CREATED WHAT HAD never existed before in such profusion in human history: a multiplicity of products, designed to do almost everything and serve almost every need. The companion Consumer Revolution created something new as well: a ma.s.s market of multiple wants and needs. Increasingly, as the nineteenth century spilled over into the twentieth one, the media became the medium between the two.

Between 1830 and the start of the Civil War, the number of magazines and newspapers in circulation in the United States grew sixfold, to more than five thousand t.i.tles. Literacy was on the rise, along with the population. If the war brought severe deprivation to the South even b.u.t.tons and nails became precious commodities as the fighting wore on in the North it stimulated economic growth and introduced new sources of raw materials. With the Union restored, war production was converted to the production of consumer goods, and as that happened, the modern print advertis.e.m.e.nt was born.

Suddenly, every product had a slogan; every slogan sought to influence choice; and the more choice there was, the greater the need to exert influence over it became. The combination, needless to say, was a publisher's best friend. In 1867 advertising expenditures of all sorts reached about $50 million in the United States. Thirteen years later, by 1880, that figure was climbing past $200 million, and by 1900 it had topped half a billion dollars. By the end of the nineteenth century, popular monthlies like Cosmopolitan and McClure's were running a hundred pages of ads in a single issue. Two decades later, a new advertising medium, radio, would blanket the nation just as choice had moved into overdrive. Radio attracted over $10 million in ads in 1928; in 1929, total ad expenditures for all media outlets approached $3.5 billion.

By then, too, the advertising industry had found one of its most messianic pract.i.tioners -a man who was to be the most successful brand-builder of the twentieth century. A college dropout, he would take a product manufactured of colored and sugared water, virtually indistinguishable from its compet.i.tors, and turn it by sheer marketing and organizational genius into the most successful global product the world has ever known. His name was Robert Woodruff. His product was Coca-Cola. And here's one tangible measure of his success: The Coca-Cola Company went public in 1928 at $40 a share, 5 years after Woodruff had taken over a moribund 40-year-old business. Seven decades later, in 1998, one of those original $40 shares, a.s.suming all dividends had been reinvested, had grown to $6.8 million, an annualized rate of return of about 25 percent. Possessed of a considerable amount of those original shares himself, Robert Woodruff enjoyed the ride. By the time of his death, in 1985 at age 95, Woodruff had donated a total of $200 million to the school he dropped out of in 1909: Emory University.

Little about Robert Woodruff's childhood augured great success. Born into a wealthy Atlanta household, Woodruff and his two younger brothers suffered under the iron fist of a dom ineering, puritanical father who appears to have banned fun from the home. A poor student and never an intellectual his underlings at Coca-Cola would wonder years later if he had ever finished a book Woodruff flunked out of Boys' High School and was sent off to Georgia Military Academy to finish his secondary schooling. He fared no better there as a student and showed no greater inclination to concentrate in or out of the cla.s.sroom, but at his father's insistence he entered Emory, then a college located in Oxford, Georgia, in the fall of 1908. He was to last there one semester. "I do not think it advisable for him to return to college this term," the Emory president wrote Woodruff's father. "He has never learned to apply himself, which together with very frequent absences, makes it impossible for him to succeed as a student."

At age 19, Robert Woodruff found himself shoveling sand for the General Pipe and Foundry Company, a mostly uneducated laborer, going nowhere in a hurry. Fourteen years later, when the 33-year-old Woodruff was offered the presidency of Coca-Cola at $36,000 a year, he was already earning $75,000 annually and had a $250,000-a-year offer on the table to become president of Standard Oil. What happened in between? Life proved a better educator than schools, and a better forum for finding success.

After knocking around in a succession of jobs including purchasing agent for an ice company, Woodruff landed a position through an Atlanta acquaintance as southeastern salesman for the White Motor Company, and there he learned that, whatever his faults as a student, he could sell almost anything to almost anybody. Direct and honest in his dealings, Woodruff developed an unerring instinct for what he called "the man of consequence," the one who could close the deal. Born to the manor if not exactly raised that way, he also possessed a confidence and comfort in dealing with top bra.s.s that many of his compet.i.tors lacked.

Woodruff left White for the duration of World War I to serve in the U.S. Ordnance Department, but he didn't neglect his former and future employer: A troop transport truck he helped develop added significantly to White's bottom line during the war years. Nor did Woodruff's success or his abilities go unnoticed by his disapproving father. When Ernest Woodruff put together a syndicate to buy the Coca-Cola Company in 1919 for $25 million, he offered his son a chance to get in on the ground floor, which he did at $5 a share in the private offering. (Woodruff also made sure that his hunting pal, the "Georgia Peach" Ty Cobb, got in on the action as well, an act of friends.h.i.+p that feathered Cobb's nest luxuriously in his later years.) And when the management of the company they had bought proved unable to meet expectations, Ernest Woodruff and his syndicate partners again called on Robert, this time to point the soft-drink maker in the right direction.

As an Atlantan, Woodruff knew the product well. CocaCola had been around since 1886 when a local patentmedicine blender namedJohn St.i.th Pemberton had concocted its caramel-colored syrup in a three-legged bra.s.s kettle in his own backyard. As a Methodist, Woodruff might have known c.o.ke even better. His Sunday school teacher growing up was Asa Candler, the Atlanta entrepreneur who bought the company in 1891 for $2,300 and took the soft drink nationwide four years later. About the soft-drink business itself, Woodruff cheerfully acknowledged that he didn't know anything more "than a pig knows about Sunday." But as a salesman he surely knew the biggest obstacle facing him: At White Motors, he had been offering up a product with a clear utility trucks move things, they connect markets and customers. At Coca-Cola, Woodruff would be offering for sale a product that absolutely no one needed.

Robert Woodruff deserves credit for far more than the brilliant ad campaigns he so insisted on. Difficult in many ways as a boss he hated to be alone, and would often call his executives at the last moment to come for dinner or because he was awake in the middle of the night Woodruff was nonetheless a talent picker par excellence. The ranks of his top aides were filled with former Georgia Tech football players in whom Woodruff had spotted business potential and with one-time opponents whom he converted to allies, including Arthur Acklin, an IRS agent who had come to Woodruff's attention when he was trying to dun Coca-Cola for back taxes.

Where taxes were the issue, Woodruff also could play hardball with the best of them. When Georgia governor Eugene Talmadge tried to impose a Depression-era business tax that would have cut into Coca-Cola's profits, Woodruff reincorporated the company and moved its administrative headquarters to Wilmington, Delaware. For a decade, until the Georgia legislature backed off the tax, c.o.ke the quintessential Atlanta company wasn't really that at all.

Like other corporations in the increasingly science-minded 1920s, Coca-Cola under Woodruff embraced surveying and market research. Few other companies, though, gave themselves over so thoroughly to the results. Beginning in 1927, Mark Pendergrast writes in his thorough and entertaining history of the company, For G.o.d, Country & Coca-Cola, the company's field researchers spent three years a.n.a.lyzing fifteen thousand retail outlets to determine the exact ratio between sales volume and traffic flow, so that sales teams would know nearly to the minute how much attention to lavish on each spot where c.o.ke was sold. They followed that up with a survey of forty-two thousand soda-fountain customers to track the relations.h.i.+p between initial purchase of the product and a follow-up choice of c.o.ke.

Woodruff applied the principles of science internally as well. Under Asa Candler and his relations, Coca-Cola had run less by dictate than by instinct. Under Woodruff, there were rules and procedure manuals for everything, from bookkeeping practices to the servicing of dispensers, the color of trucks, the uniforms worn by the drivers, the way a Coca-Cola was poured at the soda fountain, and the presentation and punctuation of the trademark logo. (The name and logo themselves had been the work of John Pemberton's bookkeeper, Frank Robinson, who thought the two uppercase Cs would look good in ads.) c.o.ke's bottlers were historically an independent lot, but even there Woodruff did his best to bring order and predictability. c.o.ke lore is resplendent with tales of his efforts, including the story about Woodruff's visit to a particularly filthy and disreputable looking bottling plant.

"The Boss summoned the owner and told him he'd better clean up his operation by the next day, or he would soon find himself in some other line of work," Mark Pendergrast recounts.

"'But Mr. Woodruff,' the bottler protested, 'it don't do no good to clean up. The next day it'll just look like this again.' There was a moment of tense silence as Woodruff slowly and deliberately took his cigar out of his mouth, his eyes boring holes into the bottler. 'You wipe your a.s.s, don't you?' Woodruff said. With that, he replaced the cigar and left...."

Apocryphal? Quite possibly, but one suspects that Woodruff and his inner circle would have happily encouraged the legend. Better than anyone else of their generation, they understood the importance of brand, and they understood that brand gets built both externally, through customer interaction with the product and its messages, and internally, through the myths a company tells itself about itself.