Military history

Chapter 29

The Business of Business

The business of business is business.

—Alfred P. Sloan

Before we consider how the next generation of management theorists discovered strategy, we need first to explore the issues of power being faced by business over this period. The important developments in theorizing about business strategy after the Second World War reflected the forms taken by large industrial corporations in the United States, at a point when the tensions between capital and labor were subdued if not eliminated. The origins of these corporations, however, were to be found in a much more turbulent period in the country’s industrial development, marked by labor unrest and arguments over the excessive power of the large trusts.

Against the expectations of Marx, capitalism transformed itself as the nineteenth century turned into the twentieth. Capitalists found means of coping with the volatility of the system that produced cycles of growth followed by recession. One of the most important coping mechanisms appeared to be size. Very large companies were capable of surviving sudden changes in economic conditions. In this effort they were increasingly supported by layers of management. The process which led to those changes began at about the same time as Marx was arguing with Bakunin over how to prepare for revolution and then what to make of the Paris Commune.

John D. Rockefeller

The story of John D. Rockefeller and Standard Oil is well known.1 In 1865 as an ambitious 26-year-old in Cleveland, Ohio, Rockefeller bought out his partner in the town’s largest oil refinery. Taking advantage of the economic expansion that began with the end of the Civil War, he added to his refineries and the profits rolled in. Unfortunately, others had the same idea and soon refinery capacity far outstripped demand for kerosene and other oil products. To survive, Rockefeller determined to be the most efficient producer, improving quality while keeping costs down and then, more imaginatively, by integrating the business, controlling both supply and distribution. In addition, he made sure that he had enough cash so he would not be caught short by sudden market fluctuations. He then strengthened his position by controversial links with the railroads, gaining discounted rates in return for shipping a guaranteed number of carloads a day.

Rockefeller did not accept for one second that it was improper to tamper with market forces. He was convinced that it was too easy to open a refinery resulting in an overcrowded industry and a chaotic, chronically unstable market. Instead of living by the market’s capricious disciplines, Rockefeller decided to exert control. “The oil business was in confusion and daily growing worse.” As each refiner “struggled hard to get all of the business . . . he brought to himself and the competitors nothing but disasters.”2 Supply and demand might never reach equilibrium. Rockefeller’s strategy was one which in other circumstances would have seemed wholly appropriate: he sought cooperation as a sensible alternative to a wasteful and disruptive competition.

Given the state of the oil industry, Rockefeller may well have been correct in his assumption.3 This was nonetheless a challenge to the prevailing ideology of free markets. In the case of Rockefeller, the challenge was aggravated by his methods. He normally offered prospective partners reasonable terms and at times helped his erstwhile competitors out of a desperate position. Those who did not wish to combine, however, would often be harried into submission, their position worsened by means of aggressive price cuts by Standard Oil. In 1870, when it incorporated, Standard Oil controlled a tenth of America’s refining capacity; by the end of the decade, the figure was 90 percent.

When independent companies made a last daring move by building a long-distance pipeline, even managing to catch Standard Oil by surprise, there was no real threat to the company’s position. There was time and the financial muscle to respond. Standard Oil built its own pipelines and soon controlled the whole network connecting the Pennsylvanian oil regions with the rest of America. The only exception was the original line, and even here Standard Oil acquired a minority stake. When the remaining independent refiners demanded legal remedies to restrain Standard Oil, the court cases lifted the veil on the sort of techniques the company employed in its drive to a near monopoly. In 1882, Rockefeller found a way to bring the veil down again, using a legal device that was normally used for people who could not look after their own finances. The companies in which Rockefeller held stock came together by means of a secret agreement. The stockholders conveyed their shares “in trust” to nine trustees, including John and his brother, William. That meant that, strictly speaking and whatever the appearances, Standard Oil did not own other companies. It was only the trust, owned by the company’s stockholders, which could appoint directors and officers and set up administrative offices in individual states.

Standard Oil had a virtual monopoly. All that was missing was any actual production of oil. Potentially that was a great vulnerability, especially if the oil ran out. But by the end of the 1880s, new oil fields were being found around the country and U.S. production was no longer dependent on the Pennsylvania fields. Rockefeller saw the opportunity for further integration and reduced dependency on suppliers. Energetic acquisition began. Soon Standard Oil was pumping a third of America’s crude oil as well as marketing 84 percent of all petroleum products sold. As both producer and consumer, Standard Oil could set the prices. Without quite squeezing out all the competition, it was in effective control of the U.S. oil industry and was developing substantial interests overseas. Things also turned out well for Rockefeller on the demand side: kerosene was replaced by electricity as the major source of illumination, but the arrival of automobiles and gasoline-powered engines transformed the market again. Gasoline suddenly moved from a minor product to the major output of refineries.

By the turn of the century, Standard Oil had reached the peak of its influence. The size of the international market, which already included significant competitors, meant that its relative position was bound to decline. The process was accelerated, however, as a result of the trust’s substantial political liabilities. Rockefeller was blamed for using dubious practices to gain vast wealth. Grudges were held by the small independent producers who had been gobbled up, broken, or marginalized during Rockefeller’s inexorable rise. They could appeal to American values and the image of the virtuous little man struggling against concentrated, corrupt power and great wealth. Rockefeller was by no means the only “Robber Baron”—Andrew Carnegie, Cornelius Vanderbilt, and J. P. Morgan were similarly denounced. Nor was Standard Oil the only entity using the trust as a way of controlling markets and rebuffing competition. It was, however, the largest and most notorious. While Rockefeller believed combination to be a better way of guaranteeing efficiency and stability, the practice tended toward monopoly. The 1890 Sherman Antitrust Act gave the federal government power to investigate and pursue the trusts. Rockefeller acquired the best lawyers to take on the courts and develop elaborate arrangements to beat legislation. He used donations to buy political support and plant friendly stories in newspapers. New companies were established, proclaiming their independence, though they were in practice controlled by the trust. Meanwhile, with remarkable attention to detail, using superior intelligence and communications, and keeping track of markets and competitors on an increasingly global scale, Standard Oil kept its prices down and its hold on the market secure. Through all this it “treated the federal government as a meddlesome, inferior power.”4

In the end, Rockefeller’s nemesis proved to be a writer called Ida Tarbell, whom we met in the previous chapter as a champion of Frederick Taylor. As it happened, her father had struggled in the early oil business against Standard Oil and suffered as a result. This gave an edge to her reporting. The opportunity came because she was on the staff of McClure’s Magazine, a progressive “muckraking” journal, which had decided to make the trusts its main target.5 Tarbell got a break with an introduction to one of Rockefeller’s lieutenants, who became a key source of information. In 1902, a monthly serial began which lasted for two years, telling the Standard Oil story in compelling detail, arousing great indignation as it exposed underhanded business methods. Tarbell insisted that she did not object to the company’s size and wealth but rather its methods. “But they had never played fair, and that ruined their greatness for me.”6

The exposure was timely. The antitrust cause had been taken up by the progressive president, Theodore Roosevelt. He argued that corporate power had to be brought under control, using legislation where the abuse was greatest. He launched investigations into Standard Oil, and in 1906 a suit was brought accusing it of restraint of trade under the Sherman Act. Standard Oil’s legal defense was strong, but the evidence was damning. After an initial verdict ordering the trust’s dissolution in 1909, it was confirmed by the Supreme Court in 1911. The “very genius for commercial development and organization,” the chief justice concluded, “soon begat an intent and purpose to exclude others.”7 Standard Oil was dismantled, giving birth to thirty-four new entities, including what became Exxon.

At the time it seemed like a defeat, but Roosevelt had done Rockefeller a favor. It was increasingly beyond the capacity of a single company to control a developing market of such size and complexity. The ability of smaller units to respond flexibly to new conditions eventually made for a stronger and more profitable industry. Rockefeller, now retired, held stock in the new and largely successful companies. He lived until he was almost 100. A great philanthropic trust bore his name and soon came to affect the way that economics and management was studied in the United States. His descendents continued to have a major influence on business and politics. So this story hardly counts as a tragedy.

Rockefeller was undoubtedly a master strategist. He could take a view of the system as a whole and assess the position of the individual parts. Yergin describes Rockefeller as “both strategist and supreme commander, directing his lieutenants to move with stealth and speed and with expert execution.” He was not averse to military metaphors, for example, justifying his secretive methods by wondering “what general of the Allies ever sends out a brass band in advance with orders to notify the enemy that on a certain day he will begin an attack.”8 Chernow describes him brooding over problems. Plans were “quietly matured plans over extended periods. Once he had made up his mind, however, he was no longer troubled by doubts and pursued his vision was undeviating faith.”8 But because his strategic success was the result of objectionable methods and in pursuit of retrograde aims, he could hardly be presented as the model for an aspiring businessman.

Henry Ford

By contrast, at least for a time, Henry Ford was presented as an exemplary and forward-looking businessman. Ford’s vision for the automobile industry was developed while he tinkered with machinery as a young man on his father’s farm in Michigan. He wondered about horseless carriages and how they could take some of the worst drudgery out of rural life. Steam engines were too big, heavy, and dangerous. Perhaps gas-powered internal combustion engines might be a way forward. In the mid-1880s, he got a chance to work with one of these engines, understand its principles, and then experiment on his own.

There was at the time no mass market for cars. They were considered expensive toys for racers, with speed more important than reliability. As good money could be made by selling individual cars to order at high prices, there was no incentive to go for a volume. Ford’s genius was to see how to develop an affordable car for a mass market, anticipating both a public demand and a means of production that did not yet exist. He got no support from independent investors and banks. This left him with an enduring disdain for those who put money ahead of work, feared competition, and were uninterested in consumers. He sought to liberate himself from dependence on creditors and shareholders. Although when he founded the Ford Motor Company he did not at first have the controlling share, by 1906 he owned more than half the stock.

He also had to take on a cartel. The Association of Licensed Automobile Manufacturers (ALAM) used a dubious patent to control the entry into the industry of new manufacturers. In 1903, they refused entry to Ford. In the context of the antitrust campaigns of the time, Ford realized that ALAM could readily be castigated for its greed and the use of specious claims to exclude proper competition. He was in the opposite position to Rockefeller, on the side of the people versus the trusts, the underdog, “an industrial David standing alone against a powerful, monopolistic Goliath.” He was, he claimed, infused with “that instinct of American freedom to cause us to rebel against oppression or unfair competition.” It went against the grain to be “coerced, or bluffed, or sandbagged.”10 In 1909, after a long legal battle, Ford won—to general acclaim.

In the company’s first advert, he explained the wish to “construct and market an automobile specially designed for everyday wear and tear,” a machine to be admired for its “compactness, its simplicity, its safety, its all-around convenience, and—last but not least—its exceedingly reasonable price.” To get the price down he needed the volume of a mass market, and that required new forms of assembly. The prevailing model was the bicycle industry, which offered customers a range of models, a new one coming out each year. To Ford this was the wrong philosophy, based on the “same idea that women submit to in their clothing and hats.” He wanted to build to last, like the watches that had first kindled his fascination with machinery. His view was that price was the key. That meant fewer models and more focus on simplicity and reliability.

Out of this came the idea of the “universal car,” built with high quality materials and simple to operate. He settled on a design that became famous as the Model T and then concentrated on manufacturing this one model in large numbers. When his salesmen worried about the lack of different models to appeal to distinctive customers, he remarked that: “Any customer can have a car painted any color that he wants so long as it is black.” This car was not to be a luxury item for a few but one for “the great multitude.” The assembly line, first introduced in 1913, had tools and men placed in sequence as each component moved along until the car was finished. This reduced “the necessity for thought on the part of the worker and . . . his movements to a minimum.” When in 1914 Ford started to have difficulty maintaining a stable workforce because of the dreary and routine nature of assembly-line work, he announced that his workers would be paid five dollars a day. This he described as one of the “finest cost-cutting moves we ever made.”

Ford understood better than any other manufacturer at the time what might happen if ordinary people were treated as consumers and how their growing aspirations might be met. He worked single-mindedly to realize his vision, exploring better materials and methods. At this stage he also had the advantage of no real competition, as the other manufacturers were tardy in appreciating that Ford represented the future. This was a new and rapidly expanding market without obvious bounds. Once Ford hit upon his successful formula he was made.

Ford claimed a breakthrough not only in car manufacturing but in the development of industrial society, offering an alternative course between socialism and crude capitalism. He had given a decisive impetus to two critical and related developments: the techniques of mass production which in turn fed the desires of mass consumption. The five-dollar pay offer bought stability in the workforce and turned the workers into consumers. He sought to show how his own ordinariness and simple tastes, his readiness to bridge the gap between rich and poor, and the civic action programs around his factory all made him close to ordinary people. This was part marketing, part genuine. It soon became wrapped up in populist rhetoric, turning Ford into a special sort of businessman. Not only had he not forgotten his roots but he understood that looking after people was good business, a source of loyalty, productivity, and customers.

This addressed a wider political agenda. His close associate James Couzens, as much responsible for the underlying philosophy as Ford, put it clearly: “The follies of socialism and the terrors of anarchy will fade away in an industrial system that guarantees to every man, rich or poor, a fair field and a square deal.”11 An answer had been found to the constant unrest that had marred the process of industrialization, as workers fought to improve their wages and conditions. The five-dollars-a-day move enthused many on the left as it appalled other industrialists who saw expectations created among their workforces that they could not afford to meet. Progressives saw a man of wealth who understood his debt to labor. Some socialists argued that it made more sense to look at the practice of Ford rather than the theories of Marx. A cult of personality developed around Ford as one who made good on his promises and guaranteed service, not only a master car builder but a mechanical genius and democratic hero.

Inevitably, the political implications of Fordism soon turned out to be more complex than a historic bringing together of the hitherto opposing demands of capital and labor. His approach was intensely paternalistic. Factories were organized to do everything possible to reduce the scope for individual initiative, as if a universal worker could be one of the universal parts in a universal machine to produce the universal car. In such an interconnected system, where if some went slow the whole line slowed down, there was need for discipline and no scope for initiative. “We expect the men,” Ford insisted, “to do what they are told.” He assumed an “unevenness in human mental equipments” that meant many men were content with tedious work. A “sociological department” was established at his main plant to ensure that newly enriched workers did not lose their sobriety or industriousness. Their private lives were monitored and regulated to an extraordinary extent.

Beyond industrial matters, he campaigned actively against war. He toyed with politics and was touted as presidential material in 1916, until he eventually threw his considerable weight behind Woodrow Wilson. In 1918, he ran to become a senator for Michigan. He refused to actually campaign but still only lost by a narrow margin. His loss was largely due to his past pacifism and anti-militarism now that the country was at war. Over time, his attitudes began to appear idiosyncratic and, in the case of his virulent antiSemitism, downright dangerous.

Ford was an autocrat, encouraging sycophancy and unable to grasp the major changes in the social and political context in which he was operating. When he was riding high he used his dominance to prevent any interference in the development of company policy, whether from partners, stockholders, or independent-minded managers. He sought personal control and oversight over what had become a massive company, with hundreds of thousands of employees and sales in the millions, yet ran it “as if it were a mom and pop shop.”12

The company reached its peak in 1923, when it produced two million cars as well as many tractors and trucks. But by then competition was developing from General Motors and Chrysler. While Ford stuck with the Model T, the others set the pace with a greater range of new cars. By 1926, Ford’s production barely reached 1.5 million vehicles. The competitors also offered new forms of payment, accepting credit and installments. With his horror of debt, Ford was unwilling to offer similar terms. Convinced that price was all that mattered, he put pressure on his workforce to increase productivity and on his dealers to accept the risk of unsold cars. His reputation as an enlightened man of the people became tarnished. He did not even appreciate how consumers, whose aspirations he had championed, were becoming more demanding about products, fickle in their tastes, interested in style, and selfindulgent in their spending. He assumed that low prices would continue to persuade customers to forego the novelties and gadgets offered by his competitors. He even fought with his son Edsel, who argued the case for modernization of both products and practices. Henry considered Edsel to be weak and prone to panic. It was only as evidence of falling sales became impossible to ignore that he accepted the need for a replacement for the Model T. By the time the production run ended in 1927, some fifteen million had been sold. The price had come down from $825 in 1908 to $290.

By 1933, with the Great Depression taking hold, Ford was selling only 325,000 cars, less than Chrysler’s 400,000 and half of the 650,000 produced by General Motors. Now an elderly man, Ford appeared distracted. Moreover, with the arrival of the Roosevelt administration and the New Deal, the days of a lax and benevolent attitude of government to big business were over. The accent was now on reform and regulation, including support for labor unions. Ford became a bitter opponent of the New Deal. He saw it as promoting collectivism, sapping energy and enterprise from the economy, and motivated by an urge to redistribute wealth rather than support its creation.

Ford had long been hostile to the unions, along with the notions of class antagonism they supposedly fostered. Their aim, he believed, was to claim for themselves the benefits of mass production rather than pass them on to the consumer. They were in the same parasitical category as financiers. Ford paid good wages in the early 1920s, but as the company struggled in the 1930s, the demands on workers had become excessive. In 1925, 160 men produced 3,000 units; by 1931, the same number were expected to produce 7,697 units. The productivity was maintained through worsening conditions policed by a security force, often likened to mafia enforcers. Workers could be dismissed for minor infractions.

Ford was prepared to use physical force to keep the unions out. This became apparent in March 1932 when there was a battle between some 2,500 unemployed workers, urged on by communist activists, and the police. The skirmish involved stones on one side and tear gas and water hoses—and eventually guns—on the other. It ended with four men dead. For a while the intimidation worked, helped also by the divisions within the union movement. By May 1937, unionism had received a political boost through President Franklin Roosevelt’s New Deal and the 1935 Wagner Act, which tilted the law more in favor of the unions. After a wave of sit-down strikes, General Motors and Chrysler had both given in to demands to allow the United Auto Workers sole rights to represent their workers. When union leaders tried to do the same with Ford, they were set upon and beaten up by security men. The result was more dire publicity for the company. And although Ford continued to resist, his position became more isolated. When the state ordered a poll of workers it turned out that 70 percent favored unionization. Ford’s subordinates wanted to accept the result. Ford appeared ready to resist whatever the consequences until his wife, fearing bloodshed, persuaded him to relent.

Though a great innovator, Ford was a terrible strategist. He was absolutely sure in his own views and put himself beyond challenge in the running of his company. So long as others agreed then all was fine, but he expected business to be undertaken on his terms and showed no flexibility when he faced resistance, whether from his own executives, workers, the government, or even consumers. He saw no need for advice from anybody else. “When you have to solve a problem that nobody has yet thought about, how can you learn the solution from a book?”13 In his memoir, My Life and Work, he was contemptuous of “experts,” associating them with a state of mind where everything was already known and therefore new methods were deemed impossible. “If ever I wanted to kill opposition by unfair means I would endow the opposition with experts.” There was an obvious connection with Taylor, with whom Ford was often twinned. Ford’s own ideas were infused with the same spirit of rationalizing the labor system, and the dangers of a thinking workforce. It is unlikely he had read Taylor. He reached his conclusions through his own experience, and much of his push for higher productivity came from innovations in techniques and materials. Nonetheless, many of those around Ford were well aware of Taylor’s approach and considered that they were working in the same spirit. Certainly Ford’s success could be taken as further validation of the approach. Both “Taylorism” and “Fordism” became bywords for advanced manufacturing methods.

His early paternalism might have been embraced by the human relations school, who would have endorsed his determination to transcend the capital- labor divide, but his treatment of his workforce became increasingly harsh and suspicious, and the result was the surge of industrial unrest which concluded when he had to give ground to the unions. The administration of Franklin Roosevelt gave no support to those who thought that labor unions represented outdated thinking based on conflict. By the 1930s, almost submerged by competition and defeated by the unions, Ford was also a poor model for the aspiring business strategist.

Alfred P. Sloan

The man who came to fit this bill was Alfred P. Sloan, the presiding genius of General Motors for some thirty-six years, first in charge of operations, then president, chief executive, and eventually chairman, until he retired in 1956. The company, also based in Michigan, was founded in 1908 by William C. Durant. While Ford was aiming for his universal car, General Motors grew through the acquisition of small companies until it got into so much debt that it was taken over by a bankers’ trust and Durant lost control. Sloan, who had studied electrical engineering at MIT and then become president of a subordinate company, was put in charge of operations at General Motors in 1920. He became president in 1923, when the industry faced a slump. From the start he set about transforming the company’s structures and products in ways that were widely copied in corporate America.

Sloan’s position was different from Ford’s in three key respects. First, and most obviously, Ford led the pack. Second, Sloan had a range of cars to sell, produced by the companies that had been brought together under the General Motors umbrella, rather than just one “universal car.” Third, Sloan had to take account of his major stockholders, the DuPont family. It was the DuPonts, alarmed at the reckless way the company was being run, that bought Durant out. At first Sloan was reporting to Pierre DuPont, who was chairman and chief executive. This meant that, unlike Ford, Sloan had to have an internal strategy as well as one to deal with the competition. He had to debate company policy with colleagues and take care of a range of distinctive and possibly conflicting interests. For example, DuPont backed a bold scheme to challenge Ford by developing a new type of copper-cooled engine. If the scheme failed, as Sloan suspected it might, the result would be disastrous. Sloan was careful not to fight the project: he just made sure that there was a fallback position based on a safer, water-cooled engine, if it failed, which it did.

Over the 1920—1921 period, Sloan came up with two related sets of ideas that reshaped the modern corporation as well as the automobile industry. The first was a set of proposals about getting the best out of General Motors’ complex structure while still providing a central lead. His plans were set out in a 1920 document known as the “organization study,” later described as having a “canonic quality” and as a “touchstone for management theory and practice.”14 Sloan presented this study as a result of his scientific approach, as a man “who followed the factual approach to business judgment.” He drew solely on his own business experience. He had not been in the military and was not a book reader. Had he been, he noted, “I would not have found much in that line in those days to help.” The plan was adopted because it met the needs of a board that “desired a highly rational and objective mode of operation.” It depended on two propositions that apparently contradicted each other. The first was that the company should be split up into divisions, each with its own chief executive with a responsibility for its operation that “shall in no way be limited.” The second proposition was that certain “central organization functions are absolutely essential” to the Corporation’s development and control. Sloan saw the contradiction between the two as “the crux of the matter.”15 One was about the ability to get on with the business without constant interference from the center; the second was about doing so within clear financial and policy guidelines. The intellectual breakthrough was to recognize that there was a tension and that this presented the core challenge for management. It introduced what Sloan’s biographer described as “a new kind of corporate music, a symphony of controlled, decentralized production, operation, and administration in which there is a reward for the virtuoso performer and regard for the conductor.”16

The key question of strategy was what to do about Ford, which at the start of the decade accounted for some 60 percent of all cars sold in the United States. Against the legendary Model T, General Motors had ten models produced by a number of divisions, some at the luxury end of the market and others more basic. In principle, the product range catered to all sections of the market, but in practice the company’s cars were competing against each other in some areas. As things turned out, Ford was the ideal adversary, complacent and stubborn. But even if Sloan suspected this he could not rely upon Ford failing to respond to the challenge he intended to pose. His script for General Motors dared not assume complete stupidity on Ford’s part. Sloan could, however, assume that he had some time. Ford was under no pressure in 1921 to abandon the Model T when it had served him so handsomely. Moreover, Ford’s eventual likely response was also predictable, as he had the financial clout to push the price of the Model T lower to see off any direct competition.

Through the summer of 1921, Sloan headed a task force charged to address this conundrum. According to Sloan:

We said first that the corporation should produce a line of cars in each price area, from the lowest price up to one for a strictly high grade, quantity production car, but we should not get into the fancy price field with small production; second that the price steps should not be such as to leave wide gaps in the line, and yet should be great enough to keep their number within reason, so that the greatest advantage of quantity production could be secured; and third that there should be no duplication by the corporation in the price field or steps.17

The genius of this formulation was that these classes did not reflect any existing market reality. They represented a new way of thinking about the market, about how customers might respond to variations in price and quality. If Sloan was right, then the market could be shaped to suit the company as it rationalized and marketed its range, under the slogan a car “for every purse and purpose.” He was not so much relating to the external environment; he was completely reshaping it.

The test of the approach would be at the lower end of the market where a revamped Chevrolet, then with barely 4 percent of the market, would be pitched against the mighty Model T. Sloan saw this competition taking place within the price category of $450—$600. Ford took pride in the position of the Model T at the bottom end of this price range. Sloan judged it “suicidal” to compete with Ford head on. “The strategy we devised,” he later explained, “was to take a bite from the top of his position, conceived as a price class, and in this way build up Chevrolet volume on a profitable basis.”18 This meant aiming for higher quality in order to justify a higher price. The intention was to get sales from those prepared to pay a bit more, but also to pick up sales from those looking at the next class up who might prefer to pay a bit less. Ford was left the low-class slot in the knowledge that he would be inclined to stick with his existing strategy and ignore the insurgency. Once Chevrolet was profitable it would have a secure basis from which to mount further and progressively more damaging inroads into Ford’s space.

What were Ford’s options? Essentially, he needed to prevent Chevrolet from reaching profitability. But in the short term all he could do was respond by further lowering the price of the Model T, perhaps hoping that the slump in car sales that marked the start of the decade would continue, and then counterattack with a new model designed to challenge the Chevrolet’s superior design features directly. But as Ford relied on one model, it would take time to develop a new car (although he could have bought another manufacturer to provide a ready-made product). Any new car would also potentially take volume from the Model T. The market picked up, Ford’s sales soared, and so he had no immediate incentive to deal with the Chevrolet threat. But while Ford had no price class below the one he was presently occupying from which to draw new consumers, Chevrolet could make the higher range its own and draw customers from the class above as well as from Ford. When its sales grew, there was no need for Chevrolet to match Ford’s price cuts. As Sloan observed, “The old master had failed to master change.” Ford had not understood “how completely his market had changed from the one in which had made his name and to which he was accustomed.”19 Within six years, General Motors led the market, selling 1.8 million vehicles in 1927.

In one respect Sloan was of the same mind as Ford. He deeply objected to the Roosevelt administration’s readiness to interfere with business and campaigned vigorously against the president. This included sponsoring the virulently anti-New Deal Liberty League and campaigning for Roosevelt’s defeat in the 1936 election. In the end, as a result of the backlash against Roosevelt followed by the war, the two came to terms. In the short term, it created extra challenges for the company. The most important was the relationship with the unions. Unlike Ford, Sloan never claimed to have answers to all the problems of industrial society and showed little interest in shop floor conditions. His attitude to unions was that they represented an alternative source of authority for the workers on matters of pay, rules, and conditions which the company could well do without. Instead of trying to create a larger and therefore more profitable cake from which all could benefit, the unions just wanted to carve the existing cake, whatever the damage to profitability.

To prevent the workforce being unionized, the company hired spies to inform on any subversive activities. Anybody attempting to organize on the shop floor could be fired and those taking an interest warned off. The knowledge that spies were around also served to create uncertainty and suspicion among the workers and made them harder to organize. This went on despite the passage of laws designed to protect organizers from harassment. By the summer of 1936, only about fifteen hundred of the company’s forty- two thousand strong workforce belonged to the United Autoworkers Union. Once Roosevelt had been reelected in November 1936, and with Michigan’s governor sympathetic, the situation changed abruptly and dramatically. Under the miners’ leader, John Lewis, the newly formed umbrella organization, the Congress for Industrial Organization (CIO), decided to target the automobile industry. Local militants also decided that this was an opportune moment to attack the company. As General Motors struggled to get out of the recession, the workers complained that they were being asked to work harder for less. Jobs had been cut while productivity targets remained the same. Managers relied on the fear of unemployment to discipline workers and keep wages down. All this erupted in November 1936, resulting in one of the most consequential strikes of the decade, critical to the future course of unions in the United States and also to the automobile industry.

By December, sit-down strikes had spread to a number of plants including the crucial Fisher body plant at Flint. To Sloan, this represented a direct challenge. “The real issue,” he told his workers, was “will a labor organization run the plants of General Motors Corporation or will the management continue to do so?”20 This all confirmed his fears about the New Deal, as good economic order was being sacrificed to misguided, collectivist notions. Now workers were engaged in an illegal occupation of company property and should be removed. But how? Under the law, force could be used but what if there was resistance? Was the company prepared to sanction serious violence? Moreover, it was apparent that at the state and federal level, the pressure was to find a negotiated way out of the situation. Though Roosevelt could not condone the workers’ actions, there was no doubt where his private sympathies lay. Sloan had not exactly gone out of his way to curry favor with the President.

For the unions, the vital thing was to maintain their position. So long as they stopped the plants operating properly General Motors was hurting. This required not only repelling anybody trying to expel them by force but also ensuring that they had heat and food. In practice, the plants were often occupied by very few men, because the union initially did not have many members to call on and also had to make supplies last. In one of the key plants which employed around seven thousand workers, there were at times no more than ninety in occupation, not all of which were General Motors employees. So in January, when the company first tried to turn the heat off and prevent food being delivered, the “sit-downers” took the offensive to capture the plant gates so they could ensure the supplies kept coming. The crisis escalated as the men fought back against the police’s gas canisters with stones and fire hoses. The next round involved guns leading to injuries but not deaths. The union added to the pressure by going after Chevrolet production. A decoy sit-down was staged in a secondary plant diverting the attention of the company police, making it possible to seize a far more important plant where the engines were made.21

The company obtained an injunction confirming the illegality of the trespass, but the strikers refused to leave. Attempts were made to get negotiations going, but the company baulked at the union’s key demand of sole collective bargaining rights for the United Auto Workers (UAW). Sloan claimed to be prepared to consider this but only after the sit-ins had ended. Lewis had no intention of losing his leverage or agreeing to a compromise. Before the strike, General Motors had been producing some 50,000 vehicles per month; by February, this was down to only 125. Politically, Sloan was becoming isolated, the Roosevelt administration was accusing him of going back on his word, and commentators were describing him as out of touch with the times.

The responsibility for the use of force to dislodge the strikers lay with new Michigan governor Richard Murphy. He took the lead in trying to broker a dispute. He was conscious that he had to uphold the law yet was horrified about the possibility of violence and major loss of life and then going down in history as “Bloody Murphy.” If he needed to step up the pressure on the union he was more likely to tighten the cordon already ordered when the Chevrolet engine plant was seized than to order in the National Guard to evacuate the buildings. Such a strategy would require patience, easier for him than for General Motors, which was losing serious money. Even the company was wary about possible violence. They could see how they would be blamed for substantial loss of life when a conciliatory move on union recognition might have brought the dispute to a close.

Toward the end of the confrontation, Murphy issued a formal warning to Lewis about how the law must be enforced. This was followed by some grandstanding by Lewis, who told the governor that he would go into the plants and prepare to be shot with the others. In language that captured exactly Engels’s hopes for such a standoff, when there was no doubt about the superior physical force of the authorities but real doubt about whether it could be used, Lewis taunted Murphy. Without a settlement he was not going to withdraw the strikers. “What are you going to do?” he asked.

You can get them out in just one way, by bayonets. You have the bayonets. What kind do you prefer to use—the broad double blade or the four-sided French style? I believe the square style makes a bigger hole and you can turn it around inside a man. What kind of bayonets, Governor Murphy, are you going to turn around inside our boys?

In fact, by this time a settlement was close. It was negotiated by one of Sloan’s lieutenants who agreed to direct talks with Lewis, using the request of the president to sort out the conflict as an excuse for going back on the company’s previous position. On February 11, 1937, General Motors signed an agreement ending the sit-down strikes. UAW got exclusive collective bargaining and had four hundred thousand members by October.

The administration was not yet finished with the company. In 1938, the Department of Justice secured an antitrust criminal indictment against General Motors, as well as against Ford and Chrysler. The charge, which did not stick, was that the manufacturers had illegally restrained trade by requiring their respective dealers to only use the company-associated finance company. Unlike Chrysler and Ford, Sloan decided to fight, not only because he considered this to be unwarranted interference in business matters, but because he sensed a larger vulnerability—the company was moving toward a 50 percent share in the car market. “Our bogie,” he observed in late 1938, “is 45 per cent of each price class . . . We don’t want any more than that.” This meant that—against all corporate instincts—he had to keep market share down.

One of the New Deal figures with whom Sloan was tangling was Adolf Berle, who had been a professor at Columbia Law School but was also a key member of Roosevelt’s Brain Trust before the 1932 election and a regular adviser to him in government. In 1932, he published a landmark book with Gardiner Means, entitled The Modern Corporation and Private Property, demonstrating the divergence between the ownership and control of large corporations, with the result that the management conducted affairs with little shareholder scrutiny. They also showed how the means of production in the United States had become concentrated in some two hundred large corporations, of which General Motors was a prominent example. Economic power was being concentrated in the hands of a few people who controlled these giant corporations. This was power that could “harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another.” With a social role far beyond anything implied by the term “private enterprise,” this was an economic power that could compete on its own terms with the political power of the state. A new form of struggle was developing: “The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation.”22

In the run-up to the Second World War, the sure touch which Sloan had showed in his handling of the competition with Ford and the internal structure of General Motors had deserted him when dealing with the government and the unions. In key respects, these were the big strategic issues facing large corporations during the 1930s and there was no reason to suppose that they would subside in the future. It was, however, the areas in which Sloan had been successful, rather than those in which he had failed, that led him and his company to provide the vital raw material for the next generation of management theorists.

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