United States Steel: A Corporation with a Soul

by Arundel Cotter

But the ore beds from which the Tennessee company draws its raw supplies average well under 40 per cent. in iron, actually from 36 per cent. to 37 per cent.; nor does the ore lie near the surface, and the process of making it into iron and steel is necessarily more tedious and more costly than is the case with the richer and more easily reached northern iron.

In the first place, more labor is required, particularly in winning the raw materials, as the coal fields are badly disturbed geologically, making the expense of mining very much higher. And the ore is nearly all hard ore, requiring to be drilled, blasted, and crushed. Further, the low iron content requires the use of about one and three quarter times as much ore per ton of pig iron, and the poor quality of the Alabama ore necessitates the use of about half as much again of coke to make a ton of iron as compared with that coming from the Lake Superior district.

The high phosphorous content of southern pig iron prevents the use of the cheaper Bessemer process which is used on the low phosphorous pig iron of the northern district and the fact that no Bessemer steel industry exists in the South to furnish the scrap required in the straight open-hearth process prevents the economical use of this process in the South, a disadvantage which does not exist in the North, where scrap is available. Hence it is advisable in the Birmingham district to use a combination of the two processes, the iron being first bessemerized, then worked through the open-hearth furnace. And this adds greatly to the cost of converting a ton of pig iron into steel.

Another difficult problem with which the Tennessee company had to contend was that of labor. The large majority of the common labor supply in the South is made up of negro labor and, while the colored man often makes a satisfactory worker if properly “bossed,” he is unreliable and too often has as his motto “never do to-day what you can put off until to-morrow.” Given assurance of enough to eat for a day or two and a dollar in his pocket, he is likely to refuse to work until again urged by the spur of necessity—childlike, his vision of the future is limited. And this disposition to take life from day to day is, to put it mildly, trying to the manufacturer who needs a full force to get out tonnage.

And even when the negro is reliable he is seldom fitted to take positions of responsibility, so that workmen must be brought from the North to undertake the skilled work or that requiring managerial ability. And as the opportunities for such men are greater in the North, the keeping of an efficient organization together means a constant struggle on the part of the manufacturer, becomes an ever-present and pressing problem.

The expansion of the steel industry in the South is further limited by the fact that it is an agricultural, not an industrial, section. A steel mill does not, in the main, make products to be sold direct to the ultimate consumer. Its output must be manufactured by other companies into machinery, locomotives, and a thousand and one other things. Its customers are other industries, and there are comparatively few industries in the South. Thus it would seem that the formation of a great southern steel merger or the expansion of the Tennessee company to a size sufficiently large to cause apprehension to the “Steel Trust” was a very remote contingency.

It might not be out of place here to point to the significance of the fact that the Republic Iron & Steel Co., which owns important tracts of ore and coal lands in the South just as conveniently situated to its furnaces as are the Tennessee’s holdings, has not made marked use of the supposed advantages which it obtained from its southern properties. The company’s expansion since 1907, under John A. Topping’s able management, has been great, but it has been almost entirely in the North.

These things, the conditions that surrounded and influenced steel making in Alabama, were well known in the steel trade. Therefore it was hardly to be wondered at that when Ledyard, through Morgan, suggested to the directors of the Steel Corporation that the controlling interest in the Tennessee company should be purchased by its bigger and richer rival, the proposal was not enthusiastically received. The deal, for any other reason than the saving of the financial situation, was opposed by both Gary and Frick. The latter, in particular, seemed to think that almost any other course was to be preferred to an absorption of the Tennessee company, and it was he who suggested that a loan of $5,000,000 be proffered Moore & Schley to save them from bankruptcy. But the members of the firm rejected this offer.

It was not a time for delays, for dickering. The financial situation was a seething volcano which might erupt at any minute. From Friday, November 1st, when Ledyard first presented the matter to the banker, meetings of the Steel Corporation’s finance committee and conferences between Gary and Frick and representatives of Moore & Schley were held almost continuously until Sunday, November 3rd, on which date the Steel Corporation management finally yielded to the insistence of the brokers and agreed to purchase the controlling stock of the Tennessee Coal, Iron & Railroad Co. at par, or $100 a share, about twice the value that had been set on the stock by Gary in his earlier talks with Ledyard.

Followed the now famous visit to Washington. The deal, though practically completed on Sunday, was not formally closed. Gary insisted that the President of the United States should be consulted and that his attitude should be ascertained, and Frick demanded and received an assurance from Morgan that every assistance possible would be rendered other companies which were in difficulties before the purchase should be consummated.