After taking a tour of Bethlehem Steel's Lackawanna facilities near Buffalo, New York, in 1924, a college student concluded that "the steel industry is of fundamental importance to mankind," and she was right.¹ As any survey of American economic, military, or social history will reveal, steel has been particularly important in this country's national  experience. Therefore, as Edmund Martin, a Bethlehem Steel President, argued in 1967, it was in America's national interest to have a "strong and prosperous steel industry."²  For much of the twentieth century, the United States did have that sort of steel industry, and Martin's own company, the second largest in the nation, was one of the strongest and most profitable with its facilities in Bethlehem, Lackawanna, Sparrows Point near Baltimore, and elsewhere.  However, even when the steel industry and corporations such as Bethlehem were prospering, steel was a contentious industry.  It had a history of labor-management disputes ranging from the pitched battles between strikers and Pinkertons at Carnegie's Homestead works in 1892, the struggles between the companies and Phil Murray's SWOC (later the USW) in the 1930s, the 116-day strike that occurred in 1959, and the acrimonious negotiations during the 1980s that led to the near-collapse of  the industry and many plant closings during that decade and the 1990s.  Using Bethlehem Steel as an example, especially during its formative period during the early- and mid-twentieth century, it can be argued that--in Bethlehem's case--many of the divisions between the industry's management and its workers can be traced not only to labor-management disputes per se but also to that corporation's and its surrounding community's social, cultural, and geographical circumstances and development.

Part 1

In his History of Bethlehem, Pennsylvania: 1741-1897, Joseph Levering refers briefly but proudly to the industrial development of the south bank of the Lehigh River known as South Bethlehem.  He devoted only a little more than two of his book's more than 800 pages to the history of the Bethlehem Iron Company, as it was then known, followed by eight pages describing the beginnings of South Bethlehem's fire companies, churches, and schools, including Lehigh University.  But Levering was well aware of the Company's importance in Bethlehem's history.  Since iron was first cast at the site in the 1850s, he said, the company had grown into an "enormous works" over a mile long and a quarter of a mile wide that included mills  producing heavy forgings, military ordnance, and armor.  "Erected and equipped at a cost of more than $5,000,000," said Levering,  ". . . these works have fulfilled on a vast scale the thoughts of 1854, and have become famous beyond the bounds of the United States."³  As if to apologize for the brevity of his comments on the Iron Company and South Bethlehem's institutions, Levering added in a footnote that his intention was "to merely sketch their beginnings" and that the compilation of their history "may properly be left for writers of future years" who would have better access to the "recollections[s] and participation of present actors on the scenes."⁴  Levering was right;  in the same year that his book was published, 1903, one of the most colorful, controversial, and forceful of Bethlehem's "present actors," Charles Schwab (1862-1939), had recently arrived on the scene and was about to begin the process of transforming and expanding Bethlehem Iron and the surrounding community of South Bethlehem.

As its size suggests, Bethlehem Iron was already a substantial presence in Bethlehem in 1903.  First incorporated and organized in the 1850s, it hired a "noted" iron master, John Fritz, as its General Superintendent and Chief Engineer in 1860 and began casting iron rails for the Lehigh Valley Railroad in 1863.⁵   As America's industry, population, and railroads expanded following the end of the Civil War, so did Bethlehem Iron.  The owners began constructing a larger steel mill in 1868 with Bessemer furnaces and joined the Bessemer Association, an eleven-member trade group that shared patent rights and refrained from competing in each other's territories.  In October 1873 it began rolling its first Bessemer steel rails, which are far stronger and more durable than iron ones.  In 1885, at Fritz's urging, it began to diversify by producing military products: armor plate and shafts for US Navy ships and heavy forgings for guns (Illustration 1).⁶  To do this, new Siemens-Martin open hearth furnaces, which became operational in 1888, were built to manufacture low-phosphorous steel, and by 1896 the decision was made to phase out rail production and dismantle the Bessemer furnaces,⁷ since the Bessemer process cannot remove phosphorous, an impurity that weakens steel.

Unfortunately for the Company, the new technology needed to produce armor plate proved difficult to develop, and the Navy was sometimes a difficult customer.  Though it at first had an exclusive contract for armor plate, Bethlehem was unable to meet deadlines in the late 1880s and the early 1890s as the United States built up its Navy in the decade before the Spanish-American War.  Consequently, it had to share the armor-plate business with Carnegie Steel's Homestead mill, and, along with Carnegie, it had to haggle with the Navy over armor-plate prices.⁸  The company was also burdened with a Board of Directors that was cautious, conservative, and had an "aversion to any form of risk taking";  nevertheless, it was considered a "well-managed" company, and its earnings as a relatively small and specialized steel producer were "solid and profitable" in the 1890s.⁹  That image changed dramatically in the three decades after Schwab became its chief stockholder and President in 1901 and took over direct control of the company in 1903.

Schwab's own rise in the steel industry had been swift.  He had a high school education from St. Francis, a small Franciscan academy in Loretto, Pennsylvania, and was first hired as a laborer and then as a draftsman at the Edgar Thomson Steel Works in Braddock, Pennsylvania, near Pittsburgh, when he was eighteen.  There he was noticed by the Works' general superintendent, Captain Bill Jones, who appreciated his energy and intelligence.¹⁰  Jones ordered Schwab to design and build a railroad bridge in 1885 when he was only twenty three, and then made him his messenger to Andrew Carnegie who owned the Thomson Works. When he was twenty four, he became a protege of Carnegie, who appointed him general superintendent of the Homestead works in Pittsburgh and sent him to Germany and France to visit the Krupp and Schneider works to learn more about their techniques.¹¹  Between 1897 and 1901 Schwab became President of Carnegie Steel, helped to negotiate the consolidation of that company into U. S. Steel, and became the first President of U. S. Steel, America's first billion-dollar corporation.  However, he was deposed from that position and resigned in 1903 after conflicts with the corporation's Board of Directors, particularly Judge Elbert Gary, who became Chairman of the Board in 1903.  Schwab's downfall was aggravated by bad publicity resulting from colorful media reports that he had gambled heavily at Monte Carlo,¹² and he also had participated in an abortive, badly-planned effort to merge Bethlehem and a group of shipbuilding companies into a trust that was intended to be a kind of maritime U. S. Steel.¹³

      Having, in effect, lost U. S. Steel, Schwab turned to Bethlehem and set about reorganizing and expanding it until it became the second largest steel company in the country and one that was capable of earning immense profits, especially during the early 1900s, World War I, and later World War II, when its production of munitions and weapons, plus ships from its shipyards, was spectacular.  According to Levering, in the 1890s, Bethlehem Iron's entire works had cost $5 million to construct and equip;  in 1910 it received a single contract of $10 million for arms, munitions, and spare parts from the Republic of Argentina.¹⁴   In addition, before World War I began, Schwab and Bethlehem's chief arms salesman, Archibald Johnston, had closed other deals with the governments of Chile, Greece, Guatemala, Cuba, England, France, and Russia.¹⁵  But when World War I began, contracts like the one with Argentina would seem modest.  As early as October 1914, Bethlehem Steel announced that it had received an order for $25 million from the French government for artillery, and a little later, Schwab personally made a deal with the British for $40 million worth of heavy guns, caissons, and a million rounds of ammunition, plus a contract for twenty submarines at a price of $500,000 each for a total of $50 million that was announced in November. ¹⁶   Bethlehem's orders for armaments would eventually total $884 million for World War I,¹⁷ and three decades later, during World War II,  the United States government was also an eager customer for Bethlehem's products.  During that war, its orders totaled $1,327,500,000--the largest amount received by any corporation in the country and about $100 million more than the number two contractor, General Motors.¹⁸

Nick-named "Champagne Charlie" because of his opulent life style,¹⁹ Schwab was a compulsive gambler and spendthrift who would eventually die insolvent in 1939 in his Park Avenue apartment.  At that time his liabilities and obligations outstripped his assets by more than $300,000, including $25,000 he had borrowed from the priests of St. Francis who had the misfortune to believe their most famous alumnus when he told them he would leave their academy two million dollars in his will.²⁰  In the early decades of the twentieth century, however, Schwab was one of the classic--though more flamboyant--examples of the type of American industrialists who were considered "titans," "giants," "geniuses," and sometimes "robber barons" in the national media.  Men such as  Carnegie, Harvey Firestone, Walter Chrysler, and Henry Ford, along with Schwab, were perceived as being personally responsible for the growth of their corporations' productivity and profitability and for the material expansion of the United States. Moreover, as his successor Eugene Grace emphasized in his memoir about his mentor, Schwab, "was a figure quite different from what the financial world had seen before.   He was cheery, talkative, and had an open door for the press." Therefore, Grace said,  "Schwab was a continual missionary to the public" for Bethlehem Steel, because he "was magnetic, engaging and . . . could debate serious issues in a way that won people to his cause."²¹

In Schwab's case, several significant features of his managerial techniques and entrepreneurial style also can be traced to the influence of Carnegie who was his mentor during the formative years of his career. According to Eugene Grace, "Carnegie's methods . . . played a great part in the shaping of Mr. Schwab's ideas."²²  Like Carnegie, he was an apostle of growth, expansions, and mergers in the steel industry that would make his company larger, more productive, and more profitable.  During his career as a steel-maker, which started in 1875, Carnegie had built Carnegie Steel into an industrial giant that, by 1899, produced twenty-five per cent of the steel in the United States, and he had done this mainly by acquiring smaller and/or less profitable companies and consolidating them into what would eventually become the main components of US Steel.  As for Schwab, in a 1916 speech in Baltimore, after Bethlehem had absorbed the Pennsylvania Steel company and its works at Sparrows Point on the Maryland tidewater, he proclaimed, "I glory and rejoice in the opportunity to expand."  When he had entered the steel business thirty-five years earlier, he said, America had consumed one million tons of steel annually;  in 1901, when US Steel was created, the country consumed twelve million tons;  by 1916 it was consuming forty, but this was not the "zenith," Schwab said.  Consumption of all kinds of steel products would increase, he prophesized, and America would go "onward and upward" to become "the greatest manufacturer in the world of iron and steel."²³  Nine years later he made  a similar but even more specific prediction when he claimed, "the next twenty years will see the greatest expansion and the greatest accomplishment American industry has ever known," a prophecy that would eventually become a reality--but only after the Depression and World War II.²⁴

To make sure that Bethlehem Steel received its share of this expansion, Schwab would later not only expand the South Bethlehem and Sparrows Point works; he would also make major acquisitions in the early 1920s of companies such as Lackawanna Steel in Buffalo, New York, and Midvale Steel in Johnstown, Pennsylvania, which were the third and fourth largest steel producers in the country respectively before their mergers with Bethlehem.²⁵

To achieve these mergers and acquisitions, Bethlehem followed the vigorous cost-accounting procedures used to keep manufacturing volume high and costs low that Schwab had learned as a Carnegie executive.  Extremely detailed cost and production figures were compiled daily and monthly for each works so that increases and economies could be monitored rigorously.²⁶  Using this system, Carnegie was famous (or infamous) in the 1880s and 1890s for its ability to undersell its rivals by monitoring its costs, including labor costs, and keeping them so low that it could cut prices, even during recessions, keep its mills running, and still make profits.  It would then use these accumulated profits (Carnegie Steel was often as stingy with dividends as well as wages) to  expand its own works and make technological changes--such as installing first Bessemer and then open hearth furnaces--so that it could become even larger, more profitable, and more productive when the recessions ended.²⁷  Or, it would use its profits to buy out smaller, more specialized companies who were less efficient or had the misfortune to be producing the wrong product at the wrong time--such as rails during recessions when railroads would cut back or cancel their contracts.

Schwab at Bethlehem followed the same strategy and used it to acquire Pennsylvania Steel, its subsidiaries, and its Sparrows Point works, which were designed to manufacture rails for the international market.  Before World War I the two companies were approximately the same size and their profits were comparable: Bethlehem's earnings were $4,846,814 or 6.26% on preferred stock and 3.43% on common in 1912, and Pennsylvania's were $3,113,819 or 7.80% on preferred and 1.53% on common.²⁸  But Bethlehem received enormous contracts after the war began because of Schwab's aggressive salesmanship. Its net earnings increased by 184% from 1913 to 1915 by selling munitions, guns, and ships to the English and French, and its stock went from a "normal price" of $30 a share to $600.  In contrast, Pennsylvania's sales plummeted 82% in 1914, and 2,000 of its 4,000 workers were laid off because European nations and their colonies almost completely stopped expanding their railroads for the duration of the war, so domestic demand was "lackluster."²⁹  Consequently, since Schwab had not distributed any of Bethlehem's earnings ($9 million) from 1907-1912 as dividends, and he distributed only $44 million of his company's $150 million earnings as dividends between 1915 and 1921, he was able to begin buying up other companies during the war and the early 1920s.  In the case of Pennsylvania Steel and its subsidiaries, he bought them for $49 million in 1916.³⁰

A second and eventually more controversial element of Carnegie's managerial methods that Schwab adopted and adapted was his reliance on proteges who were rewarded for their loyalty, hard work, and successes with rapid promotions and lucrative bonuses.  Starting with Carnegie Steel's superintendents, the company had its "young geniuses," as Carnegie called them, who were awarded rather complicated "partnerships" in Carnegie Steel.  A form of profit-sharing, each partnership would be credited with a small, fractional percentage of the company's annual dividends that would be applied to the original cost of the individual's partnership share.  Only after that amount was paid off did the partner start receiving cash dividends.³¹  The policy was intended to encourage ambitious and capable men to have long-term careers with the company, since the plan was arranged so that they lost much of a partnership's value if they resigned or were fired.³²

Schwab himself had been a protege who'd been promoted rapidly first by Bill Jones at Edgar Thomson and then by Carnegie.  After he took control of Bethlehem, he had his own proteges whom he promoted and rewarded handsomely, most notably Eugene Grace, an Electrical Engineering graduate from Lehigh, who started as an electric crane operator at Bethlehem Steel in 1895 and became its President in 1916 when he was thirty-nine years old.³³  Schwab's incentive plan, however, was simpler and more lucrative than Carnegie's and the bonuses were much more quickly available.  According to company policy, the bonuses had to be "impressive, palpable, and not . . . a measly 5 or 10 per cent."³⁴  Schwab believed "in the policy of great rewards for great efforts," said Eugene Grace, and he initiated Bethlehem's bonus plan soon after he acquired the company.³⁵  Individual employees and executives received commissions if they lowered costs or raised profits more than a base rate.  But the commissions were on a sliding scale so that the recipients earned "not merely part of any improvement but progressively larger percentages" if costs were further reduced or profits increased."  Moreover, except for those of the top executives, these bonuses were paid at the same time or shortly after monthly salary checks, not annually.³⁶  In addition, Bethlehem had a much more modest incentive plan for its other employees.  According to Fortune in 1941, a foreman who earned $200 a month could raise it to $275 if his part of Bethlehem's operations became more economical or profitable, and a supervisor with a $10,000 annual salary might receive a $5,000 bonus in the same way.³⁷

The size of Bethlehem's top executives' bonuses were a well-kept secret until 1930 when they became extremely controversial.  Schwab was in the process of trying to take over Youngstown Sheet and Tube, but a group of Youngstown's minority stockholders, led by Cyrus Eaton, launched a lawsuit to prevent the merger.  They argued that the Bethlehem stock they would receive for the deal was overvalued, because of the company's policy of withholding dividends so that it could pay exorbitant bonuses to Grace and other top executives.  Only after being questioned relentlessly by Eaton's lawyers, and after strenuous objections by Bethlehem's lawyer's were overruled, would Grace admit that he had received a bonus of $1,623,753 for 1929 (plus a salary of $12,000) and that his bonuses  for the past five years totaled $5,431,684.³⁸  Since the Presidents of U.S. Steel, Bell Telephone, and Standard Oil of New Jersey received salaries of $500,000, $250,000, and $125,000 respectively during approximately the same period,³⁹ Grace was almost certainly the country's--and probably the world's--best-paid executive.  Other executives' bonuses were smaller, but many had received ones of six figures so that the average for 1929 was $244,665 per man.⁴⁰  Eventually  in December, 1930, the court ruled in Eaton's favor, and, though this verdict was overturned by a Court of Appeals the next year, the merger collapsed.⁴¹  Confronted by lawsuits from angry Bethlehem stockholders, Schwab was forced to modify the bonus plan so that it was less secretive and less lucrative,⁴²  but Bethlehem's top executives continued to be very well paid.  According to a 1959 Business Week survey of executive salaries, seven of the top ten positions were occupied by Bethlehem men, including the company's chairman, Arthur Homer, who was ranked first with a salary and bonuses of $511,249.⁴³  In addition to high salaries, Bethlehem executives enjoyed considerable job security, since virtually all promotions were from inside the company: another management principle, Grace said, Schwab adopted as soon as he took control of the company.⁴⁴

What Bethlehem Steel received for these high salaries and bonuses was a management that was considered distinctive for its loyalty and dedication. Schwab insisted on absolute loyalty to Bethlehem, says Mark Reutter, and he received "a level of fidelity to the company extreme even in the close-knit steel industry. A Bethlehem executive was required to live in Bethlehem," and he "was forbidden from engaging in any business activities outside the company . . . Schwab wanted no conflicting loyalties."⁴⁵  In addition, the company's planning and operations were very hierarchical, since Schwab's "organization plan" was designed "so that every thing would flow upward to central authority."⁴⁶  This policy continued after Schwab's death in 1939.  "Mr. Grace sets the example for all the men who now or ever hope to share in the management," said Fortune in 1941.  "They are on call twenty-four hours a day;  the important interest in life is the company.  No Bethlehem official may act even as a director of a local bank, and none is active in politics."⁴⁷  As a result of these policies, the magazine also implied, the management was also somewhat insular and isolated from the larger currents of American life and business.  Since "Bethlehem's management lives in Bethlehem," it said, "by day it works together, and by night it strolls across the street to visit . . . .  In spite of its tremendous size, Bethlehem has more in common with little business than it does with big business."  On social issues in particular, relative to the "social responsibilities of modern American industries," Fortune thought the company's thinking was "provincial."⁴⁸  Moreover, though Fortune acknowledged that Bethlehem had not allowed any of its light or heavy steel facilities to become obsolete, the magazine said it was not "the leader in the kind of pure research that a light steel company should well have on tap."  And, Fortune  implied, this was due to the company's concern with cost-cutting, because it is "devoted to such things as keeping down costs . . . by making the supply of lubricating oil go twice as far, the research department has produced few notable innovations."⁴⁹

Where Schwab departed from Carnegie's methods, especially during the early part of his career at Bethlehem, was in his boldness in taking risks, including, in one major instance, a technological one.  One of Schwab's "basic principle[s]," said Grace, "by which he operated was that of daring."⁵⁰  In this respect Grace and Schwab functioned as an excellent team.  The former was the meticulous production expert and engineer who kept the mills running; Grace also kept costs low and made sure deadlines were met.  Schwab was the "visionary" charismatic entrepreneur and aggressive salesman who could make risky deals and decisions knowing that Grace and his other "boys" at Bethlehem could make them succeed.  As Schwab gradually relinquished direct control of the company and became Chairman of the Board after he made Grace President in 1916, he gradually became a kind of a corporate spokesperson for his corporation and the steel industry in general who gave speeches and interviews in New York and elsewhere telling America how it could prosper and have a "Bright Future."⁵¹  Grace, on the other hand, usually stayed in Bethlehem and handled Public Relations on a more local level by explaining, for example, how the company's Employee Representation Plan was improving working conditions, reducing waste, and promoting "the interests of the company by careful attention to the quality of the products shipped."⁵²

When Schwab and Grace had opportunities to expand their corporation's assets and profits, they were often particularly successful, especially when good luck or history was on their side.  In 1913, for example, Schwab was able to buy the Fore River Shipbuilding Company of Quincy, Massachusetts, for a bargain price of $750,000, because its owners were in severe financial straits, even though its stock was valued at nearly $5 million.  An established contractor of ships for the U.S. Navy, Fore River was a perfect outlet for Bethlehem's armor plate and forgings.⁵³

After World War I began, it was even more important that Fore River owned patent rights for submarines and had been successfully building H-class vessels of that type for the American navy. Thus, when Schwab made his $40 million munitions sales trip to England in October 1914, mentioned earlier, he met with Sir John Fisher and Winston Churchill, First Sea Lord and Lord of the Admiralty, and the British were so eager to add submarines to their fleet that they were willing to pay $500,000 apiece, double the usual price, for twenty of them to be constructed at Fore River.⁵⁴  The submarine part of the order was announced on November 10 in a brief news item in the New York Times in which Fore River officials "refused information as to the identity of he power for which the submarines were intended," though they did confirm that the deal was worth $10 million and had been arranged by Schwab.⁵⁵  A November 26 news story about the entire $50 million deal was slightly more forthcoming, since it noted that the English were buying the submarines.⁵⁶  After Schwab closed the deal, however, he was informed by Secretary of State William Jennings Bryan that, unlike selling munitions, building submarines probably violated President Woodrow Wilson's interpretation of America's neutrality policy, and the contract should be cancelled⁵⁷--though a December 3 news story emphasized that  a decision regarding the legality of deal had not yet been reached by the State Department.⁵⁸  On December 24^th Schwab dramatically announced that he had followed Bryan's advice and had gone to Europe to cancel the contract because "the building of any vessel or sections of a vessel in one country for a belligerent country in time of war was a violation of the neutrality laws."⁵⁹

zBut this story was untrue, since Schwab had found a loophole: manufacturing  ten of the submarines' component parts at Bethlehem facilities and shipping them to a shipyard in Montreal, which was owned by Vickers, the British arms manufacturer, to be assembled.  Though the Vickers management supported this claim in public, much of the work was actually being done by a team of over five hundred Bethlehem managers, supervisors, and workmen who were rushed to Canada, housed in a special barracks, fed at their own canteen, and sworn to secrecy.  To compensate for these expenses, Schwab raised the base price of the submarines to $600,000 each.  The remaining ten submarines were assembled at Fore River.  Despite the deception, the German government knew what was happening and protested vigorously.⁶⁰  But the Wilson administration, as Grace later revealed, "tacitly winked" at the scheme.⁶¹  It did nothing to hinder Schwab's machinations--presumably because of its own complicity or fear that the laxness of the enforcement of its neutrality policy would be exposed.

 The risks to Bethlehem were obvious.  The Montreal ploy violated the spirit of Wilson's neutrality policy and stretched its letter to the breaking point;  the construction of the ten submarines at Fore River was clearly illegal.  A decision by the Wilson administration to enforce its neutrality policy more effectively, a newspaper account by an investigative journalist with pro-German sympathies, a Congressional hearing or investigation--any of these factors might have jeopardized the contract and given Bethlehem some negative publicity as well.  Andrew Carnegie, who highly disapproved of Schwab's Monte Carlo gaming,⁶² would almost certainly not have approved of his submarine gamble.

A much longer-term and far more significant example of Schwab's risk-taking was Bethlehem Steel's development of the Grey beam, later known as the Bethlehem beam.  Schwab's willingness risk Bethlehem's future and vast sums of his own money on the beam were a good example of how his company's policies, in this instance, differed slightly from Carnegie Steel's.  Though Carnegie and his company kept up with technological innovations, they usually did so mainly to economize or increase production, because, according to Andrew Carnegie, "pioneering don't pay,⁶³ and it was often easier to buy patent rights than do the actual "pioneering."  Carnegie's change from Bessemer to open hearth furnaces, for example, was motivated largely for economic reasons, to take advantage of the Minnesota Mesabi range ore deposits which, though cheap and abundant, contained too much phosphorous and sulfur to make high-quality steel.  The open hearth process was also more economical, because the hearths were much larger than the converters, and scrap metal could be added to the furnace mix.  But the breakthrough came in 1878 when a process was discovered by an English chemist, Sidney Thomas, that removes phosphorus by heating the iron five hundred degrees hotter and adding limestone--which then combines with the phosphorous to form a slag that can be drained off.⁶⁴  Carnegie purchased the American rights to the Thomas process, but it did not work in Bessemers.  Only after he visited an English steel mill in 1885 and saw the process working successfully, in open hearth furnaces, did Carnegie order it used in his newly-built open hearth furnaces at Homestead.⁶⁵

Schwab's development of the Grey beam was more adventuresome, since it was both a new product and a new process.  Invented by Henry Grey, the general superintendent of a Cleveland steel mill, in the 1890s, the beam is a wide-flanged structural girder rolled directly in a single section from an ingot in an elongated H-shape, not riveted together in overlapping sections like previous beams.  Therefore, as Schwab explained, it would "enable consumers to effect a savings on their buildings . . . . Columns which are now riveted together at an expense of $9 to $14 per ton will be rolled in one solid section, facilitating time of delivery as well as adding to the efficiency and the strength of the material."⁶⁶  Though it was lighter and stronger than competing beams, and though it had been produced in 1896 on an experimental basis when a Duluth mill hired Grey to make it, American steel makers showed no interest in the new beam.  In 1902 a German-owned steel works in Luxembourg built a Grey beam mill, and when Schwab--who was then President of U.S. Steel--learned this he tried to persuade that company to produce it.  Turned down by Elbert Gary and U.S. Steel's Finance Committee, he decided in 1905 to manufacture it at Bethlehem after he became President there. Since he had learned of the invention when he was a U.S. Steel executive, he notified Gary of his intentions and was informed in 1906 that U.S. Steel did not want to develop the new beam.⁶⁷

Schwab then faced considerable difficulty in raising the $5 million needed to build a Grey mill and to purchase exclusive patent rights.  When his attempt to raise that sum by issuing bonds in 1907 failed because of a stock market panic, he resorted to more creative and risky strategies.  He took out large personal loans from rich friends, using his Bethlehem stock as collateral.  He persuaded construction companies and suppliers to bill him after the mill was completed and operational, and he arranged with the directors of the Lehigh Valley and Reading Railroads that Bethlehem would pay only fifty percent of their monthly freight charges, the other half to be redeemed with Bethlehem notes issued by the Drexel Bank.⁶⁸  Finally, he turned to Andrew Carnegie with whom he had resumed his friendship after their quarrel over Schwab's gambling at Monte Carlo.  Carnegie not only lent Schwab U.S. Steel bonds to use as collateral for loans from banks, he also said publicly in 1908 before a Congressional Committee that Schwab was a "genius" and that his new beams would be radically superior to conventional ones.⁶⁹

Fortunately, for all concerned, Schwab and Carnegie were right, and the Grey beam did all they claimed it would.  In 1924 U.S. Steel's Sales Department acknowledged that their "standard" girders could not compete with Grey beams, because "architects and fabricators generally consider that these sections mark a distinct advance in building construction . . . involving as they do a great reduction in riveted work."⁷⁰  A brilliant salesman, Schwab soon persuaded architects and builders to use the beams in skyscrapers and more prosaic buildings, such as taxi garages, as well as in such landmark constructions as the Gimbels Brothers department store and the Chase National Bank in New York, the National Gallery of Art in Washington and the Merchandise Mart in Chicago.   "It is no exaggeration," Edmund Martin claimed in 1967, "to say that the New York skyline is a monument to those [Grey] mills."⁷¹

 By manufacturing the Grey beams, beginning in 1908, Bethlehem greatly diversified its product line by becoming a major manufacturer of structural steel, as well as rails, munitions, and ships.  Schwab also had the mixed pleasure of learning in 1926 that Elbert Gary and U.S. Steel had built their own Grey mill, but without notifying Bethlehem or paying for patent rights.  After a bitter quarrel with Gary, a partial reconciliation, and a legal battle, Schwab and Bethlehem prevailed, and U.S. Steel settled out of court and began paying royalties to Bethlehem in 1929.⁷²  As for the process itself, it was so reliable, and the machinery producing the beams was so durable, that the Grey mill in South Bethlehem functioned for eighty-seven years, from 1908 to 1995, when it was finally shut down.⁷³

Before the decline of the steel industry and Bethlehem's corporate fortunes in the 1970s and 1980s, steel was a cyclical industry, and during flush times "the Steel"--as Bethlehem's citizens called the company--contributed substantially to the town's growth and prosperity.  In 1925, for example, Bethlehem's New Year began with an up-beat message from Schwab himself in the local newspaper predicting good times because of the results of the 1924 election.  By electing Calvin Coolidge, said Schwab, "the American people  showed . . . that they were in favor of government along safe and sane channels" that would give "confidence and impetus to business men all over the country to go ahead with production and normal expansion."⁷⁴  Another reason for Schwab's optimism was revealed on January 23 on the front page of the Bethlehem Globe when it reported, "Steel Report Shows Gains," in an article saying Bethlehem Steel's increased quarterly dividends and production figures for December indicated that the steel industry was recovering from a "depression" that had occurred in the summer and fall of 1924. Then, production had fallen to 31% of capacity, but by the end of year it had risen to 73%, a clear sign of "recovery."⁷⁵  On March 11 the New York Times announced Schwab's plans to enlarge and improve his plants,⁷⁶ and by late August, the Bethlehem Globe was reporting, in another front-page headline, "More Signs of Prosperity in This City." Bethlehem Steel's Fabricated Steel Division had enough orders to run its facilities at full capacity until December, said the Globe, with over "40 erection jobs in all part of the East [that will] keep a maximum force at work."  Within Bethlehem itself, contractors were remodeling an Opera House on the South Side and building houses, elementary schools, the Lehigh Valley National Bank, a Masonic Temple, a Jewish Community Center, and Holy Infancy High School.⁷⁷

With the wages and profits from submarines and Grey beams, as well as their substantial bonuses, Schwab, Grace, and the other Bethlehem executives not only contributed to the town of Bethlehem's material growth and prosperity.  They also created their city's corporate culture that John Strohmeyer describes in his Crisis in Bethlehem. This culture was clustered in Bethlehem's North Side, where Grace's mansion was known as "Bonus Hill," so that part of Bethlehem became identified with wealth, success, dinner parties, and degrees from universities, such as Lehigh.⁷⁸  And, since the company's top officials were "expected to locate in certain preferred neighborhoods," many lived near one another or near a golf course, such as the Saucon Valley Country Club.  Indeed, that Club was so popular with executives that the road leading to it was called "Vice President's Row."⁷⁹

Within Bethlehem Steel itself, this corporate culture took the form of a managerial system that was strongly hierarchical and focused on the policies and decisions made by the top management and executives, such as Schwab and Grace.  As long as those decisions were good ones, including risky decisions such as the World War I submarine deal and the production of Grey beams, the company was able to grow and expand.  The pace and profitability of this expansion, however, were also dependent, to some extent, on historical events and developments, especially World Wars I and II.  But because the company was so close-knit and rewarded conformity so highly through its bonus system, its management became somewhat ingrown and separated from the larger community and presumably its own workers, a tendency reinforced by the corporation's policy of forbidding executives to engage in any business or community activities outside Bethlehem Steel.⁸⁰  In the meantime, another, considerably different culture was being created in South Bethlehem where many of the company's steelworkers and their families lived.  Like Charles Schwab, many of these workers were risk takers, but the many of the risks they confronted were different from those on the North Side.

Part 2

“There are different kinds of work [in America], heavy and light, but a man from our country cannot get the light."  (Letter from an immigrant steelworker quoted in David Brody, Steelworkers in America⁸¹)

If one is tempted to apply the maxim, "character is destiny" to an individual like Charles Schwab, a maxim such as "topography is destiny" might be applied to the community of South Bethlehem and its culture where so many of the steel company's working-class employees lived.

In Bethlehem the division between light and heavy, between the jobs performed and the residences inhabited by Grace and his managers and those of their company's workforce was clearly demarcated geographically. Bethlehem is a river town with the Lehigh River separating South Bethlehem from the North and West Sides of the city, and this north-south division explains many aspects of Bethlehem's social history and character (Illustration 2). ⁸²

Grace and the top executives, as mentioned earlier, had their mansions and clubs on the North Side; their workers lived in row houses on the South Side that can be seen wedged between the steel mills and South Mountain in Walker Evans's 1936 photograph (Illustration 3). ⁸³  Thus, North was management, and South was union, at least after 1941 when Bethlehem Steel was unionized by the SWOC (Steel Workers’ Organizing Committee, later the USW, United Steel Workers of America).  North was salaried employees, starting with foremen and supervisors; South was hourly workers.  Even the sports were different.  North was sometimes tennis but more often golf at the area's country clubs, and South was wrestling and team sports, football, basketball, and especially soccer.  In fact, in the 1910s and 1920s soccer was so popular that Bethlehem Steel had its own professional soccer team that won league championships and regularly defeated teams from Philadelphia and New York.⁸⁴

Moreover, like most factory, mill, and foundry industrial towns of the period, Bethlehem had a workforce largely made up of immigrants or their first-generation descendents who were, in Bethlehem's case, often from near-by Pennsylvania "coal patches."   The growth of the steel industry expanded both the population of South Bethlehem and its diversity.  "The Steel," as the people on the South Side called it, says Illick, "created jobs for lower-class laborers;  immigrants  from nearby farms and faraway countries rushed to fill them."⁸⁵  The town's population more than tripled between 1860 to 1870, and it tripled again from 1870 to 1890.  The foreign-born were only a third of its 3,000 residents in 1870, and only a fourth of the 10,300 inhabitants in 1890.  "But by 1910 foreign-born persons and their American-born children comprised two-thirds of South Bethlehem's 20,000 inhabitants, well above the national proportion (two-fifths) and that of Bethlehem across the river (one-sixth)," which had almost 13,000 residents after it was consolidated with West Bethlehem in 1904^.86

Thus, the city's north/south, manager/worker division was also often a language and ethnic divide as well.  North was Anglo-Saxon, or sometimes German or Irish in origin, and spoke English;  South was "foreign" and spoke Austrian German, Slovak, Hungarian, Slovene, a Neapolitan dialect of Italian, and Greek.⁸⁷  Unlike many such communities, however, Bethlehem's immigrant workforce, mainly from Central and Southern Europe, were not congregated in ethnic residential ghettos clustered around their respective parishes, parochial schools, and fraternal organizations.  Such churches, schools, and organizations existed in South Bethlehem.  But, as Joseph Illick points out, the topography of that part of Bethlehem prevented residential clustering and separation by ethnic groups because of "the scarcity of real estate . . . . The steel works and the railroad occupied most of the level land on the south bank of the Lehigh River, leaving a residential area on the slopes of South Mountain approximately a mile in length and only a quarter of a mile wide. This limited space made for a chronic housing shortage; people found living quarters where they could, not necessarily where they wanted."⁸⁸  Moreover, the South Bethlehem ethnic groups were further united by the fact that, in the 1890s and 1900s, they all had to confront the hostility of more entrenched Irish and German immigrants who had arrived earlier, and that hostility fostered "a friendliness among Slovaks, Magyars, Poles, and Slovenes which otherwise might not have existed."⁸⁹

The close economic as well as geographic relationship that existed between the steel mill and the community of South Bethlehem--often called, "the Heights," by its inhabitants--is revealed by the company's owners' reaction to Frederick Taylor, the pioneer of time studies and "scientific management." Though Bethlehem Iron hired Taylor and his assistants to do time-and-motion studies to learn how work methods could be improved in 1898, they refused to implement his ideas and dismissed him in 1901, shortly before Charles Schwab took control.  The reason, according to Taylor, was that when he recommended changes in work methods that would have reduced the workforce by approximately two thirds, the owners "did not wish me, as they said, to depopulate South Bethlehem,"  because "they owned all the houses in South Bethlehem and the company stores."⁹⁰  In other words, more efficient and "scientific" working practices might have been good, but continuing to receive rents and profits from company stores in South Bethlehem was even better.

South Bethlehem's increasing ethnic diversity, as well as its growing population in the late nineteenth century, can be seen in the growing number and kinds of its churches.  Ones founded there in the 1860s and 1870s after the Bethlehem Iron works began casting rails in 1863 were the Irish Roman Catholic Holy Infancy--because of "the large increase in membership in the south side"⁹¹--in 1863, Lutheran, and Protestant Episcopal churches also in 1863, Moravian in 1866 (German congregation) and 1868 (English congregation), Dutch Reformed in 1867, and Presbyterian in 1870.⁹²  The Roman Catholic Holy Infancy was rebuilt and enlarged in 1882-86, and other specifically ethnic churches began to be built and consecrated in the 1880s and 1890s, such as the Austrian-German Saint Bernard's (later Holy Ghost) and Saints Cyril and Methodius "for the Slavic population" in 1891.⁹³  As other ethnic nationalities arrived, Bethlehem would eventually have Saints Peter and Paul for Greek Catholics, Saint John's for Lutheran Slovenes, Holy Rosary for Italian Catholics, and Saint Joseph's for the Windish (Slovenes).⁹⁴    In fact, South Bethlehem's Catholic parishes were so closely associated with their respective ethnic groups that their members spoke of parishioners who went to Saint Anne's and Saints Simon and Jude on Bethlehem's North Side as being "Americans," rather than Catholics.⁹⁵

The ethnic identifications of these churches were dictated by religious reasons as well as ethnicity per se.  Slovaks could scarcely appreciate the religious element of the masses they attended at Holy Infancy when the Irish forced them to stand at the back of the church during services, and sometimes pelted them with stones as they left.⁹⁶  Moreover, parishioners needed to have services or hear sermons in their native languages.  For the Catholics there was the additional need to be able to make their confessions to priests who were at least bi-lingual.  As long as substantial numbers of parishioners either spoke little English or did not speak it fluently, this language factor would contribute to the parishes' ethnic cohesion throughout much of the twentieth century.  It was not until 1950, for example, that the pastor of Saint John's was able to schedule a majority of his services in English.⁹⁷

In some instances the ethnic churches established explicit alliances with the company that was the employer of so many of their parishioners.  The Reverend Frantisk Vlossak, pastor of Saints Cyril and Methodius from 1898-1907 and 1911-1929, was especially successful in doing this.  He became a friend of Vice-President Archibald Johnston of Bethlehem Steel, "supplied him with Slovak workers, had the Steel Company deduct a dollar a month from their wages for church dues, and voted Republican while the vast majority of his flock supported the Democratic party. . . . Needless to say, Vlossak opposed any strikes against Bethlehem Steel."⁹⁸  When Father Vlossak's flock outgrew their original church building in 1902, they turned to the Steel Company; each member pledged $25, plus $1 a month to be deducted automatically from the Catholic Slovaks' pay, plus an additional $600 contribution from the Company to the building fund.⁹⁹

At the steel mills themselves, jobs were often allotted according to ethnic background.  Joseph Mangan, a union official, explained to Strohmeyer that the system was roughly organized so that the Germans became machinists because they were supposedly "smart." The Hungarians were sent to the blast furnace because they were "tough," and the "Slovaks (diligent and religious) went to the small mills where Slovak was spoken." The Irish, "gutsy but lazy," were put on the plant patrol, and "the Mexicans, Portuguese, and other Hispanics (boat jumpers) were put to work where it was hottest and dirtiest."¹⁰⁰

Besides company policies and ethnic stereotypes, however, there was another reason for these ethnic work clusters.  Despite their dangers, jobs at Bethlehem Steel were considered desirable, and workers often had to compete for them.  For many men from the South Side, and those in Chicago and Pittsburgh as well, as Strohmeyer points out, "a job in steel was the achievement of the American dream.  The industry was the melting pot for hundreds of thousands of immigrants with willing muscles and a strong work ethic."¹⁰¹  But sometimes willing muscles and a good work ethic were not enough, and the influence of a relative, priest, or member of a fraternal organization was also needed to help the American dream come true.  "Fathers encouraged sons to vie for jobs at the furnace," says Strohmeyer.  "They worked alongside each other, as did uncles, brothers, and cousins."¹⁰² As one former steelworker, a war veteran, explained to Joseph Illick, after he returned to Bethlehem, he went "down to the Steel to get my old job back, because that was the only place we had to go, really.  There was no other place you could go for work."  When "the Steel" wouldn't re-hire him at first, he tried again through a family connection, and "then, finally, again through people you know--it's not what you know, it's who you know--her [his wife's] father got me back in there.  He got me to go through apprenticeship school there.  It did a lot for me . . . ."¹⁰³

Another reason for these ethnic clusters was favoritism.  According to one veteran steelworker, "most of the different ethnic groups all worked together and got along."  But whatever ethnic group the supervision belonged to, he added, "it seemed that they treated their own with better jobs, quicker promotions, and better overtime," because "they looked more favorably upon their own." Additional distrust was produced by language differences, and "there was nothing more annoying than when a foreman would talk to other workers in Windish [Slovene] or Pennsylvania Dutch [German].  You always felt that they were saying something behind your back."¹⁰⁴

But besides favoritism and family connections bordering on nepotism, there were probably other, more positive reasons why different ethnic groups wanted to work together.  Steel-making is an extremely  hazardous occupation, and even though Bethlehem Steel had a good safety program, one worker recalled, fatal accidents and serious injuries happened frequently, so there were deaths from "breathing gases, falling from crane runs, being burned to death with hot metal or slag," being electrocuted, and being caught "between machinery in pinch points."¹⁰⁵  Moreover, steel-making is often a teamwork, as well as a dangerous, job.  An open hearth furnace crew, for example, has a melter foreman, a first and a second helper, and three or four third helpers, all of whose efforts must be coordinated to produce steel efficiently and to avoid accidents.¹⁰⁶  Blast furnace crews also had to have good teamwork, David Kuchta emphasized, since they were working with iron melted to 3,000 degrees in 110-foot high furnaces that had to  be tapped every three or four hours.  When that happens, a clay-plugged tap hole has to be drilled out with an air hammer, then lanced with an iron bar so the molten metal races out with a deafening roar and clouds of smoke and dust, runs through a trough to a dammed "pool" where slag can be separated from the liquid iron by being skimmed off. Then it is channeled through more troughs to slag pots while the iron runs into hot metal cars beneath the cast floor.  To do this safely at Bethlehem, said Kuchta, the men worked as a team, because when a furnace was tapped "one wrong move or step [by anyone] could mean death . . .  . Not only for themselves but also for their fellow workers."¹⁰⁷   For these reasons it would have been reassuring to work along-side relatives whom one could trust.  Moreover, especially in the 1890s and early twentieth century when many workers spoke little or no English, it would have been important to work with a foreman and co-workers who could speak the same language.

However, despite this "clustering," there was an additional factor in Bethlehem's social make-up that encouraged ethnic workers and their families to have a strong sense of solidarity with one another.  Many of them were, after all, from the South Side, and they were well aware that this meant they were on one side of a social as well as a geographical divide that could probably not, in many cases, be crossed.  As one of Joseph Illick's friends, the son of a foreman who did cross the divide by graduating from Lehigh, bluntly explained: "That river between the North and South sides really divided the city. . . . Many kids [at Liberty High School on the North Side] just accepted the division.  They resented it, but they didn't want to bridge the gap."¹⁰⁸  A classmate from the same school made a similar point when he told Illick: "Maybe some people on the North Side felt the South Side was a rough place, even when I was a kid [in  the 1940s].  But the distinction between the two places was income.  We knew the North Side kids were in a higher income bracket."¹⁰⁹

Moreover, even though Bethlehem Steel was willing to hire thousands of immigrant and first-generation ethnic workers for skilled and unskilled labor, there was a clearly understood steel ceiling for persons whose surnames ended in certain vowels or whose English was spoken with certain accents: "By all accounts it was impossible for a man whose name ended in -sky or -ini to be appointed above the job of general foreman."¹¹⁰  Since one needed to have a college degree, preferably from a prestigious university, to enter Bethlehem Steel's "loop" management training course, that road to upward mobility, and the Saucon Valley Country Club, was even more improbable for someone from the South Side.  This discrimination reinforced the South Side ethnics' identification with one another, and made them more aware that they were united by class.  "When I lived in the Heights, that was the League of Nations," a man of Hungarian descent told Illick.  "We had Mexicans, we had colored, we had the Italians and Hungarians and the Slovaks and Russians and all that.  It was mixed," but it was still "a real good community at that time," he said; " I never felt, as a Hungarian, that I was separate from the others.  The difference at that time was class.  We were supposed to be of the lower class; anybody on the South Side was that way"¹¹¹

This steel ceiling existed well before Illick and his classmates entered the tenth grade of Liberty High in 1949 and graduated from that school in 1952. Much of Bethlehem's educational system, Illick realized later, was geared so that it would generally, though not always, reproduce Bethlehem's North/South divide.  There were two High Schools, Liberty was on the North and had a diverse curriculum, including courses that would prepare students for colleges; the South Side had a Technical  High School, which was vocational and trained its students for jobs at "the Steel" and other industries: courses for becoming a draftsman, machinist, electrician, mechanic.¹¹²  There were four junior high schools, two in the North and West, and two in the South that also probably influenced students' eventual academic and vocational choices.  There were two libraries, the main one in the North and a branch in the South, and students knew which was "their" library."  My mother taught me where I belonged," the daughter of a Slovak factory worker recalled.  "Foremen lived on the North Side, laborers on the South Side. . . .'Your library is down here, that's where you go' [on the South Side] . . . . My mother didn't want me traveling that far, but I guess she was also trying to keep me in my class."¹¹³

But these differences between Bethlehem's North and South did not mean that the latter always felt themselves wronged or inferior.  They had their own values, goals, and accomplishments, and some of them judged their accomplishments accordingly, not by the standards of Vice President's Row.  Sports, for example, were a source of pride to South Siders, and, as one of them told Illick, who was from the North Side, "when we were kids, down on the South Side, . . . we were always known as tough characters. . . .We took all the championships in football, basketball, wrestling. . . . But we never went into tennis--that was for you."¹¹⁴

Similarly, many steel jobs were so dangerous or so physically demanding that workers felt proud of their ability to do them, even when these jobs had low pay and status.  "Chipping checkers," for example, meant working in rotating teams of men who clean out ovens under open hearth furnaces, when they are being rebuilt or repaired, in which bricks arranged in checkerboard patterns are clogged with slag and dirt.  Chipping and jabbing at these bricks with a five-foot steel bar to unclog them may not "sound too bad," according to one steelworker, but because of the heat:

Believe me, it was a living hell!

            We would have three or four crews of workers that would work in spells. . . . One furnace was so hot that we timed the length of time one of the other crews stayed in and chipped: a total of 45 seconds. . . .When my buddy and I went in we stayed for at least three or four minutes.  There was a reason for this.  My buddy . . . was definitely from the old school and believed hard work would never kill anyone. . . . I think it had to do with being "macho."  It sure didn't have anything to do with money.  The laborer's salary was the lowest in the plant . . . I think back, maybe we worked like this for pride.  Pride in accomplishment.¹¹⁵

            Part 3

During much of the twentieth century both sides of Bethlehem had much to be proud of.  Schwab, Grace, and their successors had built a small, specialized company into the second largest steel producer in the country, and their steel workers had contributed their skills, muscles, and intelligence to that process. Together they manufactured steel for the Golden Gate and George Washington Bridges, skyscrapers, ships, and immense amounts of armaments and other steel products.  On the other hand, as this paper shows, they had more difficulty bridging the differences that existed in Bethlehem as a community.  Though the two sides might meet in certain respects within the mills of "the Steel," in other respects they occupied two different castes and worlds.  Both of these worlds would change drastically in the final decades of the twentieth century as the American steel industry, including Bethlehem Steel, fell into bad times.

After the bitter and prolonged 116-day strike of 1959, American steel companies, including Bethlehem, were beleaguered by competing foreign companies, mainly in Japan and Europe, by competing materials such as aluminum (cans) and reinforced concrete (construction and bridges),¹¹⁶  and slightly later by competition from mini-mills--small, specialized steel facilities that operate with non-union labor and only a tiny fraction of conventional steel companies' managerial and administrative costs.  (The mini-mills, one Bethlehem ex-worker said, rather bitterly, had "fewer white-collar workers and no country clubs, executive jets or . . . Taj Mahal-type offices."¹¹⁷)  Nevertheless, during the 1960s and 1970s, Bethlehem sought to expand and modernize by building a new, integrated works at Burns Harbor near Chicago and by belatedly replacing some of its open hearth furnaces at various facilities with Basic Oxygen Furnaces (B.O.F.'s), first developed in Austria in 1952, which are more economical and need smaller work crews than the open heaths.