To anyone who had been following the electrical industry, the news that broke at the beginning of April, 1892, was no surprise. Even to those insiders, however, the details were surprising. That surprise was felt especially strongly in Schenectady.
The unsurprising news was a merger of two of the three largest electrical manufacturing companies, Edison General Electric and Thomson-Houston. The third of those companies, Westinghouse Electric, remained independent. Some sort of merger among some of these three had been rumored at least since 1889.
The surprise was in the detailed description of the new company. Especially surprising to Schenectadians was the absence of Edison and Edisonians. The Wizard's name was conspicuously absent from the new company's name, General Electric. The management of this new company did not consist of the former leaders of Edison General Electric. In their place, in six of the seven top spots, was a Thomson-Houston team that Schenectadians derisively nicknamed "the shoemakers". The questions this chapter addresses are: Why did this not-quite-monopoly, the General Electric Company, appear at this particular historical moment? Why was it run by those shoemakers?
Though not literally shoemakers, the organizers of the Thomson-Houston Company had indeed started out in the shoe business. They had, however, sensed in the 1880s that their home city of Lynn, MA had passed its peak as the nation's Shoe City. Seeking a rising opportunity, they had found one in 1883 in New Britain, Connecticut. There a young company called American Electric, a maker of dynamos and arc lamps, was struggling to survive.
The Lynn group bought the company. They brought it back to Lynn, and changed its name to that of its founders, electrical experts Elihu Thomson and Edwin Houston. Then they named as President not an electrical expert but one of their own: a successful shoe merchant named Charles A. Coffin.
When Coffin took over, Thomson-Houston was a small startup concentrating on arc lighting systems. It was one of a number of rivals to Edison that lagged far behind the Wizard in technical accomplishment, public recognition, and financial support. Coffin quickly accelerated Thomson-Houston's efforts. He got support from some leading Boston financiers. He followed Edison into the incandescent lighting business and then, largely by acquiring other pioneering companies, expanded into transportation and alternating current systems. He accompanied this technical diversification with strong manufacturing and marketing.
In those activities, Thomson-Houston was sometimes described as a mere imitator, the "cowbird of the electrical industry". (A cowbird is a kind of blackbird that lays its eggs in nests made by others). Actually, under the more respectable name "fast follower" this legitimate and logical strategy would succeed not only at Thomson-Houston but also throughout the entire history of GE. (77)
Coffin's technology champion was Elihu Thomson. He had been a science teacher at an elite high school in Philadelphia when he found his knack for invention. This led to near misses at inventing the induction motor and radio, but also to commercially valuable follow up inventions in arc lighting and alternating current. He was scholarly, systematic, ethical and gentlemanly, no Wizard, but rather a man fitting his nickname "the Professor". (78)
Along with Thomson came his former student, now a self trained engineer and manager of manufacturing, Edwin Wilbur Rice Jr. (known as E. W. or Wilbur to avoid confusion with his nationally known father, a prominent Sunday school organizer and author or editor of religious texts). Coffin then added, by acquisition, the efforts of such leaders as electric railway pioneers Charles Van De Poele and Walter H. Knight, and arc light pioneers Charles Brush and James J. Wood. This team continued to work on electricity after 1885, while Edison was moving on to other fields. By 1890, Thomson-Houston, Edison General Electric, and Westinghouse stood more or less evenly matched as the biggest U.S. electrical manufacturers.
Electrical manufacturing companies had been merging since the 1870s. Henry Villard, as shown in the previous chapter, had accelerated this merger trend by creating Edison General Electric in 1889, and trying, but failing, to take merging to another level. (79)
Soon however, others picked up the idea. They included backers of Thomson Houston, such as the Boston financial house of Lee, Higginson & Co., and the main backer of Edison General Electric, the New York financial house of Drexel, Morgan & Co. Taking the lead in this round of negotiations was a financier with a foot in both camps, and homes in both cities. Financier Hamilton McKay Twombly was a fellow Harvard alumnus of Boston banker Henry Lee Higginson, as well as a business associate and friend of J. P. Morgan. It was Twombly who succeeded where Villard and others had failed. In the deal Twombly negotiated, the two original companies, each valued at about $15 million, would exchange their stock for shares in a new company, to be increased in value by new stock and bond issues to $47 million. That new company, shorn impartially of the names Thomson, Houston and Edison, would be called simply General Electric.
The merger was met with skepticism in the press. A term quickly applied to it by its opponents was "Electrical Trust". The magazine Electricity condemned the "immense capitalization" as "reckless financing" that was "foredoomed to failure." (80)
Two New York State Assembly representatives objected to the process of incorporation. The state had a general incorporation law. Its provisions, however, were not as generous regarding such matters as size of capitalization and right to own stock in other corporations as that of neighboring New Jersey. The lawyers handling the General Electric incorporation told New York State officials that unless given a special incorporation law containing the especially favorable treatment offered by New Jersey, the new company would incorporate in that neighboring state. New York not only complied, but even threw in a sweetener, reducing its tax on capital from the usual one-eighth of a percent of capitalization down to one-twentieth percent.
So even before formally existing, General Electric used what would become a familiar tactic, telling a government body that if it was not given the special treatment it wanted, General Electric would go elsewhere. "The bill has created a great franchise without proper compensation to the state," complained New York State Assemblymen Sony and Deyo, to no avail. (81)
As for those accusations of reckless financing, proponents of the merger argued that the $47 million valuation was a reasonable one for such a strong company in the booming field of electricity. That company was not a trust, a financial form distinct from the chosen form of merger. Nor was it a monopoly, since Westinghouse was still in the field. If it was not a trust or monopoly, then why was it created? That issue of "why General Electric?" remains a historical puzzle. Chandler's answer of economies of scale does not work here. The previous size of each of the three equal-sized companies, Edison General Electric, Thomson Houston, and Westinghouse was big enough to exploit fully the scale opportunities.
General Electric's own later official answer to the reason for its existence was complementarity. Edison General Electric brought to the party mastery of incandescent lamps and DC. Thomson Houston brought mastery of arc lamps and AC. Both brought strength in electric railways and motors. General Electric, concluded the company's historian John Winthrop Hammond. "combined the wisdom, tradition and vitality of two vigorous rivals." He went on to add that "the incandescent lamp and the alternating current transformer belonged together… The two were complements of each other." (82)
For Hammond and others, another key cause was patents. Previously, each company could use its key patents, such as Edison's on incandescent lamps and Thomson's on transformer improvements, to block the other. Concluded General Electric patent lawyer and key participant in the merger negotiation Frederick Fish: "The patent situation was the real reason behind the consolidation… No customer could buy either a lighting or a railway unit without running the risk of infringing some patent." (83)
The historian of the early electrical industry, Harold Passer, did not settle the argument. His main effort was in arguing that the merger was never intended as a monopoly. On what it was intended to be he was less clear, though giving weight to both the complementarity and patent motives.
Neither of those answers fully works. As for complementarity, Edison General Electric was by 1891 entering arc lamps and AC. Thomson Houston had already entered incandescent lamps and DC. Both companies were on their way to offering a full line of electrical products. Complementarity was already achieved within each company. If the financiers who created General Electric had really aimed at offering full electrical capabilities to the public they could have achieved that better by leaving those big-enough competitors alone. Benefits to society in the formative days of the electrical industry arose more often from competition than from consolidation.
As for patents, merger was not necessary to remove patent roadblocks. A simpler way was through a patent pool. This is an agreement by competitors allowing each to use the other's patented technologies. This was done successfully In the 1850s by the major competitors in the sewing machine industry. It was done in the 1880s by Thomson-Houston and Westinghouse in AC. It would soon be done, in 1895, by General Electric and Westinghouse. Modern examples include Intel and AMD in microprocessors, Apple and Microsoft in software, and Google and Samsung in Android smartphones. Such agreements support the scale economies of sufficient bigness, but preserve the spur of competition. (84)
Another, and better, answer to that question "why General Electric?" was suggested by J. P Morgan's best biographer Vincent Carosso. The General Electric merger was, he wrote: "intended to stabilize production and prices in what were then highly competitive industries. Such an intention, Carosso added "appealed strongly to Morgan's instinct for industrial order, cooperation, and opposition to price wars, and his preference for combination over destructive competition." (85)
The best historian of Thomson-Houston agrees. W. Bernard Carlson put "the desire to eliminate competition " at the head of his list of causes of the merger. So did an expert on the economics of the electrical industry, Ralph Sultan, who wrote that the merger of Edison General Electric and Thomson-Houston occurred "for the purpose of joining forces to prevent price competition". (86)
In short, GE was created to suppress competition. Hot competition among three equal sized competitors was likely to destabilize prices. And indeed by 1890 the prices of electrical equipment, such as generators and street railway motors were fluctuating wildly and often heading in a dangerously downward direction. Reviewing results for 1891, Edison GE's Annual Report reported that "the year's profits were diminished somewhat by a considerable decline in prices for the product owing to increased competition, etc." With the merger, Morgan was firmly in control of General Electric and able to exert his preference for competition suppression and price stabilization.
The merger appeared to the financiers to offer this price stability even with Westinghouse on the outside. In two of the technologies likely to pay off rapidly, arc lamps and electric railways, Westinghouse had little presence in 1892. As for the third, incandescent lamps, an 1891 judicial victory of a key Edison patent looked likely to shut Westinghouse out. (87)
Meanwhile the eventual Westinghouse advantage, technological and patent superiority in AC, had, as earlier mentioned, hit heavy going in 1888-1891. Its future viability and profitability were uncertain. Evidence that AC was beyond the financiers' 1892 vision is provided by the first General Electric Annual Report, issued in January, 1893. That report would begin by extolling company strength in electric lighting and transportation. "While your Company has about 6000 customers" and many businesses, the Report said: "The interesting and important development is in the direction of local lighting and railway enterprises." By contrast, that report would not even contain the acronym, "AC" or the word "alternating."
In sum, why General Electric? It was created by financiers for whom price stability, not progress, was General Electric's most important product.
While getting mixed reviews on Wall Street, the merger generated no enthusiasm in Schenectady. The main problem its Works already faced, separation from its research and development arm, the Edison Laboratory, was made worse. Now not only R&D, but also engineering and design, were in the hands of recent rivals in Lynn, MA. That Lynn team was, in 1892, going head to head with Westinghouse in a revitalized effort to catch up with the European leaders who had finally made practical an advanced AC system. At stake were some major future opportunities, such as tapping the enormous power of Niagara Falls.
This new electricity challenge will be discussed in detail in the next chapter. In 1892, its main immediate impact on the Schenectady Works was to carry off to Lynn the nascent Edison General Electric AC effort and its dynamic leader Dana Greene.
Another Schenectady leader, Samuel Insull had originally been offered one of those top seven GE positions. He turned it down in favor of a new start, as president of a then small and struggling electric utility, the Edison Electric Company of Chicago. What had led to passing over the other Edisonians in favor of the shoemakers? Credit for that belonged to the chief shoemaker, Thomson-Houston's president, Charles A. Coffin.
Few CEOs of giant corporations ever kept as low a public profile as Charles Coffin. He almost never gave a speech, and seldom an interview. Fewer photographs survive of him over his full lifetime than of Thomas Edison on a single day's visit to the Schenectady Works. Most of those photos show Coffin in his later years, as white haired and grandfatherly. Little evidence remains of the stocky bull-necked, walrus-mustached captain of industry of the 1880s, veering, in the words of associates from a "cold and obdurate" manner to "kindliness, patience and princely charm." Only an occasional tug on that mustache or tapping of his foot might reveal his energetic impatience. He might occasionally show some interest in electrical technology. One aide recalls him once holding up a negotiation to personally take apart a ten-cent lamp socket. Much more often, however, his questiom would not be "how does it work?" but "who is the man?" (88)
A child of Maine Quakers, he spoke, dressed and lived simply. In an age of grandly named executive mansions, he lived in an unpretentious house nicknamed "the bungalow". Though he had a car and chauffeur, he was known to walk alone and unannounced from the General Electric office in Manhattan to a customer's office when a key contract hung in the balance. The greatest such selling job in Coffin's career was the one he did in late 1891. He convinced J. P. Morgan that Thomson-Houston was the better managed of the two companies, and therefore should get the upper hand. In retrospect, his claims of better management do not seem entirely correct.
Thomson-Houston had achieved apparent higher return on invested capital by risky financial practices. As will be seen, when the next depression hit, those practices nearly sunk General Electric. By contrast, Edison General Electric's more conservative financial practices had led to slightly lower short term profits, but would, in 1893, help save the company. In the calmer economic seas of 1891-1892, however, Coffin's argument about the shoemakers' better management convinced Morgan.
As CEO, Coffin showed many strengths. His personal simplicity did not prevent him from appreciating complicated technologies. That appreciation had however, a practical purpose. His assistant recalls Coffin saying "in our zeal to test Ohm's Law, or any other law, we must not forget that our stockholders are yearning for dividends." (89)
To serve that yearning, Coffin was willing to pay top dollar for key patents. He consistently supported and rewarded top company technologists. When Thomson-Houston bought out rivals, Coffin had much success in persuading those companies' top brains to stay on board. He did not impose his own product preferences. He cared as little if customers preferred AC or DC than if his previous customers had preferred black or brown shoes.
He was also good at delegating. He simplified his executive responsibilities by leaving things he was not much interested in to his subordinates. The conspicuous example here was the fate of General Electric workers. An associate described Coffin's labor policy this way. "Employees were considered simply part of the necessary means of conducting business and were to be acquired as cheaply as they could be obtained." As for his immediate subordinates, he referred to them as "my associates" Notable among them were First Vice President Eugene Griffin, a West Point graduate who brought organization and discipline, and Technical Director Wilbur Rice, who brought a calm, competent, consensus oriented approach. (90)
Despite the turnover in executive leadership, nothing much changed at the Schenectady Works in the first General Electric year of April 1892-April 1893. That honeymoon, however, came to a sudden end on July 21, 1893, when it suddenly looked like General Electric's first year might be its last.
On that day, Schenectadians opened their newspapers to read that "a rumor was in circulation on the streets this morning that the General Electric Company has failed." Company officials immediately "emphatically denied" the rumors. The rumors however, though indeed false, were uncomfortably close to the truth. (91)
The threat of failure traced to the Coffin financial legerdemain that had so impressed J. P. Morgan. In the 1880s all companies supplying equipment to electric utility customers faced a problem. Those customers typically could not pay fully in cash. So the sellers agreed to accept customers' stocks or bonds in partial payment. Coffin preferred bonds, and found a way to convert them into the immediate cash that Thomson-Houston needed to fund its own capital intensive growth. He created a subsidiary in which Thomson Houston cosigned the utility bonds (that is agreed to make the bond payments if the utilities could not do so). It then sold the bonds to private investors at a discount. So Thomson Houston got the instant cash it needed, while, because of the discount, the more patient buyers earned an impressive profit. In modern terms, Coffin put Thomson-Houston into the junk bond business. (92)
All this worked fine in good times, such as the years 1885-1892. Then, however, early in 1893, a steep depression began. The utilities could not make their bond payments. General Electric, which had inherited Thomson-Houston's obligations, now not only saw its sales collapse, but also saw the obligation arise to make those bond payments. As a result, General Electric could not meet its financial obligations. In 1893 it had about $10 million in debts, and only $1.3 million in cash. Nor could it escape by selling the utility bonds it still held, since their value had plummeted. By August of 1893, GE's stock price had fallen from the post merger 120 dollars a share to 31-1/4. (93)
In contrast to Thomson-Houston, Edison General Electric had accepted utility stocks, not bonds, in payment, and had done so in a more conservative manner. So it did not have to make ruinous payments at the same time as its sales fell. As a Thomson-Houston executive admitted "it proved to be the securities of local companies which had been accumulated by the Edison company in payment of license fees which saved General Electric in the panic of 1893." (94)
A small company in such a situation would have indeed have gone bankrupt. For giant General Electric, other options were available. These options were considered by a reorganized Executive Committee, appointed by the Board of Directors. It consisted of just four men. Charles Coster, J. P. Morgan's right hand man, headed the list. Next came the two Boston financiers, Henry Lee Higginson and Thomas Jefferson Coolidge. Coffin, the fourth name on the list, kept his post as President. It was the financiers, however, who were in actual control.
Those financiers now ordered Coffin to do another selling job. That was to convince the money lender of last resort that General Electric was too big to fail. That lender of last resort in 1893 was not the Federal Government, which would bail out GE when it faced a similar situation in 2008. The lender of last resort in 1893 was J. P. Morgan himself. Coffin sought for General Electric a multimillion dollar loan. He would later describe those days in the summer of 1893, as he awaited for an answer to come from Morgan, who was vacationing in Maine,as the "days of scalding centuries." (95)
Those days ended with a yes. Morgan would put together a syndicate that would, in three installments over the next eight months, give General Electric enough money to stave off its creditors. In return, General Electric would give the syndicate electric utility bonds currently unsaleable, but destined, when good times returned, to be worth three times the amount advanced to General Electric. So the syndicate members, who could afford to be patient, would get huge profits. General Electric would get survival.
Back in Schenectady, no one bailed out General Electric's workers. Two thirds of them, some 2000, were laid off, leaving only 1000 people on the payroll in the depths of the depression in late 1893. General Electric was not Schenectady's worst casualty. Its Works did kept running. Many other Schenectady manufacturers, including the Locomotive Works, suspended production entirely. Some would never restart. One such casualty was Pop Turner. On January 1, 1893, he had officially resigned from General Electric and had gone into business for himself. The Turner Machine Works was intended to produce shafts and pulleys. Instead, in 1893 it went bankrupt and disappeared.
More seriously hit were the city's laborers and operatives, who had barely scraped by even in the good times. Hardest hit of all was the wave of new immigrants just beginning to respond to the Schenectady opportunity. By the fall of 1893 Father Dereszewski, pastor of the Catholic Church serving Schenectady's community of recently arrived Polish immigrants, reported that in his congregation alone some 50 families and 30 single men and women were destitute. The people of Schenectady did step up. Several of the city's leading citizens and religious congregations formed in November 1893 a new Associated Charities organization. It promised "prompt relief in cases of real destitution" conditioned on "the supply whenever possible of employment as the basis of relief." That employment included laying the mains for a new water system. (96)
By late 1894, Schenectady's recovery had begun. For General Electric as a company, however, the after effects of that 1893 depression would linger for the rest of the decade. New competition from Westinghouse on such major products as street railway motors kept prices low. A depressed economy reduced orders from the struggling young electric utility industry. The company's total sales for the rest of the 1890s remained stuck at about $12 million per year, barely above the level that the Edison General Electric Company alone had recorded in its last full year of 1891. Management admitted in 1894, with a candor rarely seen in corporate annual reports, to "grave mistakes in the estimates of value of accounts securities and inventories of merchandise." It further confessed that these mistakes had to "a greater extent" been made by the Thomson-Houston Company, and only "to a lesser extent" by Edison General Electric. In 1899, the company, over the strong objections of some of its stockholders, including J. P. Morgan,, reduced its capital valuation by 40%. (97)
In its January, 1894 Annual Report, however, the company had good news for Schenectady. Indeed, it would set the course for that city and its Works for the rest of its electric century. That news read:
So far as is practicable your manufacturing business has been and will be concentrated at Schenectady; and the operation of its other factories are now directed from there.
The company would henceforth manufacture "the heavy and intricate machinery" at Schenectady. Lynn would produce only "stock material and other goods of the ordinary type." Light bulb manufacture, still the company's biggest money maker, would stay in Harrison, NJ. To support this division of labor, the engineering staff, as well as administrative departments such as accounting and sales, would move to Schenectady. The reasons for this reorganization were space and money. Despite the 1893 setbacks, General Electric's management still planned to make the company bigger, and have it build bigger things. That required more and bigger buildings on more land. Yet, under financial pressure, the company had to keep spending low. That required land that was both plentiful and cheap. Schenectady offered such land. Lynn did not. An 1894 newspaper story reported Coffin as saying that:
The Works in this city [Schenectady] were far superior to those at Lynn and would accommodate 6000 people without being crowded in the least. He [Coffin] also said that land at the Schenectady Works could be purchased by the acre here for the price of a square foot of land in Lynn. (98)
So in the last week of January, 1894, 60 engineers from Lynn arrived at Schenectady to stay. Some arrivals seemed significant enough to be listed by name in the daily newspaper. These included Walter H. Knight, Henry G. Reist, Frederick Fish, and James B. Cahoon, all momentary celebrities in Schenectady but all soon forgotten by the general public. (99)
Missing from the newspaper list was the one new arrival whose name would be remembered nation wide deep into the 20th century. In 21st century Schenectady it is remembered still. That name was Charles Proteus Steinmetz.
Perhaps his omission from that 1894 newspaper list was because his 1894 occupational title was not "engineer" but the humbler "calculator". Perhaps it was his lack of a college degree. Perhaps it was his appearance, described by a friend as "a small misshapen young man… the size of a twelve year old boy." His condition, retrospectively diagnosed today as congenital scoliosis, was often labeled in his lifetime with the cruel and derogatory term "hunchback." (100)
Just six years earlier, the then-named Karl August Steinmetz, son of a railroad company lithographer, had been well on the way to a doctorate at the University of Breslau, Germany (now Wroclau, Poland). He was also a member of a Socialist Club, though one that was idealistic and utopian rather than revolutionary and Marxist. Nevertheless, his activities were, in Bismarck's Germany, highly suspect. In what follows, it is difficult to separate fact from a legend. The legend features a flight across the border a step ahead of the police. The facts feature a stop off in Switzerland to polish electrical and engineering credentials (but still no degree) and an ocean voyage ending in New York City. There, perhaps legend again, he was allegedly almost turned back due to his unhealthy looking appearance. He did, however, successfully embark onto the land of opportunity. Helped by a letter of introduction, he soon got a job that suited his combined mathematical and electrical skills. It was at the Yonkers, NY factory of an earlier politically motivated 1848 German emigre, Rudolf Eickmeyer. Celebrating his new start Karl August changed his first two names to Charles Proteus.The image behind that name was to become an enormous General Electric asset. In its public appeal, it resembled a later equivalent, the British physicist Steven Hawking, and for much the same reason: the public perception of a brilliant mind in a challenged body.
Back in the early 1890s, Steinmetz was soon swept up in the hurricane of consolidation. His first employer's company was bought by Thomson-Houston. This was not, as legend has it, to acquire Steinmetz. Actually Eickmeyer, an inventive hat maker turned Civil War gun maker turned electrical manufacturer, had invented promising electric motors, some with Steinmetz's help. GE acquired Steinmetz as an extra benefit, sending him first to Lynn and, in 1894, on to Schenectady. There he lived the last 30 years of his life. He became the subject of numerous anecdotes regarding everything from his cigar smoking to his absentmindedness to his poker playing to his collection of misshapen life forms such as cacti and lizards. After two decades, he would rediscover his socialism, and become the soul of a city.
The 1894 arrival of Steinmetz at the Works was followed that October by a more mixed signal. A statement, by an unnamed "spokesman for the Works", contained both optimism and a warning. The optimism was the goal of increasing employment at the Schenectady Works over the next 18 months to 6000 workers. The warning was a reminder to Schenectady not to entertain illusions of indispensability. The company was aware of the dangers, as well as the advantages, of putting all its eggs in one basket. "We will have branches elsewhere," the spokesman said, "in order to protect ourselves in case of fire or labor disturbances." (101)
Few labor disturbances emerged at the Works as its work force quickly recovered in 1894-1895 to that pre-Depression level of 3000 workers. The jobs were, at first, mainly those of the previous Edison Machine Works. Most numerous were the numbingly repetitive ones, such as winding coils, or hot, dirty and dangerous ones, such as that Tube Factory. Only in the event of an exceptional occurrence do a few of those operatives or laborers emerge for a moment from obscurity. For 38 year old metal polisher Andrew Galko, described as a "Polander", that moment was the bursting of an emery wheel that, in April 1894, cost him his life. He left behind, in the part of Russia today known as Poland, a widow and four children. (102)
For workers at all skill levels, the work day began at 7 AM. It included a half hour lunch break, 12:00-12:30. In the absence of a cafeteria during most of the 1890s, workers typically rushed to the front gate to receive food delivered by a family member or boarding house owner. Work began again at 12:30 and ended at 5:30 PM Monday through Friday and 4:30 PM on Saturday. Pay increased over the 1890s to a typical $2 per day, less for women and more for the most skilled crafts such as making tools, dies or patterns. (103)
Organization was still feudal. The foremen were still in control. Yet each department had its own story, and not all were bleak stories of oppression. Consider, for example, the Porcelain Department. It saw one of the first major inflows of workers from Eastern and Southern Europe. The use of porcelain to insulate electrical wires preceded Edison. Among those bringing porcelain making to Schenectady was a immigrant from Bohemia (now the Czech republic) named Vaclaw Cermak. (104)
He and his family "had come from Europe because they hated the church's corruption and its hold," said a granddaughter many years later. "My grandfather became an American the day he landed. He never would go back." He had become a skilled pottery maker in Bohemia, and had married the daughter of a bookbinder. In New York, he went to work for a ceramist who had figured out how to mix the right clay for electrical insulators, and how to stamp the smaller of those insulators out with a press, or mold bigger insulators by hand on a potter's wheel.
Vaclav Cermak became a foreman at this independent company, which in 1889 was bought by Edison General Electric. In 1894 he was sent to Schenectady. He was now William Cermak, foreman of the Porcelain Department, a short, cheerful man with a receding hairline and handlebar mustache. He bought a house in the suburb of Mount Pleasant, and brought two of his sons in to work in the Department. The real force in the family was William's wife Anna, "a bossy, dictatorial woman", her granddaughter recalls, who "would squeeze a nickel until the buffalo roared." When a new plant beyond the GE Works went broke, she bought up some of its property, and sold it on to incoming workers at a large profit.
She needed that determination and those financial reserves. Later in the 1890s, William developed what may have been Alzheimer's disease, losing his memory. His oldest son Frank was just over 20, and not long out of apprenticeship. Anna told Frank to claim full command of his father's craft and move right into the foreman slot. The Works management was already beginning to replace craftsmen with college trained experts. Porcelain was still, however, more art than science. Frank got his chance.
He had a rocky start. At one point the works manager told him that if quality did not improve, another keeper of the craft secrets would be found. Frank did improve that quality. By trial and error he learned such clues as the particular touch of a stamped out and drying insulator that indicated it was ready for firing.
He looked stern and commanding, but he could laugh readily with his workers, to whom his door was always open. His shop grew from some 25 men, mostly Bohemian and Italian immigrants in 1895 to a diverse force of 80 men and women by 1905. Frank married the daughter of a Bohemian peasant. Her main memory of the old country was walking barefoot and hungry past bright windows through which she could see the parties of the rich. Her main memory of the Church was being compelled to kiss the filthy hem of the priest's gown. In Schenectady, a new U.S. patriotism was paired with old country tradition, via the Sokol, the Bohemian social and gymnastic club.
Frank was now a department head for Porcelain, and his brother Charlie a foreman. Frank bought GE stock and never sold a share. He became a Republican Alderman, moved from the working class suburbs to elite downtown Union Street, and drove a Cadillac. His mother Anna remained the real boss. "She had masterminded the whole thing" said her grandaughter, "and she knew it".
The Cermaks' story is not a typical one. In the history of the foreman ruled departments that made up the 1890s Works, it is the success stories that survive. Of the other cases, we get only hints. For example, when John S. Winne, a carpenter at the Works, was fatally struck down by a travelling crane, an unnamed company spokesman was quick to blame the incident on Winne's own carelessness. A coroner's jury, however, found differently. It blamed foreman David Waller for stationing Winne in the wrong place at the wrong time.
Most experiences with foreman fell somewhere between these examples of Frank Cermak's happy teamwork and Waller's fatal mismangement. Most foremen could draw on previous experience as workers, as well as authority bestowed by management. They recognized that earning trust could be as important as discipline in making workers productive.
A new level of management, emerging just above the foreman level, was the superintendents. There were about a dozen of them, each ruling over a particular building, such as the Power House or Foundry, or over a particular specialty such as electrical or mechanical matters. Most superintendents had worked their way up from the bench. In the 1890s, however, their ranks were being salted with a few college graduates. Electrical Superintendent Albert L. Rohrer, for example, was an Ohio farm boy who graduated in engineering from Ohio State. At Thomson-Houston he had distinguished himself by his improvements to the carbon brushes used in railway motors. (105)
At Schenectady, as a Superintendent, he observed the difficulty of recruiting enough skilled workers. For example after a large machine shop was added to the Works in 1901, many of its machines sat expensively idle due to shortage of machinists. The established methods of recruiting, such as trolling among the railroad shops or making offers to arriving immigrants, proved insufficient. "Machinists," said Rohrer at the time, "don't seem to like our city." He then proposed a solution. General Electric should train its own skilled labor by modernizing the process of apprenticeship. Looking into the matter, he learned that such a new type of apprenticeship had been pioneered by the Hoe Printing Press Company in New York City in the 1850s. That model had already been adopted by about a dozen other companies. Rohrer put it in place at General Electric's Schenectady Works in 1901. (106)
As a result, when toolmaker Jacob Weller's son went to work at the Works just after 1900, he did not have to rely, as his farm boy father had, on the luck of being noticed by a personal mentor. Instead, he and and a couple dozen other local applicants won admission into this new program. It combined classroom work and hands on experience. It both recognized craft skill and tapped the advanced numeracy and literacy emerging from increasing high school completion. A young man, aged 16-18, who joined the program signed an indenture, a legal document committing himself to four years of 52 hour work weeks, divided between classroom work and rotation through various shops. The pay of less than 10 cents an hour in 1901 was less than that of an operative or laborer, and less than half that of a skilled craftsman. The reward for completion was a bonus payment of $50, journeyman status in a specialty, and the guarantee of a job.
Rohrer's new style apprentice program went into effect at the Schenectady Works in 1901, with 20 participants. It grew into hundreds per year, in a half dozen different specialties, from drafting to machining to tool and die work. Of the 1700 or so graduates in the first quarter century of the Apprentice Program, about 60% stayed with General Electric. Many became foremen, some engineers or managers. They made up a small minority of the Works' skilled workers, as a sort of worker aristocracy.
Rohrer became an advocate for technical training and a skeptic about the superiority of a white collar. Speaking to the Schenectady Board of Trade in 1911, he said that "too many men are entering the counting house instead of the work shop." Young skilled shop workers, Rohrer claimed, had shorter hours, better pay, and a better chance of keeping their jobs or quickly finding new ones than their counterparts in the office. At the root of this employment problem, Rohrer concluded, were "parents with false standards of what makes a gentleman." (107)
For him personally that Apprentice Program was the beginning of a self-invented role. Though officially promoted to Assistant Works Manager, a better title might have been called Superintendent of Education, Works Amenities, and Community Relations for in addition to creating the Apprentice Program, he also reorganized the Test Program, the program for recruiting and breaking in college trained engineers. He is said to have interviewed all 4000 college engineers who joined the company during his time with the Company. He was a driving force behind such additions to the Works as a cafeteria and an emergency hospital.
His community service dovetailed with his role at the Works. Recognizing that getting capable local apprentices depended on a strong local school system, he became a member of the Schenectady School Board, and eventually its President. His other community roles ranged from membership in the Schenectady Board of Trade and on the Board of Directors of Willis T. Hanson's Union National Bank, to leadership in the creation of the city's free library. In addition, he served as a committeeman of the local Republican Party. In 1898 he was offered, but turned down, nomination as that party's candidate for Mayor of Schenectady.
Only occasionally do we glimpse Rohrer at the intersection of his corporate and political roles. One such occasion was the November, 1900, election night. During the election night festivities, James Clune, that earlier mentioned metal polisher, was arrested for the stabbing of Thomas P. Davies of Rensselaer. Clune said he had been drinking, remembered nothing, and was "very penitent for this act." Even before he came to trial he was, despite this repentence, allegedly discharged from his GE metal polishing job.
A newspaper story would note, however, that James' brother Martin Clune was the "lieutenant and right-hand man," of John N. Parker, the Republican boss of Schenectady County. "When (James) Clune was discharged", the newspaper pointed out, "Johnnie Parker went to A. L. Rohrer and demanded that he be reinstated, and that demand was acceded to."
James Clune indeed kept his job, Rohrer, however denied the details of the story. "Clune was not discharged,"he said, "but if he had been neither Mr. Parker nor any other politician would be permitted to dictate to or to influence the of the officials of the company." (108)
Turn now now to the highest level of executive positions at the Works. These had expanded from the Edison days, but still numbered only about a dozen. The two top men, Manager of Engineering and Manufacturing Wilbur Rice, and Works Manager George Emmons, were both Thomson-Houstonians. At Schenectady they had roles more or less corresponding to those previously played by John Kruesi and Pop Turner. Like those predecessors, neither Rice nor Emmons was a college graduate. Unlike those predecessors, however, their combined persona was not good cop-bad cop, but two good cops.
Rice grew up in Philadelphia, the son of a self made rural New York farm boy who had graduated from Schenectady's Union College and gone on to become nationally known as a Sunday School organizer and writer or editor of religious literature. At the elite Philadelphia high school attended by Wilbur, his science teacher and inspiring mentor was Elihu Thomson. When Thomson moved from teaching to entrepreneurship, Rice followed. Though he would earn 100 patents, Rice's particular skill proved not to be invention, but managing engineers and directing manufacturing. In the 1894 move to Schenectady he first worked alongside John Kruesi, a natural fit. Kruesi was soon kicked upstairs, and Rice replaced him. (109)
If Rice resembled Kruesi, Works Manager George Emmons was the opposite of his predecessor, Pop Turner. Emmons was compact, neatly dressed, and congenial. He came from a middle class Connecticut family, left school after the 8th grade to work in a grocery store, went to Indiana in 1880 to start his own store, failed there, and came back east to become bookkeeper with Thomson-Houston.
He worked his way up to auditor. Along the way he demonstrated that his organizational skills surpassed even his excellent bookkeeping. Tried out as Schenectady Works manager, he developed a pragmatic personal approach toward workers, many of whom he got to know by name. The nickname the workers gave him, "the little man" was not a taunt, but a compliment. It recognized that he did not rule by might, but managed by skill, patience, and constructive consensus. Union leaders would find fiendish his way of anticipating worker demands and making the minimal concessions that would defuse worker action, leaving management uncompromisingly in control. (110)
Rice and Emmons exemplified a way that management of the Schenectady Works in the shoemaker era departed from the Chandler pattern of management by hierarchical pyramid. At the Works there was no dominant CEO sending orders downward. Indeed, General Electric's President Charles Coffin did not transfer himself from Lynn to Schenectady. Instead, he took an office in Boston, and later moved to New York City. After narrowly surviving the 1893 crisis, he focused on stabilizing the company, and regaining control of it from the financiers.
Coffin accepted the financiers' goal of stabilizing competition. To that he added three elements of his own: the fast follower strategy so successfully employed by Thomson-Houston, stockpiling cash to escape the Wall Street shackles, and helping electric utility customers raise capital.
In stabilizing competition, Coffin focused on General Electric's most profitable business, selling light bulbs. In keeping it profitable, he explored the limits of legality. His main bout with the 1890 Sherman Antitrust Act will be described in the next chapter. In stockpiling cash, Coffin's goal was to avoid the need, when the next depression came along, to again go begging to J. P. Morgan. To carry out this goal, new capital was mainly raised from retained earnings or the sale of new stock, rather than by selling bonds. The company also set aside more money for depreciation (that is, future equipment replacement) than was typical for companies its size. For most of the 1890s it also paid no dividends, keeping the money as a cash reserve.
In carrying out this plan, Coffin benefited from a steady, if initially slow, recovery from the 1893 crash, followed by a boom from 1899-1906. When the next depression came, in 1907, General Electric was soundly ballasted with financial reserves. It safely rode out the storm, while it was rival Westinghouse that was forced into receivership. By making recourse to the likes of Morgan unnecessary, Coffin achieved by 1907 a 20th Century style independence of management from financier or stockholder control. Edison had succumbed to financial control in 1889. Westinghouse would in 1907. The shoemakers would not. (111)
Coffin was willing to take some financial risks. He resumed, though in a more careful way, the financial practice that had got General Electric in trouble in 1893. As the economy recovered Coffin found that selling generators and other apparatus to electric utility customers still required helping those customers raise the money needed to pay for those products.
By 1905, Coffin, with the aid of another of GE's Naval Academy grads, Sidney Z. Mitchell, had worked out a plan for providing this service. Through a new subsidiary called Electric Bond and Share, GE would purchase stock in utility companies, providing those companies with needed cash. GE would then repackage those stocks into packages of diversified and therefore less risky Electric Bond and Share securities. These were then sold to the public. The process was similar to what banks in the late 20th century did with home mortgages. In addition, GE would provide those utilities with consulting services in both finance and engineering.This concept, called a utility holding company, proved profitable not only for GE but for others who adopted it in the early 20th century, such as Samuel Insull and the Stone and Webster Company.
For GE, there was a legal wrinkle. With one part of GE financing and advising the utilities, and another part selling them turbine-generators and other equipment, there was the potential for the kind of undue influence that violated the antitrust laws. Sensitive to that issue, GE included in the Electric Bond and Share by-laws the provision that GE was not to make a sale to an Electric Bond and Share utility unless the GE offer was as good or better than the offers of competiting companies. Despite this provision, GE would, as will be seen later, clearly gain by the 1920s an unfair advantage in sales. That advantage would become a target for GE critics. (112)
While concentrating on financial issues, such as Electric Bond and Share, and occasionally acting as a salesman when major opportunities arose, Coffin left most management decisions to subordinates. Their decision making was done by committees. These included a Sales Committee, a Manufacturing Committee, and an Engineering Committee. Though each was chaired by one top company officer, they worked by consensus. Above them stood an Executive Committee, a portion of the Board of Directors. It had the power to overrule the decisions of those lower ranking committees, but rarely did so. From 1895 until about 1950, General Electric would remain largely a company of committees. These committees sometimes clashed in defining their responsibilities. They also had only very uncertain and approximate estimates of the actual costs of doing business. This was brought out in an exchange between Coffin and Rice in 1903. In it Rice admits that the cost estimates in GE manufacturing contained so much guesswork as to be almost useless. (113)
So to sum up the internal management of GE in the Coffin era, it was far from the orderly hierarchy of professional managers depicted by Chandler. Instead, Coffin's GE was managed by a combination of committees, consensus, and confusion.
By contrast, GE's dealings with the cities that held its major works, involved less consensus and more bullying. In Schenectady, that was best illustrated by an 1895 story of a street.
Kruesi Avenue was a new street created by mayor turned realtor Henry DeForest. It ran right beside the Works, enabling DeForest to advertise it as an avenue of family homes and family values to which a worker could return in time to get a hot supper. As the Works grew, GE buildings came to surround Kruesi Avenue.
On that avenue, the original vision of workers homes and hot meals turned out not to be the whole story. "On Kruesi Avenue," one reporter wrote, "saloons are at present as thick and close together as bones on a shad." Other stories noted the presence of "disorderly houses" on what had been nicknamed Crazy Avenue, and described as "a mecca for frail women and disreputable men." (114)
The 1893 depression hastened that new specialization. Consider the case of Annie Brown. In 1893 she had been an assistant foreman at the Sanford Mills in nearby Amsterdam. When she lost her job due to the depression, she went to Schenectady to find new work. Though assuring her family that she was respectably employed as a domestic, she was actually "an inmate of disreputable places in the city." She ended up at the Robins' Nest, a "disorderly house" just outside the General Electric Works, and then in Municipal Court. There she was released to the custody of her mother. Her disorderly house coworker, Sarah Chapin, was not so lucky, getting a six month jail sentence. (115)
For General Electric, vice was a minor part of the Kruesi Avenue problem. The major part was location. Kruesi Avenue lay right against the back end of some major works buildings. The Company wanted to lengthen those buildings so large castings for the new big electrical machines could be brought in at one end, the entire assembly process completed along the building's length, with the finished product being loaded onto a rail car at the other end. To achieve this, Kruesi Avenue would have to go. That meant local government would have to close off the avenue, and someone would have to buy up the houses and saloons located on it.
Logically it might seem that the someone should be General Electric. That was not, however, the message that the company's Second Vice President Joseph Ord brought to the Schenectady Board of Trade in April, 1895. Instead, he brought an ultimatum. If the people of Schenectady did not buy up those properties and give them to the company, General Electric was prepared to move elsewhere. (116)
Skeptical Schenectadians might well have felt that they heard heard this story before. The first time had been that $7500 needed to bring to Schenectady the Edison Machine Works. Subsequently, rumors would depict the Works about to move to such locations as Albany or Cohoes, NY, or Orange, NJ. This version, however, was different. This emerged when Ord took the witness stand, under oath, at a County Court hearing convened to hear a General Electric motion to close Kruesi Avenue. There he told a remarkable story.
This proposed move of the Works was no mere rumor. General Electric had received two very tempting offers of new locations. The best offered 50 initial acres with plenty of room for expansion, plus an amount of money somewhere between $100,000 and a million dollars. This proposal had gone before that Board of Directors Executive Committee. All but one of the members not only approved the move, but offered to forego parts of their salaries to help pay for it. The one Executive Committee holdout was Joseph Ord. He asked the other committee members to suspend action and give Schenectady one more chance. They agreed, and here he was, testifying in public in Schenectady County Court.
Was this story plausible? Ord told it under oath. Willis T. Hanson, president.of the Board of Trade, noted that "many residents" of the city had been "disposed hitherto to dispute the sincerity of the announcements that the General Electric Company proposed to go elsewhere." Now however, said Hanson, "such objections have been swept away" by Ord's testimony. Ord had not named the rival site. Soon however, a nearby newspaper, the Albany Argus, did. The name proposed, Depew, New York, added plausibility to the story, though a General Electric spokesman asked about the Depew destination refused to confirm or deny it. (117)
Depew, NY, a new suburb of Buffalo, was located at the junction of major east coast and Midwestern railroad lines. It had convenient access both to the cheap and abundant electric power that was soon to be transmitted from Niagara, and cheap coal via rail from nearby Pennsylvania. The promoter of the Depew Development Company, Walter Webb, assembled a blue ribbon group of investors. They included Hamilton McKown Twombley, who had engineered the General Electric merger and served as the Company's first board chairman; John Jacob Astor III, heir to one of the greatest U.S. fortunes; and Chauncey Depew, not only a millionaire and a past president of the New York Central Railroad, but also a national leader of the Republican Party. Building on the latter's name recognition, Depew Development Company was incorporated in March, 1895, just two months before the Kruesi Avenue issue went public.
All this makes Ord's sworn testimony more plausible. A new little city under total control of such financial power might be an ideal place to develop the next generation of electrical machinery. Ord's testimony convinced the Schenectady Board of Trade to accept the GE ultimatum. The Board of Trade passed the hat among local businesses and individuals. More than 100 donors chipped in. Contributions ranged from $1500 from the city's leading department store, the H. S. Barney Co. to $1 each from several H. S. Barney employees.
That fund raising effort initially soared to $30,000, the original estimate of the properties' total value. Then, however, it was determined by a court appointed panel that payment to the Kruesi Avenue property owners would total $50,000. The Board of Trade went back into action to raise the other $20,000 — and failed to get it. Would General Electric indeed, as Ord warned, pull the plug on Schenectady?
The answer came back quickly. Ord appears to have been bluffing after all. For he now pronounced himself satisfied with the community effort. General Electric would put up the other $20,000. Within a year, the Kruesi Avenue property owners were paid off and the land was turned over to the company. In 1896, the buildings were extended, and, production of bigger machines in those bigger spaces began.
In seeking the land, General Electric had originally offered nothing in exchange. The Board of Trade leaders insisted, however, on some benefit to the city. Finally, they got these words written into the final agreement.
Said property purchased therewith to be transferred to said company only upon condition that the principal officers and works of said company remain in Schenectady.
Taken literally, that would have entitled Schenectady, when General Electric did later move its "principal officers" out of Schenectady, to take back that land. However, by that time, the Kruesi Avenue story was long forgotten. As for Depew, NY, it never did attract a major company. The Depew Development Company went bankrupt within a decade. (118)
At Schenectady, GE, despite its shaky financial status, began immediately the lengthening of those buildings. Even before the Kruesi Avenue issue had been settled, in November 1894, from one of those later to be lengthened factory buildings emerged a behemoth. This was the first of three 90 ton, 3000 kW electric locomotives to be used by the B&O Railroad to haul cars through a tunnel at Baltimore. This was not only an impressive achievement in its own right, but also a step into an envisioned future. (119)
That future was electrifying all railroads, not just urban trolleys. Just as electric motors were already replacing horses on city streets, General Electric hoped that more powerful electric motors would replace steam engines on all forms of rail transport. This was initially to happen in special uses, such as that Baltimore tunnel, on the elevated railroads of Chicago and New York City, and then in the tunnels beneath New York's proposed Grand Central Terminal. Eventually, however, General Electric officials foresaw electric railroads expanding to main line use and transcontinental scale. (120)
The maneuvering that led the lengthening of Works buildings to accommodate manufacture of those giant locomotives had exhibited General Electric using bullying and as bluffing to get its way with the city. On other occasions however, GE could exhibit bursts of good corporate citizenship. An example was that old problem of deadly railroad crossings. Proposals to elevate the railroad tracks above street level to eliminate level crossings within the city limits had been repeatedly raised in the city's Common Council. Lacking the money to carry out this expensive infrastructure project, the Common Council repeatedly postponed action. (121)
Death and injury, however, had not been postponed. It was the General Electric workers among the victims that got the company's attention. Fatalities included shop workers Wincentz Fydowski, Lawrence Maloney, and Joseph Brander, and Clytie Curtis, a tracer in the General Electric Drafting Department. She was on her way to work by bicycle when, crossing the tracks at State Street, she was struck and killed by a fast mail train. (122)
On this topic, the City's Common Council Meeting of March 27, 1900 had an unusual visitor. He was GE's Vice President for Engineering and Manufacturing Wilbur Rice. In most accounts of GE history Rice gets little respect. He was unimpressive in appearance, with a receding hairline, toothbrush mustache and goatee. His lack of consequence seemed confirmed during his later, 1911-1921, presidential administration, which was dominated by Charles Coffin, who held on to the post of Chairman of the Board and the real power.
Yet it was Rice who was present at, and quietly and patiently in charge of, many of the decisions and actions that formed GE and assured its 20th century prosperity. He had been the top manager of both engineering and manufacturing for both Thomson-Houston and GE. He had championed Steinmetz. In 1900 just as he was appearing before the Common Council, he was at the center of two momentous GE decisions. One was to develop its own version of a crucial technology, the steam turbine. Another was the pioneering U.S. adoption of the German idea of industrial research. More generally, his quiet, calm problem solving mentality and organization skills helped establish the committee and consensus based approach to technological development that served GE so well for so many years.
At that March, 1900, evening meeting of the Common Council meeting, Rice took the floor. He began by noting that a year earlier, when a bill was proposed in the state legislature annexing the suburb of Mt. Pleasant and the General Electric Works into Schenectady, "the Company was not ready for such a move, taxation being the main point." Now, however, things had changed. If Schenectady would now adopt that long debated plan for elevating the railroad grade crossings above street level, the company "is now willing to be incorporated within the bounds of the city and will willingly aid in shouldering the increased burden [of taxes]." (123)
By 1906 construction of the elevated tracks was underway. By then, Mt. Pleasant and nearby Bellevue had been annexed, and the General Electric Works was a tax paying corporate citizen of the city of Schenectady. Wilbur Rice rarely repeated that Common Council appearance. He would, however, become the only GE President in its history to live and work in Schenectady.
In another, more equivocal, display of corporate citizenship, General Electric had also taken over, in an indirect and shadowy manner, the local energy monopoly that Insull, Turner and Kruesi had created circa 1890. This is best evidenced by the presence in leading positions on the boards or in top executive ranks of those local companies of the names of Works Manager George Emmons, and a rising star in General Electric executive ranks. chief lawyer and then vice president of the legal department, Hinsdill Parsons. (124)
To further model the power of electricity, General Electric turned its own Schenectady Works into what was in the late 1890s perhaps the nation's most electrified major industrial operation. By 1893, in the two original Edison buildings, giant electric cranes swooped overhead carrying heavy metal parts between workstations. Outdoors, an electric railroad carried components and products between buildings. At 43 locations within the works, electric motors provided power, transmitted by belts and pulleys to groups of perhaps a dozen nearby machines. This "group system" was a transitional step toward modern factory practice. The modern "unit drive" idea of each machine being run by its own electric motor was then still only a futuristic vision. (125)
Do not exaggerate the extent of this electrification. One 1899 observer noted that a "first impression of a visitor to these Works may be one of disappointment on account of the comparatively minor part which electricity seems to play." Energy distribution still depended mainly on belts, pulleys, and shafts. Much of the Works lighting was still natural. Much of the power for lifting, hauling and carrying still came from horses and humans.
One final touch in General Electric's makeover of the city of Schenectady was finalized in 1900. It began with financial difficulties experienced by another major local institution, Union College. To keep the college in Schenectady and pay its bills, Union College put 75 acres of valuable land just east of its campus on the market. That opportunity met a recently recognized aim of General Electric. That was to provide an elite residential neighborhood for its growing roster of Schenectady notables. In 1900 the General Electric Realty Company was organized. It purchased that Union College land for about $60,000. The Realty Company initially declared that "Sale [of lots] for the present is confined exclusively to employees of the General Electric Company." To make sure these were the right kind of employees — managers and eminent engineers — the Realty Company required each house to cost $4000 or more, twice the city mean of $2000. The houses would be individually deigned by prominent architects. This "GE Plot" would have "no stores, saloons or apartment buildings", opting instead for a self-designated label "an enclave of elegance". (126)
One executive did not move to the GE Plot. Charles Coffin's residence remained that modest bungalow on Long Island. His office remained in Manhattan. His tactics remained stabilizing competition, piling up cash reserves to escape Wall Street financier domination, protecting the highly profitable light bulb business by means fair or foul, fast following into new businesses, and assisting utility customers raise the capital they needed to buy equipment. Beyond these, Coffin allowed almost all issues of technology and manufacturing to be settled by committees. He took personal charge only of the closing of a very few exceptionally important sales, such as equipment for electrifying the Manhattan Elevated Railroad. He did not impose his own technology preferences.
Few detailed records of Coffin in action survive. One that does provides a rare detailed look at this reclusive corporate pioneer. Late in 1901, Coffin received an urgent request from the president of a French ally Compagnie Francaise Thomson-Houston (CFTH). It had gained an opportunity to provide street railways to several cities in France and Algeria. It however needed funding to do so, and French finance was "very depressed." Could General Electric help provide the funds? Coffin took this request to his board of Directors. They agreed on the condition that J. P. Morgan provide backing. Morgan, however, refused, finding the risk too high.
This did not stop Coffin. He found a way for General Electric to put together the loan without Morgan, and with a timing that got this risky venture off the books before the company's annual financial reporting would have exposed it. He then added an extra twist. "I have a Schenectady associate who has been of great service to the company who I want to include in the loan", he wrote. That associate was Willis T. Hanson, who had played such a crucial role in the Kruesi Avenue purchase. He would get an insider opportunity to profit from this investment opportunity.
By January, 1902, Coffin could report to his CFTH counterpart that the deal was sealed. "It would be gratifying to me personally," he added, "if you could see your way clear to give us some fair orders." This episode provides a glimpse of Coffin, as a spider at the center of a web of power linking U.S. manufacturing, French and Algerian transportation, international finance, sales of transportation equipment made by General Electric, and a reward to a helpful peddler of pink pills for pale people in Schenectady, New York. (127)
To conclude this chapter, return to its original questions. Why did this not-quite-monopoly, the General Electric Company, appear at the particular historical moment 1892? Why was it run by those shoemakers?
Here Chandler's invocation of inevitability is only partly convincing. Scale and its economies did make Giant corporate size, if not inevitable, at least highly likely. Evidence for this is the simultaneous circa 1900 emergence of Giant Corporations under the very different political systems of the U.S., Germany, Great Britain, and France.
Chandler's interpretation, however, explains only part of the story. Electrical manufacturing was a very capital intensive industry with technologies that had strong economies of scale. This favored concentration into a few big companies. There was no technological reason, however, why the biggest electrical manufacturing company had to be twice as big as the second biggest. Each of three roughly equal sized companies would still have each been big enough to capture all economies of scale.
It was the financiers' quest for price stability that led to that extra step of bigness. Those financiers would likely have preferred a single monopoly, like the U.S. Steel Co. that J. P. Morgan later helped create in 1900. In 1892, however, George Westinghouse was still in control of his companies, despite his alliance with financier August Belmont. Westinghouse insisted on independence. By the time the financiers gained full control of Westinghouse, in 1907, the Federal Government was taking the Sherman Antitrust Law too seriously to make a final monopoly-creating merger possible.
Why were those shoemakers put in charge? Because Charles Coffin had, in a decade of relative economic stability, taken financial chances that had made Thomson-Houston look like the more successful company at that merger moment of 1892. A year later, those earlier Coffin financial moves nearly sank GE. Why did the giant company that was thus created move its headquarters from the Shoemakers' Lynn to Edisonian Schenectady? Because in 1893 a cash strapped, financially imperiled, company had a need for big buildings in which to create not just big products but big systems. To design, build, sell, and ship those systems, it helped to put all the key players in the same place. This in turn required bigger buildings, built adjacent to railroad and canal transportation, preferably in abundant and cheap land. Schenectady offered cheap land and low taxes. Lynn did not. By the time other attractive locations, such as Depew, NY, emerged, manufacturing was already too deeply rooted at Schenectady to pull up without disruption.
All this left one question still unanswered. Could GE, and its now dominant Schenectady Works, not only manufacture, but also innovate? To that question this book now turns.
Notes
- Carlson, W. Bernard. 1995. A Case Study of the Thomson Houston Company. In Naomi Lamoreaux et al. eds. Coordination and Information. Chicago. pp. 56-65.
- Carlson, W. Bernard. 2003. Innovation as a Social Process: Elihu Thomson and the rise of General Electric. Johns Hopkins.
- Villard's negotiations with Thomson-Houston regarding cartels and consolidation are in Villard Papers, Harvard Business School, Villard to Charles Coffin 15 Mar 1889. Box 126 Book 61 p. 381. 24 May 1890, Box 127, Book 64, p. 325. Villard to S. Eaton 26 May 1890. Box 127 Book 67. p. 302. The Edison Papers contain a Memorandum of Agreement between Thomson Houston and the Sprague Railway Co.
- Electricity 6 and 20 Mar 1893 Hammond File L 3183. MiSci.
- Schenectady Evening Star 8 April 1892. An Act to Incorporate General Electric Company. Laws of NY Vol. I. Passed at 115th Session of Legislature. Albany. Banks & Brothers. 1892. Supreme Court of U.S. 288 U.S. 517 (1933). Leggett vs. Lee #301, p. 562. Grandy, Christopher. 1989. New Jersey Corporate Charter Mongering. Jour. Economic History. 49. 677-682.
- Hammond, John W. 1941. Men and Volts. Lippincott. pp. 192-193.
- Comments and reflections of Frederick F. Fish. Hammond File L. 2922. MiSci.
- In the Edison Papers there is a "Draft of Arbitration of Patent Differences between Edison GE and Thomson-Houston, June 1890. Electric Light - 1890.
- Carosso, Vincent. 1967. The Morgans. Harvard. pp. 390-391.
- Carlson, W. Bernard. 2003. Invention as a Social Process. Johns Hopkins. p. 299. Sultan, Ralph. 1974. Pricing in the Electrical Oligopoly. Harvard. Vol. I, p. 4. See also Lamoreaux, Natalie; Raff, Daniel and Temin, Peter. 2003. Beyond Markets and Hierarchies. [free PDF viewer required] U. of Pennsylvania Management Papers. 4-1-2003. p. 36.
- Schenectady Evening Star. 15 July 1892.
- McKee, J. R. "Methods of CA Coffin" 20 April 1927 J757-758. Hammond File. MiSci. Recollections of M. P. Clough. Oct. 1925. J 722 Hammond File. MiSci. Hammond, John. 1941. Men and Volts. Lippincott. pp. 90-92. Broderick, John. 1929. Forty Years With General Electric. Ft. Orange. p. 32.
- Broderick, John. 1929. Forty Years With General Electric. Ft. Orange. p. 14
- Recollections of M. P. Clough. Hammond File J 722 and Jesse Lovejoy. Hammond File L 3043. MiSci.
- Schenectady Evening Star 21 July 1893.
- Recollections of M. P. Clough. Hammond File J 722. H. F. Westover, Statement 8 Nov 1825. Hammond File L 80-82. MiSci.
- Broderick, John T. An asset salvaged. Hammond File L3201. MiSci. O'Sullivan, Mary. 2006. Living with the U.S. Financial System. Business History Review. 80. 621-655. p. 630. "The Fall in the Value of General Electric Stock". Scientific American 5 Aug 1893 p. 82.
- Comments and Recollections of Frederick F. Fish. Hammond File L 2922. MiSci.
- Hammond, John. 1941. Men and Volts. Lippincott. pp. 221-224.
- Schenectady Evening Star 25 Sept 1893, 6 Oct and 4 Nov 1893. 11 April 1894.
- Certificate of Reduction of Capital Stock of General Electric Company. July 14, 1899. MiSci. Schenectady Daily Union 10 Aug 1898. Schenectady Evening Star 11 and 17 Aug 1898.
- Schenectady Evening Star 14 April 1894.
- Schenectady Evening Star 22 Jan 1894.
- Kline, Ronald. 1992. Steinmetz. Johns Hopkins. p. 5. This book's description of Steinmetz is largely taken from Kline's book, by far the best of the several Steinmetz biographies.
- Schenectady Evening Star 16 October 1894.
- Schenectady Evening Star 21 April 1894.
- Rules of the Edison General Electric Company. Albert Rohrer Papers No. 1 Folder 1. MiSci.
- For the details of the Cermak family story that follows I am indebted to Dr. Ethel Cermak, who spent 3 June 1984 telling me the story and sharing some family papers.
- Biographical information on Rohrer is taken from the Albert Rohrer Papers, MiSci, especially Box 1, Folder 1. Albany Times Union 4 September 1950, p. 4, Schenectady Gazette 4 October 1941 p. 13, 7 April 1914, 17 July 1919, 1 May 1911 p. 3, Works News 25 June 1920. p. 2.
- Interview with Frank Lange 6 Jan 1977. Recollections of Joseph Dancer. Hammond File E 178. MiSci. 40th Anniversary Celebration, Apprentice Alumni Association, Schenectady Works. 1941. Albert Rohrer Papers Box 2 Folder 7. MiSci.
- Schenectady Gazette 25 Feb 1911 p. 1.
- Albany Argus, 10 Nov 1900.
- Historian Julia Blackwelder kindly shared with me information from her forthcoming biography of Wilbur Rice and his family.
- Hammond, John. 1941. Men and Volts. Lippincott. pp. 35, 244-246.
- Carpenter, Niles. 1916. The Westinghouse Electric Company, the General Electric Company and the Panic of 1907. [free PDF viewer required] Jour. Political Economy. 24. 230-253, 382-389.
- Hughes, Thomas. 1991. The Electrification of America: the Systems Builders. In Reynolds, Terry ed. The Engineer in America. Chicago. pp. 191-228.
- Rice to Coffin 3 Feb 1903. Commercial File. MiSci.
- Schenectady Evening Star 2 April 1894.
- Schenectady Evening Star 24 May 1894.
- The Kruesi Avenue story that follows can be found in the Schenectady Evening Star 17 April 1895, 15, 22 and 24 July 1895; 2, 7, 9, 17, 22 August 1895, as well as a summary in the Willis Hanson Jr. Collection, Box 1, Schenectady County Historical Society.
- Albany Argus 30 July 1895 p. 1.
- Kruesi Avenue Fund. Willis T. Hanson Jr. Collection. Box 1, Folders HC2-H13; HC28-HC41. Schenectady County Historical Society.
- Schenectady Evening Star 19 November 1894.
- Schenectady Gazette 11 March 1902.
- Schenectady Daily Union 12 Jan 1895. Schenectady Evening Star 14 November 1895.
- Schenectady Evening Star 5 March and 22 October 1895, 5 Mar 1896. Schenectady Gazette 30 July 1901, 6 Mar 1902.
- Schenectady Gazette 28 and 29 March 1900, 30 July 1901, 6 Mar 1902. The story of the Mount Pleasant annexation issue is in the Schenectady Evening Star 27 March 1895, 3 November 1895, 13 December 1895, 3 February 1896, 18 February 1896, 11 Mar 1896.
- Schenectady Evening Star 15 Feb 1893, 4 Mar 1893.
- Schenectady Evening Star 11 Apr 1893.
- Schenectady Gazette 8 September 1900.
- The story of this transaction is in the File "French Loan" in Secretary's File, GE Collection, MiSci.