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 / Winter 2007 / Issue 49(originally published by Booz & Company)


Best Business Books: Biography

This is not to say that Carnegie added no value to the enterprise. He was a brilliant strategist who, more often than not, had great business instincts and saw the big picture far more clearly than his managers. He was also a consummate deal maker, salesman, and negotiator who easily bested Rockefeller and Morgan in major transactions.

Carnegie is probably best known as a union buster. Ironically, he personally suffered exploitation as a young worker. He came from a family of militant union people in the reforming Chartist tradition and, early in his business career, was widely hailed as “a friend of labor,” speaking out in favor of unions and in solidarity with the working class. He proposed a farsighted deal to the union representing steel workers in which wages would be tied to profits so that both employer and employees would share in good times and bad. The union agreed during a recession to cut wages and increase working hours. However, when the post-recession boom began, Carnegie neglected to cut his worker “partners” in on the upside. Strikes ensued. Workers cried: Liar! Hypocrite! Scoundrel! But no, the great and patronizing Scot replied, I have merely had an important insight that you fail to understand.

Carnegie experienced an epiphany while reading the works of his contemporary, the philosopher Herbert Spencer. In “The Gospel of Wealth,” the most influential of countless essays he wrote during his life, Carnegie set forth his personal beliefs within the framework of Spencer’s Social Darwinism: “The laws upon which civilization is founded” decree that wealth must accumulate in the hands of those with the greatest “talent for organizational management.” He clearly had changed his mind about the source of his fortune, and now saw the duty of those with his rare talent to administer those funds as a kind of public trust and to dispense with them in ways most beneficial to the progress of the community. And therein lay his logic for reneging on his deal with the workers: It simply was contrary to those “laws of civilization” to permit the members of the community who produced the wealth to decide for themselves how to use it; hence, to pay workers more than the minimum they needed to survive was to “encourage the slothful, the drunken, the unworthy,” Carnegie said. To his critics he replied, in essence, “Don’t blame me, I am just obeying the laws of political economy.”

His workers and their union might have thought they needed more and better food, clothing, and shelter, but Carnegie knew better: What they really needed was libraries, museums, and vocational schools. By this paternalistic logic, it would be wrong for him to share his profits with his workers; in fact, it was his sacred duty to reduce their wages so he would have more to give to the charities that would, in the long term, truly benefit the working class. It was therefore without a pang of conscience that he allowed the chief manager of Carnegie Steel, Henry Clay Frick, to call in the Pinkerton guards, who fired on his striking workers at the Homestead Works in 1892. Throughout the subsequent decade, according to Nasaw, “there was an inverse relationship between the firm’s profits and the amounts of money distributed to the workforce as wages.” The value of steel produced increased by 226 percent, while the percentage of profits paid as wages decreased by 67 percent. Carnegie broke the union in the process, and later would claim that the resulting cost advantage was the key to his ability to drive out unionized competitors.

Nasaw provides a marvelous history of the Industrial Revolution and the rise of corporate capitalism; at the same time, he offers deep insight into the unique workings of the capitalist mind. What he explains about Carnegie makes it easier for us to understand how the current CEO of Wal-Mart can argue that he has “no choice” when it comes to offering his workers low wages and few benefits, and how he can argue simultaneously that Wal-Mart is serving working people’s needs by delivering goods they want at affordable prices. Like Carnegie, many CEOs in low-wage industries today genuinely see themselves as prisoners of the laws of economics when it comes to paying their workers. And they believe they are altruistically doing the workers a favor in the long run by providing cheap goods, and then ultimately donating their wealth to charity.

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