Beyond Steel

In the 1870s Bethlehem had remained competitive by installing Bessemer converters to make steel for railroad rails. In 1885, the company had 12% of the national rail market. By this time however, the company management had decided to make a major investment in new products–armor plate and big guns–for the new American navy. The Europeans had already begun to build large steel ships and the American government felt the need to do likewise. These ships could not be made from brittle Bessemer steel, but were constructed from more robust Open Hearth steel, made by slowly cooking iron in large furnaces. To move into this new field, Bethlehem had to install Open Hearth furnaces and acquire the ability to mold, forge, and machine ingots of steel weighing up to one hundred tons. After the death of Asa Packer in 1879, Joseph Wharton took a more active role in the direction of the company, and with John Fritz convinced the company's directors to undertake these expensive and risky new investments.

After being awarded government contracts in 1886, Bethlehem committed itself to becoming an armaments manufacturer and soon joined the ranks of the established European firms–Krupps in Germany, Schneider in France, and Vickers and Armstrong in Great Britain. Orders from the United States and other countries kept Bethlehem busy even during the economic depression of the mid-1890s. Because Bethlehem's only competition came from Carnegie, who was willing to cooperate when the customer was the U.S. government, the company became a small but very profitable one. Significantly, during this period, Bethlehem stopped making rails.

Although steel production in the Lehigh Valley would continue into the twentieth century, the local interests yielded control of the company in 1901 to Charles M. Schwab, an aggressive steel executive who at that time was president of the new United States Steel Corporation. Bethlehem had not been included in the mergers that led to two-thirds of the American steel industry being consolidated into U. S. Steel because its inclusion would have eliminated whatever competition existed for the government's military contracts. That is probably the reason why Schwab bought the company for himself, not for his employer. The immediate cause for this peculiar move seems to have been an offer tendered for Bethlehem by the British firm Vickers. Apparently, U.S. Steel did not want to compete with Vickers in the U.S. market. Over the next several years, Schwab left U.S. Steel and became involved in the U.S. Shipbuilding Company, which was put together by merging a number of existing firms. Schwab made Bethlehem part of U.S. Shipbuilding, but when the new company encountered financial difficulties, he refused to use Bethlehem's considerable assets to bail out the parent company, which subsequently collapsed. After much controversy and litigation, Schwab ended up in control Bethlehem and most of the shipyards.

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