Rockefeller versus Carnegie: The Revenge That Built America

“To continue much longer overwhelmed by business cares and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery. I will resign business at 35, but during these ensuing two years I wish to spend the afternoons in receiving instruction and in reading systematically!”

Andrew Carnegie, American businessman and philanthropist

 

Andrew Carnegie stood there scanning the valley as if still hoping to find some sign of life, some kind of miracle to shed a little light on that disaster. But the rescue efforts of the Red Cross—the first such mission during peacetime by the Swiss institution—had come to an end several days before. The lifeless bodies would continue to surface downstream in the months ahead, reaching the tragic figure of 2,209 fatalities. And the town of Johnstown would have to be rebuilt basically from the ground up.

The South Fork Dam, which enabled the creation of a man-made island and its exclusive South Fork Fishing and Hunting Club, had collapsed on the last day of May 1889 after a night of downpours. For months the engineers had warned Henry Frick, the club’s founder and Carnegie’s partner, that unless it was reinforced the dam could fail someday after heavy rainfall. But Frick did not listen. Nor did he listen months later to the calls for calm after protests by workers from the Carnegie Steel Company. Frick, the CEO of the leading company in the steel empire, kept pushing until workers rioted. He suppressed their revolt and became the target of an anarchist attack… a man without scruples, just another sociopath, a real bloodhound.

Carnegie began to regret having turned to Frick to make his steel empire even more profitable. Small but clear hints that would eventually transform his vision, years later, when he decided to sell his company to JP Morgan and finally obtain the coveted trophy: the world’s wealthiest man.

The decisive moment replayed in his memory, like so many times before. That moment when everything changed. Andrew Carnegie, in 1873, stood at the grave of his friend and mentor Tom Scott. He owed everything to him, from the time the railroad magnate—the main competitor of the legendary Cornelius”Commodore” Vanderbilt—took a liking to the young telegraph operator. It was a generous gesture by Scott that would lift the Carnegies out of poverty and give this saga its entrepreneurial spirit.

The same quality that, years later, would lead him to undertake the longest bridge in history to date, connecting the banks of the Mississippi in St. Louis. The eighth wonder of the world, as he wrote to investors, that would link the East and West. He would make it from steel, the material that Carnegie believed that would build America.

He remembered the proud gaze of his mentor, Tom Scott, the day the bridge opened. No one dared to go across, it was the first steel bridge ever built. Until Carnegie read in a book that in ancient times the way to ensure the stability of a bridge was to make an elephant cross it. if the elephant refused to move, it meant the bridge was not stable. So, like a modern Hannibal crossing the Alps, Carnegie and his entourage crossed the bridge with an elephant leading the way.

The future looked so bright at that time for the two, mentor and protégé. One competing head-on with Vanderbilt, the richest man on the planet, for control of the railroad; the other, providing steel for locomotives and bridges… Until hecame along.

Neither Scott nor Vanderbilt realized in time that their ambition had created the nemesis who would replace them. Wanting to ensure full loads for their freight trains, they had signed an exclusive contract with an unknown oil refiner from Ohio to transport barrels of kerosene across the United States, as it was starting to replace candles as the means of lighting houses throughout the country. He was the only one able to cover the volume of overcapacity of the built railway lines.

That was the biggest mistake by Scott and Vanderbilt: giving in to the railroad bubble by building far more than what was needed. When they tried to fix the mistake, they found no better solution than to partner with John D. Rockefeller, the future oil tycoon.

Rockefeller. A self-made man like him, but with a quasi-messianic quality: Rockefeller’s life changed one day when, on the verge of bankruptcy, he was called by Vanderbilt to explore a distribution agreement for his kerosene. He missed the train that was supposed to take him to New York. The train derailed, killing many of its passengers. Rockefeller felt that being late by a few minutes was a sign from God that he had a role to play in the world: build America, at any cost.

It was a different man who negotiated with Vanderbilt, with a fierceness and determination that allowed him to close the deal and later go to the competition, Scott, and close the same deal… When the two railroad tycoons partnered to raise the rates on Rockefeller, it was too late. The power was in the hands of the one least dependent on the opposing party to survive. And Rockefeller, in parallel with the agreements, had developed the first pipelines that a few years later would extend across the country.

It was ruinous for the railways. Most businesses folded in one of the first crises of the modern economy, with millions unemployed and rampant bankruptcies— including that of Tom Scott, who would die penniless shortly thereafter. Carnegie—who would not hesitate to cede power to Frick to do the dirty work with unions later on, and would lower wages and increase working hours to inhuman limits—could not forgive what Rockefeller had done.

After engaging in a fierce competition with him to become the wealthiest man in America, he began to suspect that the search for higher returns had been thrown into the arms of the wrong man. And he started to feel a sincere concern for giving back to society some of his success and ill-gotten fortune. Two years after Johnstown, in 1891, the steel tycoon opened Carnegie Hall, which has since been a reference point for the arts in New York. He would also compete with Rockefeller in this arena. The history of industrial development in the U.S. ultimately equated to the history of the enmity-competition of Rockefeller and Carnegie, who would become a triumvirate when J. Pierpont Morgan began to shine by financing the introduction of electricity throughout the country.

It wasn’t until Carnegie sold his company to Morgan to form U.S. Steel that he could declare himself the richest man in the world… but only for a fleeting moment. Rockefeller would soon create a network of service stations to support the latest and greatest innovation in transportation: the Ford automobile. But that is another story…

Many lessons can be drawn from two of the greatest fortunes in history, including:

• Choosing and integrating employees well is one of the inevitable responsibilities of an entrepreneur, and one of their most important tasks.
• Those at the top cannot rest on their laurels. The complacency of large companies is what presents the real opportunity for disruptors and innovators. It is necessary to break the vicious circle of success, conformism and decadence.
• As we will see in other cases… financial fortune does not fill a person’s heart. That is why so many of the world’s wealthiest people have fully embraced philanthropy. If they don’t give back, it feels empty.

Competitiveness is useful for companies to progress, but it can become obsessive and dysfunctional to those whose lives turn into a race, or trial, or a competition against a rival or group of rivals to be number one.