by Dylan Davis-Bloom
How Henry J. Kaiser and the Government Built the West
Henry J. Kaiser was an innovator and his greatest innovation may have been turning himself into a one-man interest group. He mastered the art of making himself available to pursue government contracts. I set out to research war profiteering during World War II through the lens of the Henry J. Kaiser shipyards in Portland, Oregon and Vancouver, Washington. I was expecting or hoping to uncover negative information about back-room dealings. Instead, I discovered that Kaiser did everything by the book, legally speaking. Kaiser described himself as a self-made man and in some respects this view is true, but it’s a half-truth because he depended on the government for all of his business. Henry Kaiser is an example of how companies responded to the opportunities offered as the federal government assumed a larger role as a purchaser during the New Deal.
Born in upstate New York to a family of modest means, Kaiser’s first entrepreneurial venture was in the photography business when he was around 20 years of age. After his stint with the photography industry, Kaiser headed west, landing in Spokane, Washington and working for McGowan Brothers’ hardware store, where he quickly advanced. Even as early as Spokane he demonstrated quite the knack for seizing opportunities—an instinct that would make his career. “When a large school building project opened south of the city, Kaiser wanted to go after the business. McGowan demurred telling Kaiser, “If they want our hardware, they’ll come in. Nobody goes out after orders.” Perhaps McGowan was observing local etiquette concerning school business, as he pursued orders aggressively elsewhere. However, Kaiser could not be swayed; he insisted on seeking the order. McGowan told him that he would have to pay his own expenses and that he was off on a wild goose chase. The admonition fell on deaf ears, as Kaiser was out of the door as soon as he heard something sounding like “OK.” Two days later, Kaiser bounced back in with orders for all the hardware equipment for the big job.” (Foster, Builder 22) After this event, whenever a big order was at stake McGowan called on Kaiser.
A few years later, Kaiser started work for the J. F. Hill Company and received his first hands-on construction experiences building roads in Washington State up into Canada. He started to establish his reputation as an honest businessman when Hill’s company went awry and left him without a paycheck. He worked for four months without pay to complete contracts, efforts which won him many admirers and which demonstrate his understanding of the value of his reputation and business relationships.
Soon after, Kaiser got his first chance at running his own construction company, still building streets and roads in Canada, then moving to Washington State and the entire West Coast. These jobs were done for local or regional government agencies. During the 1920s there was a boom in construction opportunities. Kaiser showed his talent at getting contracts and also in promoting himself as an innovator and record-breaker. According to Adams, he made himself a builder but was born a promoter (Adams 22). Road construction was physically and economically risky, the latter because it was difficult to estimate how much it would cost and always seemed to involve unforeseen events. This gave the industry a sense of urgency, which suited Kaiser’s temperament, an aspect of his personality that would play a critical role in his wider success. Working on government construction contracts on the West Coast taught Kaiser a lot about politics. He learned how government worked and, because construction contracts involved so much litigation, he learned to work closely with attorneys.
On the basis of his road-building experience 1914-1925, in 1930 he became part of an informal group of companies that began seeking larger government construction projects. There were actually eight companies but with a perverse sense of humor they called themselves Six Companies. These partners came together as needed on big jobs. The companies emerged on the national scene when they won the contract to build Hoover and Grand Coulee dams. (Tassava 6)
One story about the Hoover Dam project illustrates Kaiser’s brilliance at public relations. Kaiser learned that Harold Ickes, Secretary of the Interior, began reviewing payroll records on the project for instances of overtime in non-emergency situations. Ickes did not suspect criminal intent, but Kaiser knew that there was liable to be a big fine for their casual interpretation of the rules. Instead of challenging Ickes directly, he developed a glossy booklet, “So Hoover Was Built,” and mailed it to opinion-makers across the country, including Ickes, before anyone had formed an opinion. Ickes then reduced the fine from $350,000 to $100,000 (Foster, Builder 60).
Kaiser and the Six Companies went on to win the bid to build the much larger Grand Coulee Dam on the Columbia River.
Fig. 1. “The Important Thing to Washington.” Chicago Tribune. (Foster, photo insert, follows 126)
By this time, Kaiser, Bechtel, and the other partners of the Six Companies had paved thousands of miles of roads, laid pipeline across the Southwest and erected dams and bridges throughout the West. But in its enormity, the Grand Coulee dam surpassed the other projects:
To most Americans, Grand Coulee is merely another of the ten or fifteen dams Mr. Roosevelt is building about the country to confound the private power companies and relieve unemployment. Completely lost in the four-year political hurly-burly between the New Deal and its antagonists has been the fact that Grand Coulee is the most elaborate and expensive engineering development ever undertaken by any government . . . Grand Coulee will cost approximately $25,000,000 more than the Panama Canal. We have heard a good deal about the hugeness of Boulder [Hoover] Dam; Grand Coulee will contain more than three times as much concrete. (Harper’s 247)
It was during these years of major infrastructure projects that Kaiser changed his strategies for securing business. During the 1920s Kaiser had participated in trade associations that lobbied the federal government, attempting to influence legislation. During the Coolidge administration he played a leadership role in trade associations at both the state and national levels. The purpose of the trade associations was to influence laws and legislation that benefited big business. The trade associations protected the interests of large trusts, aided by the government’s weakening of anti-trust laws (Adams 25-26). During this period Kaiser was definitely an insider to business as usual. He played his role as a capitalist, influential but still relatively small, while looking for his opportunity to jump to the next level.
However, by the late 1920s, after the stock market crash, the relationship between government and business changed and trade associations fell out of favor. During this period Henry Kaiser showed his sensitivity to changes in government attitudes. He stayed a member of the trade associations but stopped participating actively and instead began pursuing individual efforts to identify government contracting opportunities and to procure the business. He acted as the chief negotiator for the Six Companies in Washington DC and maintained an office there. He used it as a base for developing close ties with government officials who helped him secure business. He abandoned traditional lobbying and told his hired representatives, especially Chad Calhoun and Thomas Corcoran (the Cork), to find work, not change the law (Adams 44).
Kaiser’s evolving labor relations provide another good example of how he responded to changes in government attitudes and how he changed his business practices to take advantage of emerging opportunities. Into the 1930s Kaiser opposed labor-organizing efforts, but the New Deal government was strongly pro-labor. In response, Kaiser became a driving force in agreements between his companies and the American Federation of Labor (AFL). In the 1940s he used an AFL official as a reference when he tried to get defense contracts. Eventually, Kaiser became well known for his progressive policies in relation to his employees and his values appeared to be sincere. For one thing, he found that when he treated his employees well they worked non-stop for him. He also realized that he could motivate his employees to be excited about their role in major projects. But these attitudes began as an entrepreneur’s response to a significant change — New Deal labor policies — in his world (Adams 42-43).
When Franklin Roosevelt assumed office, the president moved quickly to pass New Deal legislation, in which the federal government would assume responsibility for the welfare of the nation by maintaining a high level of economic activity. Building dams, bridges, and other public infrastructure that generated employment was one aspect of this effort. At the same time, the New Deal government did not trust the old-money companies. They were monopolies or oligopolies that the Roosevelt Administration held largely responsible for the economic crisis beginning in 1929. In the view of Roosevelt and the men around him, the existing bureaucracy and regulatory structure was organized to help those old companies.
The New Deal government was anxious to find new faces, broaden economic involvement and offer new ways into the fields controlled by monopolies. By temperament, Roosevelt was impatient. In addition, due to the severity of the depression, government officials had a feeling of urgency that increased their willingness to do business in a more informal, less hierarchical way. They felt they were wasting money going through all these hoops. The advent of World II prolonged the feeling of urgency.
By the time the United States became a combatant and needed to increase the supply of armaments, new companies had proven themselves during the major infrastructure projects of the 1930s and they wanted to enter into the wartime contracts. Kaiser and his partners in Six Companies were at the head of the list. In fact, Kaiser soon became the government’s favorite entrepreneur. In resource industries such as steel, copper and magnesium, when old-line producers balked at increasing production, the government handed contracts to newer companies, especially Kaiser. In addition to opening up competition in what had been tightly controlled industries, spreading the contracts around also moved employment opportunities beyond the east coast location of the older firms.
In fact, the federal government used Kaiser as a trustbuster: they wanted to open up the old arrangements and he had proven his competence and willingness to take huge risks. One example was the concrete industry. When he and the Six Companies were underbid on the Shasta dam project, Kaiser quickly submitted a bid to supply the dam with the concrete needed for its construction. He had never entered the concrete production field prior to this opportunity. The government, even while noting his lack of experience in the industry, accepted his bid.
The Shasta concrete project shows his remarkable assertiveness in capitalizing on new opportunities. He founded Permanent Cement and quickly developed a nearby property, and when the Southern Pacific Railroad refused to lower their rate for transportation, he built a 9.6-mile-long conveyer belt through the mountains. This was an engineering marvel which allowed to him to deliver his own goods straight to the job site, effectively cutting out a middleman. After being awarded the contract, he was producing cement within six months (Foster, BHR 6 and Heiner 73)
As Kaiser and various partners took on shipbuilding with shipyards in Washington, Oregon, and California and helped the country’s war efforts, he made a fortune in the process. He became an energetic promoter of the country’s wartime construction, which happened to shed a flattering light on his own role. By the middle of the war, Kaiser boasted publicly of amazing increase in production and efficiency in shipbuilding from WWI to WWII. Part of these increases were due to innovations he implemented in his shipyards, included welding instead of riveting, using assembly-line production of whole sections of ships, and then using huge cranes to take these sections of ships into the shipyard for continuing construction and completion. (Kaiser 24-36) He liked to praise the combination of practical experience with education, saying, in effect, “It can be smart to not listen to the experts.” Kaiser was usually two steps ahead of his counterparts and rivals, causing envy among fellow entrepreneurs who resented his favorable public image.
In truth, his methods were very original. His business practices defied convention in almost every sense. When he was first commissioned to build ships, he broke ground on the shipyards before the blueprints were finished. He commented that progress could not wait and believed that any issues caused by his production pace could be resolved later in the process. However, he even publicly stated that he was very lucky to avoid disaster on numerous occasions during his career.
One of his innovations was to fuse the competitiveness of his employees with his ability to attract the media. In 1941 he accepted an order for 31 Liberty Ships or “ugly ducklings” to be built in his new shipyard in Portland. The land and labor conditions were comparable with his shipyard in Richmond. He set up a competition between the two yards, based on his belief that when workers are given high goals, incentives, and recognition they will break one record after another. The competition between the two yards was a focus of all levels of management and both shipyards produced many more ships than they would have without the competition. (Heiner 121) All of this had the effect of building public support for the government when it awarded contracts to his popular company. (His rivals resented Kaiser’s favorable public image and envied his ability to stay two steps ahead of them.)
One of Kaiser’s greatest publicity successes was when the Portland shipyard announced that it would be building a ship from keel to completion in just ten days. This was in a time when most shipyards on average took two months to build a ship and no one had taken less than 24 days to build a ship. They invited President Roosevelt and his daughter to attend the launching of the Joseph N. Teal. After many hundreds of workers worked night and day doing thousands of tasks to complete the ship, it was launched on the tenth day in front of 14,000 spectators. President Roosevelt warmly congratulated everyone who had a part in building the ship. (Heiner 128-129)
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Fig. 2. Henry J. Kaiser (second from left) with Franklin Roosevelt (right) when the president addressed workers at the Portland shipyard. Photograph by U.S. Navy. (Adams, photo insert, follows 86)
Kaiser also expanded his production capabilities by changing the normal working schedule and using workers not normally employed in WWI. He employed many women and minority workers in more than just menial work. He also opened day care centers at his shipyards and welcomed his employees’ suggestions. He believed that it was not technique and material but training, protection, and encouragement of his employees that was paramount in his success. Kaiser said that labor relations are human relations. (Kaiser 27) He stressed his own willingness to help smaller businesses, stating that if subcontracting would help efficiency, he was all for it. Interestingly, even though Henry
Kaiser ran ten shipyards, he was far from one of the biggest producers.
Sealing million-dollar government contracts with little more than a handshake makes me think of “good old boy” attitudes. However, every government contract that Kaiser benefited from was well within the law and disclosed in broad daylight. It is easy to see why he was admired. He did help change the face of the USA with his ingenuity and partnership in massive construction projects. Kaiser assumed his role as a capitalist with open arms and an open mind. He denied tradition in the mechanisms of large businesses and was very creative in approaching a construction project. For example, when Kaiser built ships he used a lot of his own steel and had government money to pay for the steel to build the ships.
When I started gathering information about Kaiser I felt there had to be a back-room story that wasn't being told — a conspiracy about how a conglomerate comes to be and makes a fortune in war contracts while taking advantage of the public. However, I was surprised to find absolutely no documents accusing Kaiser as a “profiteer.” After the close of the war there was a large amount of criticism about his close relationship with the government, but no one outright claimed that he was lying or stealing. There was no need for shady backroom dealings in an era where the public admired business tycoons and construction greats while they became rich off of public dollars. Kaiser was held in such high esteem by the public that he was seriously considered as a vice-presidential candidate right after the war.
Kaiser felt a deep personal responsibility for helping maintain prosperity after World War II. He went out of his way calling for responsibility and action to maintain a strong post war economy. Kaiser even critiqued the auto industry, asking the question if they had the “courage to design and produce” 1945 model year vehicle s and have them ready for delivery six months after WW2. This is slightly ironic seeing as the auto industry was Kaiser's one major publicized failing.
As he rose to national prominence and in the years thereafter, the media portrayed Kaiser as an “outsider” in relation to the steel, air craft production, and other industries that he entered. Because he was not “old money” he could present himself as a fresh face. Positioning himself this way was useful when he chose to bypass some of the unwritten standards that existed in big business during the time. However, his brilliance at winning the trust of influential people and then leveraging those relationships made him the ultimate insider. He amassed a fortune as a result of business as usual in government contracting. Though it can be argued that he saw opportunities and exploited them, his contributions were unique. He was a genius at being in the right place at the right time.
“Fairness in price includes a profit, as much as it precludes profiteering. Profit is a stimulus to risk and is the reward for the entrepreneur. Just as it is usury alone that we frown on, so also let us condemn only the exorbitant profits that are the kin of usury from the point of view of the inordinate return to the individual and the burden they impose on the community.” (Meyer 2)
Kaiser’s approach on securing business and how he went about searching for government opportunities, as stated earlier, was very unique. However, this was a means to the end of gross profit and corporate expansion, just like it had always been for big business. He made a fortune but none of it was made by exorbitant profits, in fact many of his projects came in well below bids that were submitted by other companies. After all my research I have concluded that his government contracts did not amount to profiteering. He was a shrewd capitalist who, when an opportunity (the New Deal) presented itself, was brave enough to change many of the old viewpoints on business in order to jump several steps up the food chain and build his own personal empire.
Works Cited
Adams, Stephen B. Mr. Kaiser Goes to Washington: The Rise of a Government Entrepreneur. Chapel Hill: U of North Carolina, 1997. Print.
Foster, Mark S. “Giant of the West: Henry Kaiser and Regional Industrialization, 1930-1950.” Business History Review 59.1 (Spring 1985): 1–23. Print.
—. Henry J. Kaiser: Builder in the Modern American West. Austin: U of Texas, 1989. Print.
Heiner, Albert P. Henry J. Kaiser: American Empire Builder. New York: Peter Lang, 1989. Print.
Kaiser, Henry J. “New Ship Construction.” Proceedings of the Academy of Political Science: Transportation in Wartime and the United Nations. 20.2 (Jan. 1943): 24–36. Print.
Meyer, Eugene, Jr. War Profiteering : Some Practical Aspects of Its Control. Unknown publisher: 1917. Web.
Neuberger, Richard L. “The Biggest Thing on Earth: Grand Coulee Dam.” Harper’s Monthly Magazine. Feb. 1937, 247. Web.
Tassava, Christopher James. “Multiples of Six: The Six Companies and West Coast Industrialization, 1930-1945.” Enterprise & Society 4.1 March 2003. 1-27. Web.