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hits large and small, good and bad, labor unions and capital unions alike. At best the law is a destructive measure, and the demand now is for constructive legislation. But this demand so far has not assumed any very definite shape.
What does "segregation" mean?
The disintegration of a trust means its dissolution into its component parts and the destruction of all ties between those parts, segregation means simply such an isolation of all parts as will enable competitors and the public to see clearly what each part is doing, without destroying the ties that bind the parts into one whole.
Under segregation the trust, or large corporation, remains intact, but in the operation of its different companies or branches and in producing and selling its different lines of products it is required to keep its accounts and make its reports in such a manner that each will stand by itself and be subject to easy investigation and ready comparison.
Segregation is entirely a matter of accounting and management, it does not necessarily affect ownership.
The proposition is simple because every well-managed corporation already segregates its different units and branches in its accounting, but no outsider has access to the facts.
The conduct of a large corporation may be so unfair and oppressive as to call for disintegration, forfeiture of charter, as a punishment; but, generally speaking, segregation will accomplish far more and with less loss to innocent parties.
The production of a finished steel product, such as a steel building, may be roughly schematized as follows:
buys steel shapes and plates and fabricates
steel bridges, buildings, etc. The fabricator is to the
'The Bessemer process is also used by rolling mills, but not to the same extent as open-hearth, and there is a combination of the Bessemer and open-hearth, called the duplex process, but it would needlessly complicate the diagram to show every step and every line of relation.
Ingots are "pig-steel," so to speak, but, unlike pig-iron, they are not allowed to cool, but are immediately rolled and cut into billets, blooms and slabs, which are the raw material for various rolled and forged steel products.
Reading up, each factor is wholly dependent upon the preceding. E must buy shapes and plates from D; D must buy billets, slabs, and blooms from C; C must buy pig-iron from B; B must buy ore from A.
Reading down there is not the same degree of dependence save in the case of the mine, A, which has but one customer, B, the blast furnace. The others have several outlets for their production. As between D and E the rolling mill turns out so many different products from tin
plate and wire rods to rails that it is virtually independent of the fabricator and may deal with him quite arbitrarily.
Many mills do not consider it worth while to equip for the making of shapes and plates for structural steel work, notwithstanding the fact an immense tonnage is used— some 2,000,000 tons annually.
These varying degrees of interdependence are incentives to combination and consolidation-imperative reading up the line, diminishing in strength reading down.1
Under existing competitive conditions the fabricator feels the imperative need of close alliance with some rolling mill. Unless the rolling mill owns an open-hearth furnace it knows it is not in a position to compete with mills that do. The open-hearth furnace wants its own blast furnace and the blast furnace wants its own ore supply.
Reading down any one factor may or may not have an interest in a succeeding factor-ownership is not vital, but may be profitable.
Reading up it may be a question of existence; reading down it is more a matter of profit, of "branching out" to secure business, and, as everyone knows, "branching out" is often disastrous. The blast furnace that buys an openhearth furnace with a view to making steel in addition to
'Mr. Axel Sahlin, of the Millom Works, told the Iron and Steel Institute: "As for the struggling independent blast furnace, marketing a product of Bessemer iron, often through the agency of brokers, and the equally crippled maker of standard grade steel, who looks to the same intermediary and to the warrant yards for his raw material, I venture the prediction that many of these will soon be driven to the wall, unless they sensibly combine forces, each plant becoming a coöperating link in the unbroken chain of processes which turn the ore into merchantable steel."-(Journal of the Iron and Steel Institute, 1901, vol. i., p. 163). See "The Trust Movement in British Industry," H. W. Macrosty (p. 329).
making pig-iron may come to grief, while the purchase of a blast furnace by an open-hearth company in order to get its raw material to better advantage may be a very sound proposition, the motives are fundamentally different, results in the latter case may be quite accurately estimated and forecast, while in the former they are largely guess-work, a gamble on the question whether a company organized to make and sell pig-iron can make and sell steel successfully.
To make the point clearer, a blast furnace might very naturally buy a coal mine to get the coal and coke it needs, but there is no more reason why a coal company should buy a blast furnace than why it should buy a railroad or the business of any other large customer.
It is one thing for a given industry to buy a plant from which it must get raw material, it is a fundamentally different thing for an industry to buy a plant to which it sells its finished product. A railroad company may buy a coal mine to get the coal it burns, but a coal mine should not buy a railroad in order to sell it the coal it uses-as an economic proposition the first purchase may be entirely sound, the second is unsound; the first might lead to abuses, the second would be sure to.
In response to these incentives to combine and consolidate in the vertical line-integration-a number of large steel companies in this country own all the factors from and including A to E.
While only a comparatively few large companies own all the factors from A to E a great many companies own or control two or more of the factors. The tendency in the iron and steel world—as in every other well-organized industry-is so strong for a company to protect itself by se
curing control of the source of its raw material that few stand entirely alone.
So far as the U. S. Steel Corporation is concerned it simply does on a larger scale what other companies do on a lesser.
To carry the argument a step farther let us make another diagram:
Line A would be extended to the number of mines in operation; line B to the number of blast furnaces; and so on; each horizontal line being carried out to include all the mines, furnaces, mills and fabricators in active operation.
The number varies from time to time. The sign of division is used between units on the horizontal lines because each is normally more or less antagonistic to the others; there is no necessary interdependence as in the vertical line; all combinations are more or less forced and artificial.
In schematizing any particular industry the divisions in the vertical line—the letters—are necessarily limited by the state of the art to the number of process-steps from first raw material to last finished product.