Wednesday, April 29, 2015

GDP GROWTH | 1Q Forecast 2.7%, Advance 0.2%

Forecast (February): Economists see the economy growing at an annual rate of 2.7 percent in the current quarter, according to the Philadelphia Federal Reserve's quarterly survey of 39 forecasters, released on Friday. In last quarter's survey, growth for this quarter was forecast at 2.8 percent.

Advance BEA Estimate (This morning): Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

Thursday, April 23, 2015

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Most-Read CityEconomist Blogposts, Week Ending April 23

Nov 15, 2008

4. D-Day + 70 - Some Numbers May 10, 2014

WOODIN | 6. Merger Pac-Man Makes Giant ACF (Updated Oct. 5, 2015)

The 50th Anniversary Plaque for ACF in 1949.
(This draft Chapter 6 of a biography -  working title FDR's Financier: Will Woodin - follows Chapter 5 on Will Woodin in Berwick and precedes Chapter 7 on Woodin in East Hampton. The full outline is here. Based on Ashley Kim's reading, I am editing this chapter primarily to maintain to the end the informal style with which the chapter opens.)

Will Woodin might have lived out his life the way his father Clement  did -  enjoying a long and comfortable retirement.

Clement's home, "The Heights", overlooked Berwick.

Clement's ill health early in life forced him to experiment with living conditions and led him to a peaceful home among the trees high above the Berwick valley. The breezes ensured clean air and cool summers while the people working in the valley breathed the fumes from the coke furnaces and forges and had to rely on ice and electric fans to keep cool.

If Clement's son had put his own health first he might have spent more time in the house his father built for him on The Heights - and might have lived a lot longer. He could have enjoyed his good fortunes of his third-generation family firm, while the thousands of employees of Jackson & Woodin continued casting railroad wheels and welding railroad cars to meet what seemed to be - during the first half of the 20th century - an insatiable demand for railroad rolling stock plus munitions during World War I and the middle-sized Stuart tanks in World War II.

But that was not in the character of Will Woodin. Jackson & Woodin was to become the centerpiece of a giant new company that monopolized the railroad-car business on the East Coast. Will sat at the top of the holding-company wedding cake. Perhaps initially he was a reluctant magnate, but later he came to relish some of his perks such as his prime penthouse and Rolls Royce in New York, his private railroad car to get around in, and his pricey oceanside estate in East Hampton.

Will followed his calling where it led, and it made him a preeminent business man and then an important national figure, one of FDR's closest friends and partners in the New Deal - and then led to his tragic end.

Merger Mania, 1898-1900

U.S. Merger Activity, 1889-1929
Woodin's business position was precarious at the end of the 19th century, because American industry was slammed with a fit of merger fever.

The merger mania led to a bubble environment and to some irrational decisions. Family firms could be swallowed up. Like a forest fire or a flood, the victims and survivors are not predictable. The bubble from the first wave of mergers, mostly horizontal mergers among competitors, burst in 1907. The bubble from the second wave, mostly vertical mergers within firms and their suppliers, burst in 1929.

As we shall see, Woodin and his Berwick relatives and friends were able to profit from the opportunities presented by the mergers and to avoid the pitfalls. Woodin's personal skill as a salesman of the company's products helped see them all through, and so did his his keen sense of survival.

Jackson & Woodin was in the sights of Wall Street merger scouts for some time before 1899. Another railway rolling-stock manufacturer far away in Missouri was bent on exploiting the potential for merger in the rolling-stock industry. Sooner or later Jackson & Woodin would become part of any such plan.

How big was the merger frenzy?
  • Prior to 1897, fewer than 100 firms disappeared each year from mergers. 
  • By 1899 the number had multiplied twelve-fold. From fewer than 100 firms disappearing in a year from mergers, in 1899 more than 1,200 firms wedged merged out of existence. Of the disappearing firms in 1899, 12 of them were accounted for by the ACF merger.  In the following years, ACF behaved like a prototype of Pac-Man, gobbling up one rolling-stock company after another.
  • Not until 1929 would the mergers again reach the level of 1899, and then there was another drought of activity. This second wave of mergers that followed in 1919-1929 was largely a vertical one, among producers in the chain from raw materials to final distribution.
The first merger fever made Will Woodin one of America’s wealthiest people and took him and other members of his extended family away from Berwick. The second helped create the bubble and then the financial collapse that led to the call for reforms that Woodin led under FDR's presidency.

Four Motivations for the Mergers

Why did mergers peak in 1899? It was a fashion. What were its motivations? Consider four:
  • For the Wall Street firms that scouted out and guided mergers, there were big fees when the mergers happened.
  • Some company leaders had a proactive interest in greater productivity through economies of scale in production. With a single holding company, the factories could specialize in different products. This motivation met the test of the Sherman Anti-Trust Act.
  • Some concerned railway suppliers were interested in a defensive grouping to meet the threat of new technology such as petroleum-fueled automobiles, which Henry Ford was on the verge of introducing. 
  • Speedy agglomeration to achieve more pricing power vis-a-vis the railroads, which were merging, before the Sherman Anti-Trust Act enforcement was targeted at the railway rolling-stock industry.  
1. Wall Street Fees. Mergers hit a peak in 1899, as part of a wave in 1898-1900 that was mostly horizontal, among competitors.
2. Economies of Scale. Greater productivity may well have occurred through factory specialization. A benign view of the merger wave is that it was motivated by, and generated, greater productivity. Did the mergers make American business more efficient? It would be gratifying if the merger frenzy at the end of the 19th century could be explained as a move toward greater economies of scale.
However, while higher productivity may have been used as an argument for mergers - and may indeed have been created by them - it would not explain the cyclical nature of merger activity. There is an easier explanation for the motivation behind the mergers.
3. Fear of Competition. The ACF merger might fear of competition from cars as well as the temptations of monopoly - and if this fear was a motive, it was valid because Henry Ford's automobile company would be launched successfully in mid-1904. Also, the steam locomotive industry was challenged by diesels. ACF was deeply involved in these challenges.
4. Corporate Response to the Sherman Act.  The Sherman Act, named after Sen. John Sherman (R-Ohio), made cartel agreements and trusts illegal. Section 1 of the Act states: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Section 2 continues: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony”. Section 3 extends the provisions to U.S. territories and the District of Columbia.
The Act left open to companies the route of mergers that were ostensibly for economies of scale, but were privately pursue as anti-competitive moves, to restrict the choices of buyers and thereby give the agglomerated company more power over price, i.e., the ability to charge more for its products.
One number tells it all. In 1895-1904, 75 percent of the firms that disappeared were part of roll-ups, i.e., simultaneous horizontal mergers of five or more firms that were mostly competitors. That suggests the objective was higher market share and the underlying goal was monopolization of the market, or what George Stigler has called "oligopoly by merger". Of 92 mergers reviewed by J. Moody, 28 of the resulting firms controlled at least 80 percent of their market, and 57 controlled at least 60 percent.
I buy the theory that the merger wave at the end of the 19th century was primarily a crafty response to the Sherman Anti-Trust Act of 1890.

American Car & Foundry Is Created in 1899

The ACF merger seems to have been the brainwave of W[illiam] K[eeney] Bixby (1857-1931), president of the Missouri Car & Foundry Co. Bixby was born in Adrian, Mich. and bounced around until he found a home at Missouri Car & Foundry. As its chief executive, he engineered a consolidation with the Michigan-Peninsular Car Company of Detroit. The momentum of this effort caught up eleven other independent car builders and resulted in the American Car & Foundry Company. Bixby was ACF's first President, serving from 1899 to 1901, after which he became chairman of the board of directors for a few years before he retired, and the Berwick team took over.

American Car & Foundry Company was set up in 1899 as a “parent” or “holding” company, which is a business or firm that owns a significant amount of the outstanding voting stock of other companies, enough to control the stock-issuing companies' operations. It acquired 13 companies in what was called a merger of the component companies.

A holding company can own their own tangible and intangible assets, such as land, buildings and copyrights, but it is distinct from a trust in that it may also own the stock of the stock-issuing company. A holding company can therefore own a percentage of the tangible and intangible assets of that company. Trust companies own assets, not company stock.

A holding company usually votes on issues within the stock-issuing company or companies. It is usually started by company managers, who understand the relationship between stock, company ownership, profit potential and voting rights. A trust company, on the other hand, has the right to manage the trust assets only within the confines of the trust deed terms, and is usually started to provide specific goods or services.

During the merger wave, the word “trust” was applied loosely to include holding companies. The name "trust" was associated with mergers that sought economies of scale by combining supply, manufacturing, sales and marketing into one unit. At the time of its formation American Car and Foundry Company was called the “Car Trust” in newspaper stories. The “trusts” were feared because they had the power to put other companies out of business through friendly or hostile takeovers or “cut-throat” competition.

The formation of ACF was first announced in the February 7, 1899 issue of the Chicago Tribune, with a Detroit dateline and eight companies included in the roll-up, starting with Jackson & Woodin and Missouri Car & Foundry. Further details emerged the next day in the Boston Globe as the ACF component companies announced that they had a combined annual production capacity of 86,500 freight cars, 500 coaches, 820,000 wheels, 125,000 tons castings, 30,000 tons pipe and 90,000 tons bar iron.

Net profits of the new company, based on 70 percent capacity utilization, were projected at $4 million annually. ACF proposed to begin payment of dividends June 1, starting at 1 3/4 percent on preferred stock and 1 1/4 percent on the common stock. The cash assets of the constituent companies exceeded  $5 million.

The news shocked other producers of railroad rolling stock and within the next few weeks five additional firms joined the ACF roll-up.

ACF was formally organized as a New Jersey Corporation on March 17, 1899 with headquarters in New York City and another office in St. Louis. Thirteen railroad rolling stock manufacturers were now controlled by the holding company and together they accounted for more than half the market. During the previous year, the 13 associated firms built 53 percent of all freight cars that originated outside the railroads’ own shops.

The oldest of the companies was Jackson & Woodin, founded in 1861. Bixby's firm, Missouri Car & Foundry Co., was founded in 1876, and through a merger in 1897 included the Madison Car Co., Madison Ill. - founded in 1890.

The other eleven firms in the ACF roll-up were:
 1) Buffalo Car Mfg. Co. of Buffalo, NY - founded 1890 - its predecessor, Buffalo Car Co., founded in 1872, purchased the Niagara Car Wheel Co. in 1890, reorganizing as the Buffalo Car Mfg. Co. It also had a close association with the Union Car Co. of Depew – although Buffalo and Union were owned and operated independently until the ACF takeover.
  2) Niagara Car Wheel Co., offices in Buffalo, NY – founded in the 1880s - merged with Buffalo Car Co. in 1890
  3) Union Car Co., Depew, NY – founded 1893
  4) Ensign Mfg. Co. of Huntington, WV – founded 1879
  5) Michigan-Peninsular Car Co., Detroit, Mich. - founded 1892 - included the former assets of the Michigan Car Co., the Peninsular Car Co., the Detroit Car Wheel Co., the Michigan Forge & Iron Co., and the Detroit Pipe & Foundry Co. and possibly also the Baugh Steam Forge Co.
  6) Minerva Car Works, Minerva, Ohio – founded 1882
  7) Murray, Dougal & Co., Milton, Penn. – founded 1864
  8) Ohio Falls Car Mfg. Co., Jeffersonville, Ind. – founded 1876
  9) St. Charles Car Mfg. Co., St. Charles Mo. - founded 1873
10) Terre Haute Car & Mfg. Co., Terre Haute, Ind. – founded in the 1880s
11) Wells & French Co., Chicago Ill. – founded 1869

American Car and Foundry Company's initial slate of officers and directors included, as mentioned, Bixby as President. The Chairman and Treasurer was Wm. McMillan, whose father - based in London - was W. N. McMillan and appears to be an investor, and is the sole overseas-based director.  The other officers included Frederick Eaton of Berwick as First Vice-President, with W.J. McBride as General Manager. S.S. De Lano was Comptroller. J.M. Buick, Auditor and F.F. Webber, Secretary, appeared to be identified as being in St. Louis, Mo. W.P. Coleman is Second Vice-Pres. in New York N.Y. and E.F. Carry is Third Vice-Pres. in Chicago, Ill. The General Office is located in St. Louis, Mo. and the "General Eastern Office" is in New York. N.Y. Neither Clement nor Will Woodin was identified in the initial list of officers, but Will Woodin was made head of the Berwick factory and was made a Vice-President.

The initial 18 directors included the founding President, Bixby, and three from Berwick - Clement  and Will Woodin, and Frederick Eaton. The other 14 people on the Board are identified by location: Wm. McMillan, W.J. McBride, S.S. De Lano, St. Louis, Mo.; George Coppell, Louis T. Haggin, F. E. Cauda, Wm. M. Hager, New York, N.Y.; E.F. Carry, Chicago, Ill.; E.H. Russell, George Hargreaves, Detroit, Mich.; L.J. Cox, Terre Haute, Ind.; J.L. Smyser, Louisville and W. N. McMillan, London, England probably an investor and relative.

Bixby Moves Up to Be ACF Chairman in 1901, and Eaton Becomes Its CEO

Woodin was called away from his job as head of ACF's Berwick business when his friend Frederick H[eber] Eaton became president of American Car & Foundry in 1901, following Bixby’s moving up as chairman that year. Bixby retired four years later at the age of 48. During Bixby's tenure as president and then chairman, five more companies were added to ACF, bringing the total number of companies he shepherded together to 18.

In 1902 the new company expanded in 1902 its plants in St. Louis and Detroit. New York City purchased their first subway cars from ACF. In January of that year there seems to have been a plan in the offing for Clement Woodin to move to New York. Will Woodin - or, his family says, his wife Nan on her husband's behalf - purchased two houses at 55 and 57 East 64th Street, 75 feet west of Park Avenue. Both house lots were both 25 feet wide and 100.5 feet deep. Woodin took out a $20,000 mortgage to buy the house. At that time, the neighborhood between Lexington and Park in the 60s was highly fashionable.

At any rate, for some reason Woodin (or Nan) sold the two houses eight months later, in September 1902. Possibly Clement became sick again or his wife Mary didn't like NewYork. Anyway, they seem to have cancelled a planned move to New York City.

A 1903 listing shows the power center shifting within ACF. Besides Bixby moving up to becoming Chairman and Eaton becoming President and CEO, the officers included another Berwick man, W. C. Dickerman, as Third Vice-President. W. J. McBride from St. Louis became First Vice-President as well as General Manager; E. F. Carry of Chicago was Second Vice-President. A relative (son?) of the Chairman, D. A. Bixby, was  Secretary; S. S. De Lano of St. Louis was Treasurer and J. M. Buick was Auditor. The 17 directors again included Bixby, Eaton and Woodin.

As the largest constructor of railroad rolling stock in America, ACF took the lead in the adoption of the all-steel railroad car. ACF built the first all-steel passenger car in the world for Interborough Rapid Transit in 1904, and then built the first steel cars used on the London Underground in the following year.

Similarly, the American Locomotive Company was formed from the merger of eight smaller locomotive manufacturers two years later in 1901, and ACF officers participated in their governance.

From its inception in Berwick, Pa., ACF grew by acquisition to be a New York City-based powerhouse, the leading producer of locomotives and railway rolling stock in the eastern United States. During the war years it also produced ordnance for the United States and its Allies.

The mothers of both Eaton and Woodin were Dickermans. Eaton was the son of Ralph H. Eaton and Eliza Knapp Dickerman. Eaton's mother and Woodin's mother appear to have been sisters [check this!].  Both Eaton and Woodin spent most of their school years in the Berwick public schools. Eaton was the older of the two by seven years [check!]. The two remained close until Eaton died from pneumonia in early 1916 at his home, 182 West 58th Street, New York City, at the early age of 54. Eaton’s obituary was carried in the January 19, 1916 issue of The New York Times, and ended:
[Eaton] was a trustee of the Mutual Life Insurance Company; a Director of the Columbia Trust Company; the Seaboard National Bank; the Hale & Kilburn Company of Susquehanna, Penn.; the Bloomsburg & Berwick Railroad, of which he was also vice-president; the Hoyt & Woodin Manufacturing Company; the Sligo & Eastern Railway; the American Agricultural Chemical Company; The American Beet Sugar Company; and the National Surety Company. In 1881 he married C. Elizabeth Furman of Bloomsburg, who with their daughter, Mrs. Mae Eaton Crispin, survives him.
Eaton was in 1916 succeeded as President of ACF by Will Woodin. Woodin's cousin William Dickerman moved up to First Vice-President. J. M. Buick was replaced as Auditor. The other ACF officers were:
J.M. Buick, Vice-Pres., St. Louis, Mo.; Clarence Price, Vice-Pres., New York, N.Y.; Herbert W. Wolff, Vice-Pres., Chicago, Ill.; Wm. M. Hager, Asst. to Pres.; H.C. Wick, Sec; S.S. De Lano, Treas., New York, N.Y.; N.A. Doyle, Aud., St. Louis, Mo.; Charles J. Hardy, Gen. Counsel, New York, N.Y. Principal office, 24-3 Washington St., Jersey City, N.J. Offices, 105 Broadway, New York, N.Y., Lincoln Trust Bldg., St. Louis, Mo., and Chicago, Ill.
The 13 directors on the shrinking Board of Directors in 1916 included both Clement and Will Woodin, and it appears two members of the Duval family with the same initials, plus nine others:
J.M. Buick and Thomas H. West from St. Louis, Mo.; Gerald Hoyt, W.G. Oakman, H.R. Duval, A.B. Hepburn, S.S. De Lano, Wm. M. Hager, Hanson R. Duval, Charles J. Hardy (General Counsel); W.N. McMillan, London, Eng.
Woodin completed the replacement of wooden rail cars by steel ones by the early 1920s. He also engaged in expanding ACF’s activities to the production of luxury buses and yachts.

Woodin's Appointment as President of ACF and ALCo
Family Firms Have Strengths, But Fewer
than One in Four Survives to the 2nd
Generation. Photo:

Family firms often have succession problems. The second or third generation is usually not as strong as the first. That Woodin was named head of ACF to succeed Eaton is a tribute to the strength of the Berwick family. The changes over time in the composition ACF's officers and board shows the strength within the company of the Woodin, Dickerman and Eaton families.

Woodin became one of the country's preeminent business leaders, a position magnified by his subsequent appointment as chairman of American Locomotive, which included Andrew Mellon on its board.

An idea of the importance of Will Woodin in the business world may be conveyed by the fact that ACF was added to the Dow Jones Industrials Average index on July 1, 1901, when the index included only 20 companies and it stayed in the index until October 1, 1928, when the sample size was increased to 30.

American Locomotive was added in 1916 and also remained there until 1928. So for 12 years these two companies constituted one-tenth of the components of the DJIA and Woodin headed both of them for many years.

In the latter half of the 1920s, Will Woodin was appointed CEO of American Locomotive Co. (ALCo), and served in this capacity until 1929, when he appears to have become Chairman until 1933 [to check].
A Note on the DJIA, 1884-1933. The DJIA was invented in 1884 by Charles Dow as a transportation stock index, an average of stock prices of nine railroads and two industrial companies. In 1886 the average became one of 12 mostly industrial stocks, only one of which is still part of the DJIA, General Electric - of the other 11, nine were acquired or were left in the dust by competitors; the other two were broken up by anti-trust action. When first published, the index stood at 62.76. It peaked at 78.38 in mid-1890,  slumped to 28.48 during the Panic of 1896, fell during the Panics of 1901 and 1907 and still  managed to close at 99.05 at the end of 1910. The Panic of 1910-11 pushed down the Dow, which was at 71.42 on July 30, 1914, when the NY Stock Exchange was closed for 4.5 months by the Great War. A recession followed the war. At the end of 1919 the Dow had risen just 8 percent from its level nine years earlier. Stock prices shot up in the 1920s, and the number of companies in the Dow was raised from 20 to 30 in 1928. The Crash of October 1929 and the ensuing Great Depression over the next several years returned the average to an intra-day low of 40.56, almost 90 percent below its peak, on July 8, 1932. The largest one-day percentage gain in the index, more than 15 percent, occurred on March 15, 1933, just after FDR was inaugurated. As Treasury Secretary Will Woodin announced the government's actions, he calmed the panic and the Dow gained 8.26 points in one day to close at 62.10.
Woodin's Successor as CEO of ALCo, William Dickerman

Another member of the family, a first cousin, William C. Dickerman, went to New York City ahead of Will Woodin. Like Eaton, he had were technical training in their high school and college days, in anticipation of their continuing in their family businesses. Dickerman - after earning his degree in mechanical engineering in 1896 - started work at Milton Car Works, where his father was general manager. When ACF was formed in 1899, Milton Car Works was one of the merged companies, and young Dickerman joined his father's friend Eaton at the ACF headquarters on Lower Broadway in New York City. After Eaton died in 1916 and Woodin took his place, Dickerman and Woodin became a powerful Berwick team within ACF.

Dickerman was capable and during World War I was put in charge of government contracts for ACF. The Berwick plant produced gun carriages, artillery repair trucks, and three-inch shells in addition to railroad equipment. ACF's Berwick plant averaged 5,500 workers in 1913-1918 except for two slow years in 1914-1915.

Based on his success in procuring contracts, Dickerman was appointed vice president in charge of operations in 1919, three years after his first cousin Will Woodin became CEO of ACF. He was clearly both an insider and an important part of Woodin's management team.

Dickerman was especially interested in the steam locomotive. Having gone to work in the New York City headquarters of ACF in 1899, he seems to have established a summer home in East Hampton not long afterwards. Woodin leaned on Dickerman to help him with the transition in 1916. Both appear to have acquired significant management skills during their 17 years of handling their responsibilities at ACF.

In 1929, Dickerman was selected to succeed Woodin as CEO of ALCo. One of Dickerman's first decisions - presumably with the encouragement of Woodin - was to buy companies that produced diesel locomotives. Dickerman later soured on this investment, but it did well for ACF. Dickerman was President of ALCo for 11 years, from 1929 to 1940 - six years after Will Woodin's death.

Throughout his career Dickerman "demonstrated a life-long interest in the technical aspects of the [steam] locomotive, backed by his education as an engineer, in his work in behalf of technical societies, and in many appearances as a lecturer on the subject of railroad motive power.”

Dickerman was slow to embrace diesels, preferring to pursue possible innovations for steam locomotives such as roller bearings, integral steel castings, streamlining, superheaters, and coil springs. ALCo executives believed they were committed to innovation, but the changes were marginal. Diesels were relegated to specialized applications, such as yard switching. In an April 1938 address to the Western Railway Club, Dickerman explained that "For a century . . . steam has been the principal railroad motive power. FDR met with Dickerman the day that Will Woodin died. Eight years later he gave him a signed photo. Photo of FDR Inscribed and Signed ("Franklin ..., Sept. 9, 2009. Washington, DC, c. 1942.

A Note on Oil vs. Coal. In 1859, petroleum was discovered in Titusville, Pa. Petroleum had been discovered elsewhere, but this was the first well successfully drilled to find it. Edwin Drake, who invented the drilling process, did not patent his invention and died a poor man in 1880. However, a New York lawyer, George Bissell, figured out how to collect the oil, and refine and sell it, and he co-founded the Pennsylvania Rock Oil Company. Until the Texas oil boom of 1901, Pennsylvania was responsible for half of the world's production of oil, and it generated the Pennzoil and Quaker State otor-oil brands. The railways were haunted by the spectre of the motor car, which could take people to their doorway, and the diesel engine may have struck some as a capitulation to oil.
After Dickerman retired in 1940, the Berwick and family leadership of ACF seems to have petered out. The Berwick plant excelled in the production of the Stuart tank, and the number of employees grew to 9,000 (four times what it had been in 1899), but when that contract ran its course the plant never regained its previous size. Berwick itself shrank steadily from its peak population in the 1950 Census.

Advantages of the Family Firm

The successful transition from Jackson & Woodin to ACF - at least through Woodin's death - suggests some advantages to firms that have family members running them. The Economist issue of April 18 reports that nearly one out of five companies on the Fortune 500 list are family-owned firms. A different source says that more than 75 percent of businesses in the UK are family firms and constitute half the workforce. The Economist article lists some of the advantages of a family firm. I paraphrase and extend their list:

  • The company benefits from the long-term thinking that parents engage in as they try to ensure that their children and grandchildren are provided for, which usually means keeping the family firm alive.
  • Thus the family firm may not suffer from the common "agency" problem in a firm as the interests of managers and owners diverge. In a family firm, the interests broadly overlap.
  • Managers are watched for "empire-building" as different members of the family express concern about excessive risk-taking that might mean the family's loss of control over the enterprise.
  • Family firms typically have more concentrated ownership, which should mean some coherence of vision of the future of the firm.
  • When a family firm is working well, managers with a tendency to overspend or underperform are spotted before their failings damage the company's future.
  • Because communication among managers is strong, employees with problems often find a sympathetic ear, and this creates respect for the family and worker loyalty. This reduces turnover and the likelihood of labor problems.
  • Ideally, this all means high performance at low cost.
Disadvantages of the Family Firm

On the negative side of the ledger, the family firm suffers from inherent constraints and instabilities, which can be seen in Jackson & Woodin in its various incarnations. However, the Eaton-Woodin leadership did much better than the average such transition because fewer than one in four family firms survive into the second generation (only one in seven survives to the seventh generation).

Here are some of the reasons for the failures of family firms:
  • A family firm often limits its size in order to reduce risk. The Jackson & Woodin plant drew workers from as far away as Wilkes-Barre. It was a comfortable size, which meant it had no incentive to grow.
  • If a family firm does not want, or is unable, to grow, it cannot take advantage of economies of scale, which means the ability to specialize - improving the quality of products while reducing costs. As Adam Smith said at the beginning of Book I, Chapter III of The Wealth of Nations, "As it is the power of exchanging that gives occasion to the division of labor, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market." 
  • A firm that limits itself in size is in danger of missing out on technology improvements and becoming obsolete. The family firm may have no choices other than obsolescence or growth. This may well have been the situation for Jackson & Woodin in 1899 when it faced the challenge of the automobile - be part of the ACF roll-up, and benefit from it, or face an early corporate death as improved technology and marketing skills left Berwick behind. 
  • Paternalism is admirable when it means a sympathetic ear and a helping hand. But it can be an unsympathetic ear that intrudes into the private lives of workers. In Berwick, Pa., for example,  the temperance-minded owners of the biggest company in town bought up all the saloons and hotels in Berwick, making Berwick a dry town as of 1881. This reduced the likelihood of drunken fights in Berwick, but also removed a place for socializing outside of the plant.
  • The high degree of communication within family firms has the disadvantage of opening the firm up to family feuds and succession problems. The history of royal families shows the lengths to which family members will go to ensure that the progeny of one branch prevails over another.
  • Transition from the family-firm culture to that of a more impersonal form of organization, what Ferdinand Tönnies (1855-1936) called moving from Gemeinschaft (community, what the Economist calls personal ties) to Gesellschaft (civil society, impersonal ties), can be wrenching. Will Woodin's friendship with Frederick Eaton in New York was useful in easing the transition, and his friendship with William Dickerman made it easier for him to assess the locomotive side of ACF.
Berwick the Beneficiary

After a family firm is absorbed into a roll-up like ACF, it often disappears and the community suffers. With some of the leading families and company executives gone, Berwick could have become a ghost town after 1899.

That did not happen. Berwick thrived until the 1980s for three reasons: 
  • ACF was headed by Frederick Eaton, a Berwick man intermarried with the Jackson and Crispin families, and therefore related by marriage to the Woodins. Successive generations of Eatons were close friends of their contemporaries among the Woodins. Eaton naturally sent on many railway-car contracts to Berwick, and Woodin supported Eaton's programs within ACF.
  • Will Woodin, the  third generation of one of the two original families in Jackson & Woodin, was left in charge back in Berwick. He did his job and then diverted himself from feeling trapped by becoming a world-class collector of pattern coins and buying an apartment in New York City and building a house in East Hampton.
  • William C. Dickerman for his part pursued a lifelong interest in steam locomotives, which helped round out the family knowledge base as the base of its activities broadened from the railway car to include the engines.
The Eaton-Woodin partnership was good for Berwick:
  • ACF spent $3 million expanding the Berwick plant to meet the railway and subway demands of the nation. Money was also invested in 1902 in plants in St. Louis and Detroit.
  • Demand for ACF cars was huge when New York City purchased some of their earliest subway cars from ACF. 
  • As subway-car and commuter-rail volume was winding down, ACF became a vital asset to the United States military for World War II. The Stuie Tank, named for Confederate General Jeb Stuart, was built at the Berwick plant. 
  • After World War II, however, federal transportation money mostly poured into creating new highways, and private money flowed into buying motor vehicles. 
  • At the same time, competition from Asian suppliers grew. When SEPTA decided to buy cars from a Japanese supplier instead of from the state's own railway-car manufacturers, the end of the plant seemed to be in sight.
  • In November 1961, ACF decided to shut down its work at the Berwick plant. They offered to sell the plant to the Borough of Berwick, which declined the offer because of shrinking tax revenues. Frank J. Evina remembers what a blow it was to his father when they closed the plant. Years before, his father quit high school in April of his senior year so that he could get ahead of the June graduates in the application for jobs at the ACF plant in Berwick. Several others in his class did the same thing. Now, when the plant closed, he regretted not having a high school diploma.
  • That would have been the end, but three Berwick heroes kept the plant going for another 22 years, supporting the Berwick economy at a time of economic downturn. They were employees at the plant - Alfred Catterall, Walter Vorbleski (who wrote a book about the Berwick plant), and Ray McBride. They purchased the plant from ACF, renamed it the Berwick Forge & Fabricating Corporation. Frank Evina remembers that his father got one of the jobs in the new company. 
  • They kept the new firm open for seven more years. Then they sold it to the Whittaker Corporation in 1968. 
  • Whittaker kept it open until 1983 - 84 years after the roll-up, a pretty good run.
The first 20 years of Berwick's extended life can be attributed to the continuing presence of Will Woodin and Frederick Eaton; the next 40 to the quality of the Berwick product; and the final 20 to the initiative of a few employees who came up with a plan to save the plant.

The old “Huber Breaker” has been demolished. It was a giant coal buster just outside of Wilkes-Barre that was used to break down large chunks of coal into standard sizes for business and residential use.  It was going to be converted into a museum, but a Pennsylvania agency issued a permit for a mining company to explore the land under the breaker for coal or ore. The teardown of the facility ended the museum idea.


Mergers in the USA: R. L. Nelson (1895-1920) and C. Eis (1919-1930), Merger Movements in American Industry; W. L. Thorp and W. F. Crowder, The Structure of Industry; Federal Trade Commission, Statistical Report on Mergers and Acquisitions. Cited as sources of data (p. 640) in Leslie Hannah, “Mergers”, in Glenn Porter, ed., Encyclopedia of American Economic History (New York: Scribner’s, 1980), pp. 639-41, 648.

Oligopoly by Merger: George Stigler, "Monopoly and Oligopoly by Merger," in The Organization of Industry (Homewood, Ill.: Irwin, 1968).

“Holding Company” - Wanda Thibodeaux, Demand Media

“Trusts” (and ACF-specific data) - Mark Theobald

Family Firm: Economist Magazine, "Special Report: Family Companies," April 18, 2015. (The  report, especially p. 15 is a useful summary of the pluses and minuses of family companies.)
O'Regan, Nicholas, et al. Strategic Thinking in Family Businesses. Wiley, 2010. Smith, Adam, The Wealth of Nations. 1776. Tönnies, Ferdinand, Studien zu Gemeinschaft und Gesellschaft.
UWE Bristol, International Centre for Families in Business.

Dickerman: "Mrs. C. R. Woodin Dead at Age of 85", New York Times, April 14, 1933. Alco versus EMD, June 22, 1995. William C. Dickerman, 43 hours: My era in railway equipment life (1943); Steam and the railroads (1936). Volume 16, Issue 6 of Newcomen addressNewcomen Society in North AmericaVolume 5, Issue 16 of Publications, Newcomen Society of England American BranchWm. C. Dickerman (1874-1946): Never His Courage Faltered! (Pamphlet, 24 pages), Issue 83, Newcomen Society in North America; Charles PenroseHistory of ALCo

Berwick a Dry Town: "No More Whiskey in Berwick; Dealers to be Paid the Amount of Their Annual Profits Instead" (PDF). New York Times. 1881-04-25. (The story has examples of worker-oriented largesse, such as housing, by the company owners.) Tom Adams email to author: "If the time coincided with Thomas Morton’s ownership of the hotel, he must have been one of those owners who were 'bought' by the Woodins to let their liquor licenses expire.  The Hotel Morton was on the corner of Front and Market Streets."

Berwick's Extended Life: Interviews with Frank Evina, whose father and grandfather worked for ACF,  and Tom Adams, Berwick Historical Society. Huber Coal Breaker - Coal Buster - Huber Coal Breaker From a recent Street-Shoot in Wilkes-Barre The satellite view now, with it gone.

This is part of a larger set of posts working toward a biography of Will Woodin. Please post comments or send direct to the author,

Sunday, April 5, 2015

INEQUALITY | Best Addressed by Spending, Not Tax Policy

Ed Kleinbard, USC
Prof. Edward Kleinbard of USC has a new book, We Are Better Than This: How Government Should Spend Our Money.

It starts with OECD data and prior studies to compare national data on inequality. His summary is that the U.S. record is “Dismal”.

He then demonstrates how government can enhance what Adam Smith called "the happiness of society" – via  investments and social insurance.

He favors extending the system now under assault from the current majority leadership in Congress.

He thinks that efforts to make the Federal income tax more progressive ("Soak the Rich") are futile.

Here are Kleinbard's main points:
  • Seeing inequality as a tax issue leads to "misframing our policy debates". 
  • The positive returns to government investment in human capital, in infrastructure and in pure science are "enormous" and social insurance addresses the "inescapable role of brute luck in our outcomes".
  • Spending wisely grows the economic pie. 
  • Preoccupation with the progressive income tax is self-limiting and self-defeating, because very high top marginal rates incur real efficiency costs.
  • Political wars that ensue from very high top rates exhaust public energy and attention.
  • Better to focus on the progressively of the overall Federal budget, taxation and spending. 
Bottom Line: Not particularly progressive tax systems can fund very progressive overall fiscal systems. To address income inequality, a larger revenue base is more important than the progressivity of the tax structure. His main thesis is outlined in an October 2014 op-ed in The New York Times. Prof. Kleinbard has also published an essay on the "real" Adam Smith values in Commonweal Magazine.

Saturday, April 4, 2015

HELP! | I'm a Prisoner of Network Solutions

Having just heard from my sister that Network Solutions closed down her web site for non-renewal of her website domain (her computer was down so she didn't get the notices), I checked out their ratings online. Here is what I found.

I am distressed about it because I have several sites hosted on Network Solutions.

Consider this the way you might an appeal found inside a Fortune Cookie–"Help! I am a prisoner in a Fortune Cookie Factory!" How do I get out???

  • Network Solutions Reviews by 85 Users & Our Experts
     Rating: 1.9 - ‎85 reviews
    Network Solutions is a legendary Web-hosting provider that was bought out in 2011. Check out expert and user reviews to see if its services hold up.
  • Top 74 Complaints and Reviews about Network Solutions › Web Hosting Companies
     Rating: 1 - ‎52 votes
    Network Solutions' reinstatement fee - After being their customer for 15 years, today, I was surprised to understand that I have to pay $25 reinstatement fee on ...
    You visited this page on 4/4/15.
  • Network Solutions Small Medium Business Web Hosting ...
     Rating: 0.5 - ‎27 reviews
    Read and write user reviews for the Network Solutions Small Medium Business Web Hosting on CNET.
  • Network Solutions - Web Design - Herndon, VA - Yelp › Professional Services › Web Design
     Rating: 1 - ‎86 reviews
    86 Reviews of Network Solutions "I had to use Network Solutions to automatically re register a domain after the pending delete phase was over and it became ...
  • Networks Solutions Suck - Home
    Yes, you've read correctly, NETWORKSOLUTIONS Suck. Why? There is a plethora of reasons why the well-known domain registrar does not deserve your ...
  • Network Solutions Review: Alert - Read This Before Purchase
     Rating: 2 - ‎Review by Jerry Low
    Apr 14, 2014 - We do not recommend Network Solutions and rate it 2-star only. Learn why.
  • Wednesday, April 1, 2015

    OBIT | Janet Norwood, BLS Commissioner, 1979-1991

    Janet L. Norwood
    Janet Norwood died on March 27 of Alzheimer's Disease.

    In 1979 she became the first woman to be  Commissioner of the U.S. Bureau of Labor Statistics when she was appointed by President Carter.

    She was reappointed twice by President Reagan.

    Born in Newark as Janet Sonya Lippe on December 11, 1923, she attended schools in Irvington, N.J. and then what is now Douglass College at Rutgers and then the Fletcher School at Tufts University, from which she received her doctorate.

    She taught economics at Wellesley College before she interrupted her career to join her husband Bernard Norwood for work as a Foreign Service Officer in Belgium.

    Under her leadership, the BLS fought for its independence from political interference with its data-collection mission, even within the Department of Labor.

    She was quoted by The New York Times as saying in 1982:
    I find it a stimulating challenge. There are always a variety of innovative senators and representatives who raise questions that I have to be very careful to answer in a completely objective framework.
    After leaving the BLS in 1991, she joined the Urban Institute as a Senior Fellow, remaining there until 1999.

    She was appointed Chair of the Advisory Council on Unemployment Compensation, first by President George H. W. Bush in 1993 and then by President Clinton, serving until 1996.

    Among her many awards was an honorary doctorate from Harvard.