John D. Rockefeller, America’s original supercapitalist, on Bill Gates and the Microsoft monopoly.
The triumphs of heavy industry are triumphs of hegemony, as 19th-century America’s invention of the industrial trust amply demonstrated. The richest of its inventors – the man who created an unparalleled method to centralize control and eliminate competition – was the founder of Standard Oil Company and Trust, John D. Rockefeller.
When Rockefeller first set foot on the oil fields of western Pennsylvania, in the early 1860s, he found an anarchy of independent drillers and refiners who were constantly indebted, desperately underselling each other, and vulnerable to wasteful cycles of boom and bust. By the time he began to retire in the mid-1890s, Standard Oil Trust had become arguably the most successful business concern in history. Oil traveled from Standard Oil refineries over Standard Oil pipelines to Standard Oil wholesalers to Standard Oil retailers, and finally to consumers, in red Standard Oil cans.
Despite decades of battles with the government – resulting, finally, in the breakup of Standard Oil Trust in 1911 – Rockefeller never wavered in his belief that centralized control of industry by a handful of strong-minded capitalists was a good thing.
In discussions with Wired, Ron Chernow, author of the recent best-seller Titan: The Life of John D. Rockefeller, pointed out that “few of the founding fathers of our industrial system believed in free markets.
“Rockefeller was the archetypal figure of that era,” Chernow noted. “He created the first great trust, he created the principle of monopoly, and he was its theoretician.”
This being the case, we wondered what Rockefeller might have made of the Justice Department’s antitrust suit against Microsoft. We were curious, too, just what he would say about his role in establishing a philanthropic template for later generations. At 43 – the age of Bill Gates today – Rockefeller launched an unprecedented second career of charitable giving. Indeed, Bill and Melinda Gates’s most recent philanthropic gesture – a $3.345 billion contribution to two family foundations – may be seen as part of a socioeconomic continuum initiated by Rockefeller.
Most important, we wanted to know about Rockefeller’s legacy. What was his vision of success, failure, and true leadership?
So we asked him.
Wired: Thank you for doing this interview. Ron Chernow told us you don’t have a high opinion of journalists.
Rockefeller: They make a great ado and throw dust in the air.
OK. Let us throw our handful: It’s been said that your Standard Oil Company figured out every fundamental mechanism by which a monopoly could restrain trade, and that all the government needed to do to create its antitrust legislation was compile a list of your business tactics.
A restraint of trade was the last thing that could be fairly charged against the Standard Oil Company. The Standard Oil Company was doing just the opposite. It was expanding trade every day. Many others had restrained trade by putting out oil which prejudiced the people against kerosene oil, as it was termed, as an illuminant, because of poor quality and consequent great danger. The Standard Oil Company went vigorously about the expansion of trade by giving the people an oil that they would call for a second time and that they would use without fear of the explosions.
We’re intrigued by some similarities between your business practices and those of Microsoft. Until a couple years ago, Microsoft received a license fee from manufacturers for every computer shipped, whether it ran Windows or a competitor’s OS. (Microsoft ended this practice as part of the 1995 consent decree that closed the government’s first antitrust case against the company.) When you were a fairly large refiner in Cleveland, you negotiated with the railroads secret rates that allowed you to ship your oil cheaper than your competitors and, subsequently, to acquire them. Then, as the railroads became more and more dependent on your growing power, Standard Oil got a secret rebate from the railroad on every barrel of oil shipped, whether it was your oil or your competitors’. This put you in a position to monopolize the trade.
I do recall that we aided the railroads in greatly reducing the time taken by shipments and the return of cars, so that they were enabled to make the round trip in about half the time; and my recollection is that when they had come to know how satisfactory it was to do business with us, they were willing to construct an additional thousand cars for this traffic. We shipped solid trainloads. The small men, who could not furnish these facilities, were jealous, and that jealousy was part of the hue and cry against us.
It is reported that one after another you told competing oil refiners that they could either join you or be destroyed, because you were going to own the entire oil business. For instance, Ida Tarbell, your great journalistic nemesis, quotes you as saying to the other refiners, “You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good.” Many smaller software companies have shared a similar feeling when Microsoft casts an eye on their business – they can either join or die. Tarbell goes on to write that “certain refiners objected, but Mr. Rockefeller was firm. It was useless to resist, he told the hesitating; they would certainly be crushed if they did not accept his offer.”
That is absolutely false, and no man was told that by me or by any of our representatives. That statement is an absolute lie. Talks like this, emanating from individuals, were made when in after years they saw that they had made a great mistake in not coming into the Standard Oil Company. There was no compulsion, no pressure, no crushing. The Standard Oil Company was an angel of mercy, reaching down from the sky and saying: “Get into the ark. Put in your old junk. We’ll take all the risks.” The ark which Noah built was rather more favorable to those who went in. There are some people whom the Lord Almighty cannot save. They don’t want to be saved. They want to go and serve the devil and keep on in their wicked ways.
What, then, did you say to your competitors that induced them to sell?
What we did was to take in the largest concerns first. I said, in substance, I thought we could manage the business better for mutual protection by uniting our interests. A few of the refiners decided to remain out, and these were among the smallest and least able to compete with us. With these our relations continued, entirely pleasantly, until at length, one by one, of their own volition, they were pleased to embrace the opportunity to join their interests with ours, the result of which in every case was most satisfactory to them.
You were right in at least one respect – even a small amount of stock in Standard Oil in those early days would, within a decade, have turned the small refiners into very wealthy men. And yet many did not take payment in stock, but preferred cash.
Remember always that people viewing the history from today are in a very different position from those who viewed it as an untried, unproven adventure, without a precedent, undertaken by young men. I would emphasize the word “young.”
The government investigated you many times, over many years, and ultimately broke up your company. Was this merely a failure of public relations?
I determined it was useless to waste energy in denials and disputes with jealous or disappointed people. I persuaded our partners to keep silent, too. The more we progressed, yet kept on gaining success and keeping silent, the more we were abused. We all said nothing and went on sawing wood. These envious people, who had had the same opportunities we had but failed to profit by them, were most abusive.
What is your view of the demonization of Microsoft by the government and parts of the media and public?
The crowd is always ready to help tear down a successful man – the most successful singer, or speaker, or lawmaker, the most successful in any endeavor. Who were we that we should succeed where so many others failed? Of course, there was something wrong, some dark, evil mystery, or we never should have succeeded.
Does pricing products at below cost – or free – smack of restraint of trade?
The Standard Oil Company did what any other company would do when competitors sought to take away its business: It sold lower. There was nothing peculiar about this at all.
And you operated in great secrecy, often misleading others in the industry about your real intentions.
What successful merchant or manufacturer do we find who is keeping a kindergarten establishment for the purpose of educating others less favored with business ability than himself, so that they in turn may take away his business and the bread out of his children’s mouths?
Microsoft uses its monopoly in the market for PC operating systems to make profits in the applications market. How important were such collateral enterprises to your business?
We had vision, saw the vast possibilities of the oil industry, stood at the center of it, and brought our knowledge and imagination and business experience to bear in a dozen – 20, 30 directions. There was no branch of the business in which we did not make money.
Take barrels. The coopers were Irish; there were many agitators among them; we never could be sure how long we could get the barrels we needed. We built our own barrel factory, our own cooper shop. We bought forests. We lent money to men who had no capital and wanted to cut wood for us. We built kilns to dry the wood, built warehouses to store the wood, and as we needed staves hauled out the dry, well-seasoned staves, instead of wasting so much transportation on green wood. We eliminated waste everywhere.
Refiners had to pay high prices for barrels because hoop iron was high. We bought it wholesale, at far less than the individual barrel-maker would have to pay. Paint. Glue. Sulfuric acid, for refining the oil – we made our own. How could a refiner, buying his in the open market, compete with us?
We made a tremendous savings on coal. Pipelines. What did we care for the railroads, their rates or their rebates, when we could carry our crude oil to be refined or the refined oil to market in our own pipes?
Then the tank ships. We began to use them to carry our products to foreign lands. Think of the saving in that! No barreling, no leakage, no handling by stevedores, no labor to unload the oil. There were brokers, freight brokers and oil brokers, all sorts of men who had to do with shipping oil. We eliminated them from our business. More expenses lopped off. The best of these men we took in with us. They prospered. Many of them bought stock, did well.
The matter of exchange – foreign exchange. We did our own exchange, and made a lot of money on that. Distribution added a lot to the retail price of oil. We found that the wholesale grocers made their profit in selling oil to the retailers, and that the retailers sometimes added as much as 5 cents a gallon to their price in order to make their profit. We bought land, put up our storage tanks, cut out the cost of barreling and freight, made tank wagons, and delivered the oil at the doors of the consumers, eliminating all these intermediate profits on the way. We made a fine crop of enemies by it, too, but we made oil far lower in price than it had ever been before.
Some of the other things we made: chewing gum, candles, and other forms of paraffin. There was Vaseline, a valuable by-product. That made a big business by itself.
What do you think will be the ultimate verdict of history on the concept of growing a new industry by these methods?
It will be said: “Here was a force that reorganized business, and everything else followed it – all business, even the government itself, which legislated against it.”
Did it ever occur to you to leave some profits for somebody else?
These people wanted competition. And when they got it, they didn’t like it.
What is your view of the government agencies designed to regulate corporations and keep the playing field level?
Legislators must be pardoned for their lack of comprehending business problems so complicated and dangerous. Our government has gone too far. I hope that the time will come when we as a nation will decide on better methods toward businessmen through the agency of men less partisan than these. But I see that it will be difficult to reach this millennium day while we have so many hungry politicians out of profitable employment, hangers-on who must be provided for.
We’ve heard a lot about how the Net will allow more people to succeed in the digital marketplace, not as mere vassals of Microsoft but through their independent competitive efforts.
The world is full of dreamers; they can always do better than anybody else, always belittle the efforts of others, and yet, as we know, they never bring anything to pass.
Former Microsoft VP Michael Maples once said that all the company wanted was its fair share of the market and that, as far as he was concerned, Microsoft’s fair share was 100 percent.
I recall one incident of the efforts to annoy us: being called to Washington before some committee. After putting me through all sorts of inquisitions, we were just on the eve of adjourning when I was called back. The question was like this:
“Mr. Rockefeller, does your company or your connections, or do they not, control all the business in a certain section in Michigan?”
To which I answered innocently, “Not yet!” and the uproar broke up the meeting.
His great success has led Mr. Gates to testify before Congress, as it led you to testify in various government investigations of your business practices. When you testified, you cooperated minimally. For example, during some questions about the South Improvement Company – an early attempt to enforce cooperation among oil refiners – you claimed not to have any knowledge of it, because your questioner accidentally called it the Southern Improvement Company. This kind of thing gave you a reputation for dishonesty. Surely you knew what the real name was.
I never undertake to instruct the man who asks me questions. I remember that incident as if it were this morning. My attorneys were following the examination. I conferred with them. They agreed that there was nothing to add or explain. I did not stop to correct my questioner. Of course, I knew what I was answering.
The strategy of Microsoft has been “Windows everywhere,” just as the strategy of your Standard Oil was to have a single, centrally managed system of refining and shipping. How could this not destroy competition?
Progress applies in every realm; we find people saying we must not be held by the narrow prejudices in the religious world, where today we find five churches in one village; where one would be ample, led by one consecrated, intelligent leader, devoting his energies for the coming of God’s kingdom in the world. The Christ spirit is evidently coming in the battlefield, the wheat field, the workshop – everywhere! And we all rejoice in it and we forget the many unpleasant things which came in the transition. And all the more do we rejoice to overlook all complaint, all grumbling, all injustice, that came against a group of men who fought for the new idea instead of the destructive old competition.
Your domination of the industry was benevolent?
The ideas of these people who believed in cooperation were the right ideas, and they were the best servants of the people. They conserved their resources instead of dividing and squandering, and the business grew and developed, and the money was wisely invested in the progressive steps of the business, and they worked out on a very large scale what was started on a small scale; and the advantages of such concerted action were more and more apparent.
It is not uncommon for people to look at individuals of enormous wealth, such as you and Mr. Gates, and think, Why not stop after the first hundred million? How much does one man need? Is this any way to spend a whole life? To gather so much money and, in doing so, to make so many enemies?
I feel that I could not have rendered the world in any other direction as great a service as I have rendered in this. Happy, happy these years were, with all the struggles through which we passed! Happy for us not only who led in the movement; happy for all who trusted us and cast in their lot with us! Not so happy for those too conceited, too crooked, too suspicious, to see any good which they themselves did not originate.
Did it hurt your feelings to be so hated?
I was only human, and it can only be imagined what I went through when I knew that my motives were right and what this organization was accomplishing each day in fulfillment of the prophetic vision, which was made clearer and clearer in each successive step of our onward march. It was not a process of destruction and waste; it was a process of upbuilding and conservation, and yet in our efforts most heroic, well meant – and I would almost say, reverently, Godlike – to pull this broken-down industry out of the Slough of Despond, we are charged with criminal proceedings. How absurd and monstrous!
Much as you have defended Standard Oil’s practices, Microsoft contends that it is motivated by straightforward business goals and that it engages in tough but fair competition. How, then, do you account for the innumerable reports of ruthless monopolizing practices lodged against you both?
I suppose it will never be true that the man who fails for any reason to succeed can ever come, as a general proposition, to feel entirely happy in the success of another who competed with him. Poor human nature is weak.
You were the richest man of your age and also one of the century’s great philanthropists. You founded the University of Chicago, which despite your conservative views became one of the most progressive universities in the country before the First World War. Your gifts revolutionized medical research and education. You were the main support for one of the most respected black colleges after the Civil War, Spelman Seminary. What advice would you give Mr. Gates and other very wealthy people in the late 20th century?
In these matters each man must bear his own responsibility. Mere talking about what a man is going to do tomorrow does not meet the obligation. How much it is to be regretted that so many men are doing this continually while wasting this period of their lives, to waken too late to their lost opportunity! The opportunities come to every man for doing good with his means and using his gifts to make things better in the world. My counsel to every young man would be to begin to give as soon as he begins to get. In this way I have had great happiness.
Even though many of the institutions you funded were more liberal politically than you?
My brother William used to scold me. How he used to scold me! “You are getting together a lot of scribblers, a crowd of socialists who won’t do any good,” he used to say to me.
Yet certainly some of the capitalists were also up to no good?
We must differentiate between capitalists, many of whom have inherited the money, many of whom have been instructed in false ideals and use the money in harmful ways. This I have observed, and it has caused me much apprehension. On the other hand, I recommend the capitalist who is prudent, thrifty, and farseeing, who stores up his wealth, but does not lock the doors of the great chest where his wealth is kept; does not lock the doors, because he is feeling fellowship for his fellow man.
What is the secret to becoming rich?
Some men get money as misers; some men accumulate it with a real desire to do good with it. I was attentive. I loved my work. I saved money. It was easy for me.
Will the oil supply hold out for another century?
The intelligent investor can never dismiss a good degree of anxiety indeed. We record with gratitude the experiences up to date, and the old and sanguine oilmen will hope on and hope ever. But I advise them, myself included, not to spend the money until they have it in hand.
What would you say to the Microsoft executives today, who are facing such a storm of criticism? Is there any wisdom you can offer from your experience of building the Standard Oil Company?
The little people, the unsuccessful, jealous people, were unhappy because they did not understand.
Come, let us go to breakfast.
Wired, Issue 7.04, April 1999