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Henry J. Kaiser, Entrepreneur
Part 1 of 4
By Randal O'Toole, 11/7/2008 8:54:14 AM

In the Antiplanner’s not-so-humble opinion, Fortune magazine made a mistake in declaring Henry Ford to be the businessman of the twentieth century. True, Henry Ford made a lot of cars. But Henry Kaiser built roads, dams, houses, hotels, ships, and planes. He made cement, steel, magnesium, aluminum, and a variety of other chemicals and building materials. He funded and built the first and still the greatest health maintenance organization in the world.

Plus, he also made cars. Chances are, you see a car made by one of his former companies just about every time you go out on the street.

To show that Kaiser was the epitome of an entrepreneur, I’ll present Kaiser’s story in four segments: through 1939, the war years, the post-war years, and Kaiser’s Hawaii ventures, with a wrap-up segment about his legacy.

Born in upstate New York in 1882, Kaiser quit school at age 13 to work in a dry goods store. By the time he was 17, he was working as a traveling salesman. Among the things he sold were photographic supplies and among the places he traveled to was Lake Placid, NY.

He liked Lake Placid so much that, when he was 20, he approached a Lake Placid photographer and offered to work for him for free. The catch was that, if Kaiser could double the man’s business, they would share the profits 50-50. Within a year, Kaiser had tripled the business, and the photographer ended up selling it to him.

For a few years, Kaiser was content to run a summer photo business in Lake Placid and a winter photo business in Florida. He apparently was something of a playboy, enjoying swimming, boating, and the company of pretty girls.

When he was 24, he was immediately smitten when a 20-year-old woman named Bess Fosburgh entered his studio for a portrait. Within a few weeks the two were engaged. Bess’ father, however, disapproved of Kaiser’s peripatetic lifestyle, and made the strange demands that Kaiser move west to establish himself in a new business earning at least $125 a month and that he build a house.

So Kaiser traveled west and ended up in Spokane, where he went back to work as a salesman in a hardware store. Many of his customers were building contractors, and he quickly learned their business and soon went to work in that field. In less than a year he earned enough to build a large house, so he returned to the East Coast and married Bess.

Back in Spokane, Kaiser held a series of jobs until 1912, when the company he worked for suddenly went out of business even though it had a contract to pave streets in Victoria, BC. So he started his own company that finished the Victoria paving and worked on paving contracts all over the Northwest.

Kaiser gained a reputation for hard work, audacity, and finishing his jobs well before the deadlines. His audacity showed one day when his foreman told him that they didn’t have enough money to make payroll. “How much do we have?” he asked. “$600.” So he took the $600, went to a car dealer and made a down payment on a brand new Lincoln. He then parked the Lincoln outside the office window of a bank president and entered the bank to ask for a $10,000 loan. The banker eyed the car and gave him the money. “Now we can make payroll,” he told his foreman.

In 1920, one of his employees happened to be in Redding, CA, and heard that the state of California was opening bids for paving contracts. Deciding to place a bid, Kaiser got on the fastest train south only to find that the train didn’t stop at Redding. So he waited for the train to slow down, opened the door and jumped off. He ruined his suit, but got the job.

In 1979 a company called Panarizon issued a Story of America series of cards. This card available on ebay features Henry Kaiser grandstanding in front of Hoover Dam.

Moving to Oakland, Kaiser built roads and small dams in the California mountains. In 1927, he won a contract to build 200 miles of road in Cuba, which he fulfilled a year ahead of time and which earned him $20 million. However, he also learned that officials in foreign countries often expected bribes. Kaiser absolutely refused to pay bribes and for many years after avoided foreign projects because he did not want to deal with such corruption.

Kaiser’s work earned the respect of many of his competitors, including Warren Bechtel, founder of what is now the largest construction company in the world. In 1931, Kaiser, Bechtel, and several other companies joined to form the “Six Companies” that won the contract to build Hoover Dam.

Kaiser’s crew supplied the sand and gravel, and Kaiser himself chaired the Six Companies’ executive committee “in recognition of his ability to get people to work together.” He also served as the Companies’ liaison to the Washington, DC, bureaucracy. During the 1930s, the Six Companies built Hoover, Bonneville, and Grand Coulee dams, three of the largest construction projects in the history of the world. They also worked on many other projects including the San Francisco Bay Bridge and the Caldecott Tunnels between Oakland and Contra Costa County.

Grand Coulee Dam is one of the largest dams in the world.

As an employer, even when he was a contractor, Kaiser tried to treat his employees as partners. So he was intrigued in 1938 when a young medical doctor named Sidney Garfield proposed a new system of preventative health care. Kaiser and the Six Companies were building the massive Grand Coulee Dam, which required thousands of workers to live in a place with virtually no medical facilities.

On previous construction projects, Garfield had learned that a system of prepaid medical care would encourage patients to visit their doctors before their sicknesses became serious. The result was that they could often be treated at a much lower cost than if they waited until the disease was more debilitating. Garfield proposed the system to Kaiser. While Garfield only saw the system as a way of providing care to workers on short-term construction projects, Kaiser immediately saw that it would revolutionize health care in America.

Sidney Garfield and Henry Kaiser plan some of the Kaiser Permanente clinics and hospitals.

From then on, most of Kaiser’s workers and their families were eligible for this care. While Garfield had invented the HMO, it was Kaiser who made it possible and who created a Kaiser network of hospitals and clinics.

In 1938, the Six Companies were disappointed to lose the bid for building Shasta Dam to another group of contractors. Kaiser, however, quickly won the subcontract to provide sand, gravel, and concrete to the dam builders.

Kaiser happened to own a gravel mine about 10 miles from the site of Shasta Dam. When the Southern Pacific Railroad quoted him a price of 27 cents a ton for moving gravel to the dam, he build a 10-mile conveyer belt that moved the gravel for just 18 cents a ton.

Kaiser also happened to own a limestone quarry on Permanente Creek near San Jose. At the time, a California cement cartel kept prices high. A firm believer in the benefits of competition, Kaiser broke the cartel. He had a cement kiln in operation well before the Shasta Dam needed it, so Kaiser started selling cement to contractors throughout California.

Kaiser later said that Shasta Dam “was the best contract we ever lost.” Up to then, he had been a contractor, with just a handful of permanent employees. Getting into the cement business, however, turned him into an industrialist, with first hundreds, later thousands, and — during the war — hundreds of thousands of full-time employees.

One of the major buyers of Kaiser cement was the U.S. Navy. Since it had the port at Pearl Harbor, Kaiser began shipping bulk cement to Hawaii. Thus, he had a large supply on hand when it was needed to repair airfields after the Japanese attack in 1941. Soon, Permanente was supplying cement to army and navy bases throughout the entire south Pacific.

Though profitable, cement turned out to be only a minor part of Kaiser’s contribution to the war. The war changed Kaiser’s public image from a California contractor into an American hero whose international renown was almost as great as Henry Ford’s.

Randal O'Toole is a senior fellow at the Cato Institute and author of the new book The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future.

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