For parts I, II, III, and IV, see "Henry J. Kaiser, Entrepreneur", "Henry J. Kaiser, The War Years", "Henry J. Kaiser, Industrialist", and "Henry J. Kaiser, Hawaiian Booster"
Henry Kaiser created an empire worth tens of billions of dollars and
earned a personal fortune of $2.5 billion. Yet he is almost forgotten
today. On his death, he divided his fortune between his second wife,
Ale, and the Henry J. Kaiser Family Foundation, which was created to
support the Kaiser medical program. His son, Edgar, received nothing
because he was “otherwise cared for.”
Edgar replaced his father as chairman of the various Kaiser companies.
But his personal investments in these companies was small, which may be
why he was unable to keep the companies going. Edgar probably had a net
worth of about $50 million, which is insignificant compared with Henry’s
worth.
Neither Ale nor the foundation had any particular interest in the future
of Hawaii, the West Coast, or Kaiser Industries. After Kaiser’s
funeral, Ale returned to Hawaii for only two very brief visits. Nor did
she spend much time in California, instead moving to Greece. She sold
all of the properties she shared with Henry. The foundation no doubt
wanted to diversify its portfolio and also sold its interest in Kaiser
Industries.
When Henry Ford died, control of his company was firmly held by his
children and grandchildren. If Henry Kaiser had left a similar
arrangement, Kaiser Industries might still exist today. Instead, lacking
the strong rudder of an owner-entrepreneur, the companies faded away.
Kaiser Industries sold Willys Motors to American Motors (AMC) for about
$70 million in 1970. AMC successfully revived the Jeep brand, showing
what Kaiser could have done if it had taken the time to understand the
auto industry a little better. In 1987, Chrysler bought AMC, mainly to
get the Jeep brand, for $1.1 billion, nearly six times (after adjusting
for inflation) what AMC paid for Jeep.
Kaiser Steel was sold off, plundered by corporate raiders, and went
bankrupt in 1987. The Fontana steel mill is now an auto race track.
Kaiser Aluminum still exists, though as a shadow of its former self, as
do Kaiser Cement and a company called Kaiser Engineering. No member of
the Kaiser family has an interest or involvement in any of these
companies.
The Kaiser Permanente health system still exists with facilities in
California, Colorado, DC, Georgia, Hawaii, Maryland, Ohio, Oregon,
Virginia, and Washington. Kaiser is the model for other HMOs all over
the world, especially non-profit HMOs. Most people think this is Henry
J.’s biggest legacy and memorial.
Mark Foster’s 1989 biography of Henry Kaiser uses terms like “can-do
capitalist” and “frontier entrepreneur” to describe his subject. This is
the conventional view.
An alternative view is presented by Stephen Adams, whose book, Mr.
Kaiser Goes to Washington, calls Kaiser a “government entrepreneur.” The
implication is that Kaiser used his lobbying skills to become an
insider able to gain favors from government not available to more
traditional entrepreneurs. The interpretation of one Amazon reviewer is
that Adams’ book “exposes Kaiser as a sociopath, war profiteer, and
con-man.”
That’s an extreme reading of Adams’ thesis, but even Adams’ more gentle
view is unfair to Kaiser. Except during the war, Kaiser only once asked
the government for any projects or favors other than the ordinary
permits that anyone would need. Most of Kaiser’s contracts before the
war were with the government, but they were all initiated by the
government; Kaiser was merely a bidder. During the war Kaiser made a
variety of suggestions, such as the cargo planes and escort carriers,
but it was everyone’s patriotic duty to do what the could to win the war
faster.
After the war, Kaiser benefitted from the government’s below-cost
disposal of aluminum plants. But, again, it was the government that
initiated such disposals, and in any case, no one else (except perhaps
Alcoa, which was forbidden to bid) was willing to bid on the plants that
Kaiser ended up buying.
The only special favor Kaiser ever requested was for a discount on the
loan the federal government made for his Fontana steel mill. In Kaiser’s
eyes, this was only fair since the government sold its Geneva, Utah
steel mill to U.S. Steel for 20 percent of its value. In any case,
Kaiser didn’t get the discount, suggesting he really didn’t have much
influence over the government.
Entrepreneurs want to build businesses. In an environment where
government is a major customer, entrepreneurs will do business with the
government. If Kaiser’s business differed from, say, nineteenth century
entrepreneurs, it was because the government was different, not because
he was a different kind of entrepreneur.
Yet in other important respects, Kaiser was different from the
stereotypical capitalist. He had a deep sense of honor and fairness in
dealings with other people. When forming partnerships with others, his
lawyers often suggested that he should get 51 percent to his partner’s
49 percent. “You can’t have a partnership based on a 51-49
relationship,” he said, and made them 50-50.
When his auto company was failing, one of his associates noticed him
brooding and asked why. “I received a letter from a railroad conductor
telling me he had invested his retirement savings into Kaiser Motors,”
he said. “He didn’t ask for anything, just expressed confidence that I
would make it a success. I can’t let people like that down.” So he, in
essence, gave up close to $200 million of his own shares in Kaiser
Aluminum and other companies to repay Kaiser Motors’ debts and make its
shareholders whole.
Kaiser’s attitude toward labor was also surprising for an industrial
leader. In 1965, the AFL-CIO gave Kaiser its Murray-Green Humanitarian
Award, the first industrialist to be so honored.
Kaiser could be generous with his partners, stockholders, and employees
because he was an owner, not a manager like the people running, for
example, other steel companies. As an owner, he could give up value to
partners and employees, while a business manager obligated to maximize
shareholder value could not. Nor could a manager legally take value from
one company and give it to the stockholders in another, as Kaiser did
for Kaiser Motors (though it must be emphasized that the value he took
came from his own shares, not other Kaiser industry shareholders).
Still, just because he could be generous doesn’t insure that he would be
generous. Kaiser may have been altruistic, but he may have also
realized that treating people with fairness was an important way to
motivate them. Perhaps not every entrepreneur understands this, but it
is likely that the most successful ones do.
Kaiser wasn’t a saint. A workaholic, he expected his executives to be
workaholics as well. He often berated them for things that were beyond
their control, sometimes “firing” (and usually later rehiring) them over
insignificant issues. He couldn’t work with his partner in
Kaiser-Fraser Motors, Joseph Fraser, and ended up having to buy him out.
Still, Kaiser’s generosity and sense of fairness greatly outweighed
these defects. Kaiser will long be remembered through his health care
system. He should be equally remembered as one of the greatest
entrepreneurs of the twentieth century.
Randal O'Toole wrote this piece for The Anti Planner published by The
Thoreau Institute, a non-profit organization that seeks ways to protect
the environment without big government. The Institute has prepared
comprehensive analyses of the Forest Service, Park Service, Bureau of
Land Management, more than 150 state land and resource agencies, dozens
of transit systems, and more than a dozen metropolitan planning
organizations.
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