In the fall of 1933, when Tom Watson Jr. started at Brown, the damage from the Depression was impossible to miss. He found the college “rundown,” with some students visibly “undernourished.” But the arrival of Franklin D. Roosevelt in the White House that same year heralded massive changes for a desperate nation—and IBM. While governor of New York, FDR had cultivated good relations with the head of a company keeping four thousand New Yorkers employed. During his campaign, Roosevelt met with Watson several times to discuss how his intended policies might affect employers. The new president personally invited T.J. to his inauguration.
Representing the Merchants’ Association of New York as its president, T.J. visited FDR for the first time at the White House in the summer. The influential organization wanted to lobby for slowing up or halting the wage and production controls the president and Congress were planning to impose. But at their meeting, Roosevelt quickly disabused T.J. of the notion that limited action would save the foundering country. Watson was convinced that the president’s call for dramatic, “pioneering” action was the course needed for the country to exit its dire condition. “People realized,” T.J. said the following year, “they were listening to a man who had a new idea. And a man who was not afraid to stand before them and say, ‘This is the truth as I see it,’ regardless of precedent—because precedent had proved itself to be wrong.”1 He came to believe, he would remark often, according to Tom, “The average businessman’s opinion of what is right for the country is almost always wrong.”2 T.J. joined the president’s new Business Advisory Council.3
After that, the T.J.-FDR relationship deepened. Letters went back and forth between them. Watson met with the president several times over the next decade, and he and Jeannette spent the night at the White House at least twice. They also visited Roosevelt’s family home in Hyde Park, New York, and felt comfortable enough about their welcome to arrive unannounced when they happened to be at the IBM Poughkeepsie plant nearby. Perhaps the relationship was somewhat one-sided: Watson wrote FDR long letters about taxation, the national debt, and international trade and tariffs, and offered suggestions for ways to improve the economy. The president responded with short notes thanking Watson, sometimes telling him that he liked an idea and would see that it got implemented.4 The former sewing-machine peddler from rural New York State was proud enough of his association with the immensely popular president that he kept a few of FDR’s letters to him in his pocket to show around.
But their relations were mutually beneficial. As a rare New Dealer among corporate executives, Watson became an ambassador of sorts to the business community. At a 1933 talk to employees at IBM headquarters, T.J. explained his view that businesses, as a result of New Deal legislation, “will not be able to profit as much for the benefit of the few.” But he expected the coming era would make it possible for IBM “to pay everybody more money—and I am looking for that in every industry. I believe it is coming.”5 His son would, in turn, become a conduit between the business community and the Democratic administrations during the 1960s and 1970s.
The president eventually wanted T.J. Watson to join his administration. In the mid-1930s, he asked him to become his next secretary of commerce, then considered one of the more prominent cabinet posts, and later offered him the ambassadorship to the United Kingdom, which Joseph P. Kennedy accepted after Watson refused. He was wedded to IBM and would not leave his “family.” (His son would be offered the same cabinet post by later Democratic presidents, which he also refused, though he did become President Jimmy Carter’s ambassador to the Soviet Union.) Instead of joining the administration, T.J. readily accepted FDR’s requests that he welcome various visiting foreign leaders and royals arriving in New York City. Watson hosted numerous dignitaries on the president’s behalf while they were in New York City, often throwing lavish parties at IBM’s expense, outlays which he felt could only burnish the company’s global reputation. “I handle ’em in Washington,” FDR once said, “and Tom handles ’em in New York.”6
T.J. worked in support of the New Deal and Roosevelt despite the fact that early in the new administration, for the second time in his business career, Watson ran afoul of the Justice Department’s antitrust lawyers. This time, the government sued IBM for allowing its clients only to lease, not buy outright, tabulator machines and requiring customers to use IBM punch cards exclusively, which it sold—three billion a year—at a highly profitable fixed price. With IBM in control of about 85 percent of the tabulator market in the United States and 100 percent of the punch cards for its machines, it lost in the lower courts. IBM appealed the decision all the way to the Supreme Court, where it lost in 1936. As part of the settlement, the company agreed to permit tabulator rival Remington Rand to manufacture and sell punch cards that worked in IBM machines.
T.J. Watson viewed the Supreme Court decision as an unfair punishment of a company for its success. Since his first brush with antitrust enforcement at the Cash, he harbored what his son described as an “irrational hatred of the Department of Justice.” But despite being unable to sway FDR to intervene in the IBM case, T.J. remained devoted to the president, even acting as an informal advisor to his reelection campaign that same year.7
Despite not seeing much of his father during his college years, Tom recalled that his political viewpoint “rubbed off” on him. He began “to develop,” he wrote, “a sense of social justice,” noticing the abject poverty of many of his countrymen, even as he continued his sybaritic ways.8 He, too, became a strong proponent of the president, the New Deal, and its social programs, being the lone member of his fraternity to argue in favor of FDR at a debate during the 1936 campaign. In the future, he would emerge, like his father, as an executive committed to the notion that businesses, as he told a business school audience in 1963, “must… assign a higher order of priority to the national interest in our business decisions.” Father and son would share in the belief that a business leader could “pay attention to public needs… and still be successful.”9
T.J.’s seemingly fantastically optimistic forecasts at the start of the 1930s proved, if anything, not rosy enough for IBM’s fortunes as the decade continued. His personal connections with FDR did not hurt, but it was the creation of the New Deal social welfare and economic programs that set a relatively small, mixed-portfolio manufacturing firm on a path toward becoming a business machine juggernaut. By the mid-1930s, IBM tabulators could add, subtract, and multiply; operators printed reports and schedules, checks, tickets, and other documents; and the “thinking machines” punched cards and sorted them by column, alphabet, or number, speeding completion of many laborious business tasks, census surveys, and scientific calculations. Banks, insurance companies, and railroads made use of IBM tabulation systems, as they were described, across their business divisions (and also quickly adopted IBM’s newly launched Model 01 Electric Typewriter, the first successful electric desktop typewriter). But it was the New Deal’s legislation, such as the 1933 National Industrial Recovery Act, which needed economic data to coordinate industry-wide actions, that initially lifted demand for IBM tabulators. And then the Social Security Act of 1935 made IBM’s tabulating machines indispensable for federal government agencies and a vastly larger array of businesses.
Social Security required that all employers track and report hours and wages to submit to the Social Security Administration (SSA). Tracking twenty-six million employees’ data promised to be one of the, if not the, largest accounting challenges ever. The agency in turn calculated payments and sent that information on punch cards to the Treasury Department for its use in mailing checks to qualified retirees. In addition, various other government branches were actively experimenting with a wide range of interventions in the economy, again necessitating more and more tabulators and punch cards to track the results.
Through the mid-1930s, T.J. Watson acted as if IBM were already a major corporation on a strong growth path—despite having annual revenues equal to about half a percent of General Motors’. In 1936, he moved the company into a sparkling new Manhattan headquarters building, a hundred-thousand-square-foot, twenty-story tower at 590 Madison Avenue. Unlike competitors such as Remington Rand, he had also kept IBM’s factories not just running but growing, increasing manufacturing capacity by a third while adding 20 percent more employees and paying factory workers wages 50 percent above the depressed national average (using cash reserves to keep paying them when revenues slowed through 1934).10 Thus, when Social Security debuted, only IBM could meet the sudden, immense appetite for tabulating machines. IBM won the SSA tabulator contract. Before Social Security, Watson’s optimism and investing in expectation of the coming business recovery seemed foolish, perhaps bordering on madness. Now, it was genius.
In 1937, IBM installed four hundred accounting machines and more than twelve hundred keypunch machines inside the new agency.11 Companies providing information to the SSA opted for compatible systems, leading to a huge surge in demand. IBM keypunch machines became a standard office tool in industries that previously relied on clerks and ledger books. IBM’s patented punch cards flew out and went from department to department. Tabulating systems were big and heavy and expensive to lease. Many divisions of larger businesses centralized their tabulating functions in facilities crowded with keypunch operations that were known as “IBM rooms.” (These would, in the 1950s, become the model—in some cases at the same sites—for the new data-processing centers where IBM installed its early computers.)
IBM’s revenues went from $19 million in 1934 to $25 million in 1936 and to $31 million the following year. In the last year of the decade, the company brought in $38 million (more than $700 million today). Profits went from $7 million in 1935 to $9 million in 1939. While still a small- to mid-sized industrial company, thanks to tabulator leases IBM grew swiftly into a substantial concern. With IBM training for keypunch and system operators provided to client companies and fast repairs and replacement of machines that broke down, IBM’s service culture became part of the core of its sales pitch. And once established as an IBM customer, few businesses could reverse course without great cost and disruption. Most added more machines as they grew, leading to sales of billions of the high-margin punch cards.
That success paid for employee benefits that outpaced virtually any company in the land. In January 1935, Watson abolished the piecework system by which workers were paid for what they produced and placed all employees on an hourly wage, a tremendous boon for factory personnel who could now rely upon a salary. Two years later, the company added paid holidays and vacations for all employees, as well as life, accident, and family hospitalization insurance. T.J. also emphasized education to advance workers and retraining to promote employees from within company ranks. Finally, in 1936, IBM announced an unprecedented, company-wide no-layoff policy, which would continue for more than half a century.12
These benefits and policies were immensely expensive. In part, T.J.’s largesse was a way to stave off unionization efforts underway at other industrial firms, which FDR’s New Deal policies encouraged. But T.J. also argued to wary board members and shareholders that rising profits proved the generous employee benefits paid off. Highly compensated workers remained proud and loyal members of the company; they wanted to make better products, he explained, and that was key to long-term business success: “A defective part,” he declared, “is too damaging to our business to take any chances.”13
With his 5 percent profit-share deal dating back to 1914, T.J. Watson personally profited immensely from the boom—to some critics excessively so. In 1935, for the first time the newly formed Securities and Exchange Commission publicly reported incomes over $15,000 for the previous year. With his contracted profit share, T.J. Watson’s whopping $365,358 total (about $7 million today)—$264,432 came from his share of profits—stood at number one on the income list, ahead of bank, oil, automotive, movie studio, and steel moguls at the head of companies many times IBM’s size. His stupendous income made national news.14 At $1,000 a day in a time when per capita income averaged less than $500 a year, his earnings exceeded the lifetime dreams of most Americans. While corporate executive pay today far outpaces Watson’s during his times, his income thrust him into the front-page news, with a 1935 New York Times headline calling “T.J. Watson an Optimist on $1,000-a-Day Income.”15
The following year, in response to the spotlight on his pay, T.J. asked the board to lower his percentage, leading his bonus to decline and reducing his overall income to $303,813. He still remained the highest-paid industrialist in the land.16 Finally debt-free, he was, said his son, on “easy street.” To Jeannette’s relief, they could now afford her husband’s excesses. Behind the scenes, flooded with requests from distant relatives and old acquaintances, some of whom he barely remembered, he kept many families from starving.
Thanks to IBM’s Depression-beating success, T.J. became a celebrity. He was in constant demand as a public speaker, which he enjoyed (unlike his son). Primarily due to census and other nations’ social welfare programs, IBM expanded around the globe. The company added or expanded plants and sales offices at its subsidiaries in Europe, North and South America, as well as the Middle East, Africa, and China. By the end of 1939, IBM was doing business in seventy-one countries, with its American, T.J. Watson–centric corporate culture replicated around the world.17 A friend of presidents and kings, T.J. now regarded himself as a global business statesman for a company “serving the whole world.”
Since he was head of the American branch of the International Chamber of Commerce, his overseas trips always included meetings with foreign leaders. Despite mounting tensions and military conflicts in Europe and Asia, IBM did business across the borders of even the most contentious lands. The United States remained firmly neutral in its dealings with the increasingly belligerent nations, as did the “internationalist” Watson. He coined a motto that expressed his outlook, “World Peace Through World Trade,” and uttered it at every opportunity. In 1937, he had it posted in massive letters across the facade of the new 590 Madison headquarters tower.18 He called upon his people to “help develop the same spirit of wholehearted cooperation among nations that we have developed in our own organization.”19 Already trotting the globe for IBM, he now spent several months each year overseas combining IBM business with his self-appointed role as an ambassador between business and governments.20
Offered the presidency of the ICC in 1937, Watson accepted the platform for boosting his brand of American business gospel as a means for promoting peace in the world. He traveled to Berlin in June to preside over the ICC’s annual congress at the start of his two-year term. That visit to the capital city of Adolf Hitler’s Germany would have negative, and embarrassing, consequences for him—and raise continuing questions about IBM’s possible complicity in the Holocaust—only a few years later.
As T.J. promoted his swelling empire, Tom had few concerns except enjoyment of life at Brown. He did not know exactly how rich he was because the accountants hid the size of his trust fund from him, but he received a princely $300 allowance each month. Plus, his father invariably handed him an extra hundred when they saw each other. Tom spent every nickel.21 Although he took note of the poverty around him, he was among a group of students for whom it seemed that the 1920s had never ended. His generous allowance and famously highest-paid-man-in-the-land for a father helped draw “lots of girls” to him. Prohibition was repealed, he again tried marijuana, and he joined a hard-partying fraternity, Psi Upsilon.22 He went “carousing and staying out late with every girl in town,” he recalled, even before breaking up with Isabel.23
After a night of particularly heavy drinking with friends at a country club in Scranton, Pennsylvania, during school vacation shortly before New Year’s 1935 and his twenty-first birthday, he suffered what he called “a crisis of conscience.” He thought about his father’s abstinence and its sobering effect on his IBM employees. He came home, where he felt compelled to confess his excesses to his father. T.J. thanked his son for coming to him. But despite feeling guilty, Tom continued to “go out night after night with pretty girls, dancing and having some drinks.” But following several such days in a row, he would sober up, again feeling his father’s influence, “like the keel of a boat, pulling me back upright.” In a heavy-drinking era and among a crowd of friends living the high life, he gradually learned to pass on drinks before going overboard. He started, he said, “trying to live better.”24 His father wrote to him on his twenty-third birthday, “I appreciate your character and clean life more and more each year.”25
But his academics continued to suffer. His dreadful first semester report card earned him an invitation to see Samuel Arnold, dean of undergraduates.26 Arnold scolded the freshman about his poor marks and threatened him with flunking out. He urged Tom, “You’ve got to do better.” But he ignored the warnings. After the first semester of his junior year, he came perilously close to getting thrown out. But each semester brought a return invitation from the jovial, benign Arnold, and each time came the same warning with a wink. Arnold occasionally wrote to Tom’s father to keep him aware of his son’s performance. After noting Tom’s success in getting a B grade in history, the senior Watson seemed genuinely pleased: “This is good work and I am proud to know you are living up to my high expectations of you.”27
In any case, his classes at Brown failed to excite him. He majored in geology, which offered enough lightweight courses for him to pass.28 But his grades remained terrible. Tom Jr. seemed a slacker or simply a dullard. But Benjamin Wood, the Columbia University researcher and Watson family friend, insisted he was bright. “Tom,” he said, “could easily have gotten A-plus(es) if he’d wanted to. He saw that most of the courses were irrelevant to him.… He did well enough in economics and in whatever he was interested in.”29 But Tom’s poor academic performance and partying left him feeling adrift and insecure.
In one extracurricular field, he did discover a true passion that would last a lifetime. In the fall of his freshman year, he took his first formal flying lessons, soloed exceptionally fast, and got his pilot’s license, “fulfill[ing] my great dream.” Here was something, he recalled, “I was good at… instantly good.” Flying immediately became a daily focus like nothing he had known previously. After that, he “plowed everything I could, mentally, physically, and financially, into that mad pursuit.” He found his piloting abilities brought him newfound “self-confidence,” he wrote. He flew in rented airplanes to Block Island, Nantucket—even helping with a fly-in relief effort there following a severe cold snap that froze the harbor—and anywhere else he could reach around New England. After Isabel ended things, in August 1935 he flew across the country and back. In the spring of 1936, he bought his first airplane, a Fairchild 24, a four-seat, single-engine monoplane. The wealthy scion was reportedly the only student at Brown to own a car, a motorcycle, and an airplane. He wanted to fly any type of aircraft “I could get my hands on,” fifteen in all just during college.30
His love of flight at Brown terrified his mother, who regularly urged him to stop—pointing out that his Short Hills flying pal, Mahlon Kemmerer, now a businessman, had given up flying rather than continue to “risk his life.”31 But Tom Jr.’s parents never went so far as refusing to cover his hefty flying bills. That summer of 1936, he flew cross-country again, to Los Angeles to watch an air race. At the start of his senior year, still at risk of flunking out, he considered simply dropping out, with visions of opening an aerial photography business. Under heavy pressure from his parents, he decided to complete his degree.32
On the ground, he remained a mainly rudderless, hard-partying playboy. That life left him discontented and feeling like he had not earned and perhaps could never earn the place his father had made for him. He was named for a father whose influence brought—and bought—all he had. He skidded through the final term. Brown, likely due to Dean Arnold’s intervention, granted him his degree.33 His father and mother could not attend his 1937 graduation ceremony; they were bound for England, where King George VI would receive them at court, an honor T.J. would treasure perhaps above all the many others in his lifetime.34 Watson and Jeannette would continue from there to Berlin for his installation as the new ICC president. With his parents and other family members absent when he received his diploma, Tom looked to the beaming Arnold for support. Tom had not accomplished anything of note in the classroom or as part of a campus organization, but he left grateful to Brown for keeping his life from going completely off the rails. His attachment to Brown would make the university the focus of most of his nonprofit governance activities and 90 percent of his giving throughout the rest of his life. He would honor Arnold with a fellowship in his name, funding for graduating students to broaden their horizons, with no other obligation.35
After graduation, Tom quickly drove from Providence to the Connecticut countryside, where he represented the family at Dick’s graduation from Hotchkiss boarding school. Confident, witty, a better athlete than Tom, and like his big brother tall and handsome, Dick was bound for Yale to begin college in the fall.36 Although not a brilliant student, Dick displayed more academic ability than Tom, particularly in languages, eventually learning to speak four foreign tongues. He rowed for the university’s vaunted crew team. Dick did get into his own trouble at school, nearly getting tossed from Hotchkiss for his antics. Unlike his brother, Dick was socially at ease, charming, and, in the face of his father’s abuse, did not blow up in anger. He did all he could to ingratiate himself to his imperious father and eagerly sought out work at IBM when old enough, even working a factory job in Endicott during his Yale College summers.37 Dick’s future at their father’s company looked bright.
As for Tom, he assessed his prospects after Brown: his unmoored life and “poor performance at school made it hard,” he reflected, “for me to see what I was going to amount to.”38 He had no idea what he wanted to do—outside of flying as much as possible—but understood that without the discipline of a job, he would bumble through life, living off his trust fund, amounting to little except being the son of America’s highest-paid man. The surest path to a job lay through his father, and his father wrote him, upon graduation, that he wanted nothing more than “to have somebody in my life upon whom I can look with confidence and to counsel with.”39 His resistance to going to work for his father at IBM crumbled; he asked for a job. T.J. Watson immediately arranged for his son to start as a sales trainee in October.
Before then, an unexpected short-term job offer landed in his lap. Out of the blue, Herbert Houston, a business friend of Tom’s father, asked him to serve as his secretary while he traveled around the world selling pavilion space for the 1939–1940 New York World’s Fair, for which the senior Watson served as co-chair.40 With Brown behind him, Tom jumped at the chance to make his way “absolutely on my own.” He wanted “to prove myself the world’s best secretary.” Although he had been through much of Europe several times already in the company of his parents, he knew next to nothing about world affairs. Many of the countries they would visit were building up their military (like Hitler’s Germany), brutalizing their people (such as Germany and the Soviet Union under Josef Stalin), or already fighting wars (including China and Japan).41 The eyes of the cosseted twenty-three-year-old would open to new, often harsh political realities and the effects of war.
He met up with Houston in Berlin, where his father and mother had already arrived for the ICC Congress. From there he and Houston traveled to the Soviet Union. While in Moscow, he met with the United States Embassy’s second secretary, George Kennan. Tom was predisposed to believe that the Russians might have found a system to alleviate the ills of Depression-era capitalism. But the thirty-three-year-old Kennan quickly dissuaded him. In the course of a long diplomatic career, Kennan would go on to help craft American Cold War containment policy toward the Soviet Union. He and Watson would remain lifelong friends. At the embassy, Kennan described to the young Watson Communism’s failures, the repression of the Russian people, and the Soviet ideological and expansionist threat to the West. Tom explored Moscow. He spoke as freely as he could with Russians willing to talk in English with him. While taking the trans-Siberian railroad, he stepped off at every opportunity to visit the trackside towns. His curiosity grew as he went, so too did the pleasure he took in shopping for local products and trinkets. He appreciated the enduring spirit in the face of a harsh life of the people he met. He would return for extended stays in the Soviet Union within a few years under very different circumstances—and again decades later.
But he told his father in a letter he sent from Moscow, “Russia was a terrible place.” He received a swift and stern rebuke back. Although the US government had recognized the USSR only in 1933, IBM did business with Moscow; the CEO worried about his son’s mouthing off in public (or under government surveillance), potentially harming that valuable relationship. But there was more to his attitude. Although the Soviets were not ICC members, the president of the ICC was expected to deal with all nations in a neutral way, and T.J. admonished his son “that every country is in a position to figure out what is best for its own people. It is not our duty to either criticize or advise them in these matters.”42 But the IBM CEO’s unwillingness to criticize dangerously rapacious foreign dictators would leave a dark spot on his legacy.
After visiting Japan for their World’s Fair business, Tom went off with a friend on a side trip to Beijing. Japan’s army was sweeping through China, and from the city he could see artillery flashes at the front in the far distance. “Instead of being scared,” he recalled, “I was excited.” He drove out of town and entered areas under Japanese control. The “overpowering” stench of death filled the air as he passed by recent battlefields. Foolishly, he stopped at a Japanese military airfield to shoot photographs of the bombers flying in and out. A sentry’s machine gun aimed at him put a stop to that. He realized for the first time that being an American did not afford him “total protection.”43 Later, when he reached the Korean border, he at first refused the guards’ demand for a bribe. Their bayonets pointed at his stomach led him to open his wallet. Thanks to his father he also met several dignitaries while en route, including Ginjirō Fujiwara, a Japanese industrialist, politician, and advisor to the wartime Japanese prime minister Hideki Tojo, and Soong Mei-ling, the powerful wife of China’s leader Chiang Kai-shek. He began to learn how to handle himself around foreign leaders.
Earlier that year, while still at Brown, Tom had joined an organization to support American neutrality in foreign wars “unless our territory was invaded,” he wrote decades later.44 In this, he stood with the majority of Americans who were fearful of the rise of nationalist military extremists in Europe and Japan but opposed US involvement. Even President Roosevelt signed laws proscribing the sending of American troops outside the Western Hemisphere or the shipment of American-made arms to belligerent nations, even allies. Tom would remain a liberal opposed to most US military activity overseas throughout his life. But seeing the Japanese forces violently overtaking and brutalizing China pained him. He left the war-stricken land wishing the United States had come to China’s defense. And two years later, ahead of US entry into the war, he joined the armed forces to prepare to fight.
The worldwide trip proved so fascinating that he wanted to continue on to India. But his father quickly put a stop to that notion. He scolded him, “Your own judgment will tell you to return… as planned. Do not handicap your future or disappoint me.”45 He traveled home after eight weeks on the road that he described as “among the most confused of my life.”
Much of that confusion stemmed from his having learned from his boss Houston while in Moscow that, once again, he owed everything to his father. The offer of the job had filled him with pride at standing on his own two feet—“my personal Independence Day,” he declared it—but, in reality, his father had arranged it all. He secretly told Houston to hire his son and covered Tom’s salary and expenses out of his own pocket. “I felt as though [my father] had deceived me,” Tom Jr. recalled. Feeling angry and embarrassed, he said, “I would never have taken the job if I had known that my father had created it.”
The news delivered yet another “terrible blow to my pride.” Here he was “fooling around on Dad’s money, just as I had done for four years at Brown.”46 A pattern had established itself: his father would open doors for him and he would walk through them, resenting that he had not accomplished this on his own. He would ever after battle to demonstrate he could truly declare his independence, even while being the namesake of the great man at IBM.