4   IBM AND THE GREAT DEPRESSION

We have all the things necessary for greater success.

—THOMAS J. WATSON, 1931¹

THE GREAT DEPRESSION was a scary time around the world. In the United States, IBMers going to work in Manhattan walked past large crowds of unemployed men waiting in “soup lines.” Just four years into the economic crisis, the economy had shrunk by half of 1929’s, with 16 million unemployed people having few prospects of finding work. Americans and Europeans entertained radical political ideas; even socialism wafted in the air in the United States. Fascism—a relative of socialism—was already a fact in Europe. Stock values had dropped by 80 percent. The strain intensified in the first half of the 1930s. In the United States, divorces increased, people lost their homes, the great Dust Bowl disrupted the lives of over 2 million families, young men hit the road, but most aggravating was the sense that the Depression would never end. The nation’s problems dragged on until the end of the decade. A child born in 1927 would be 12 years old before he or she experienced a time when poverty was not a way of life. An unemployed teacher in Texas caught the mood just right for millions when she sighed, “If, with all the advantages I’ve had, I can’t make a living, I’m just no good, I guess.”²

Against that somber background, IBMers had to survive, too, to take care of their families. Many remembered that IBM laid off employees during the recession of 1920–1921. Would the same president of the company who reigned then do the same now when there was a larger economic crisis? Would enough business come in to keep the company going? In a sales culture where shame and risk of a career ruined was sure to follow someone who could not make their quota, what was one to do? Customers were firing their workers. If failure was inevitable, why exert oneself for the Greater IBM? Here was IBM’s president running around saying everything was going to be fine, that “the sun never sets on IBM products. We are serving the whole world.” Newspapers carried articles about how much he made as president—more than any other American—and he was being decorated with medals and wearing fancy suits and top hats to meetings of the International Chamber of Commerce. The problem, of course, was that IBMers took to heart “THINK” and wondered how long they could stare at those signs before the hammer came down on them.

But IBMers also had access to a secret weapon that most did not know about: a corporate culture resilient enough to help them along, everyone from Watson to the newest employee on the shop floor. Great business leaders understand the power of “can do” and, to quote another CEO facing a crisis of confidence and potential failure at IBM six decades later, Louis V. Gerstner Jr., IBMers had “mo-men-tum”—momentum. But all of IBM’s CEOs and executives relied on similar thinking to such an extent that we can consider that attitude part of IBM’s values. Watson hammered on a similar point, cementing it permanently into the company: “If we do not take advantage of our opportunity, it is our own fault.”³ That struck at the soul of IBM’s culture. Historians describe Watson’s aphorisms with some derision, attributing them to some egotistical behavior. Perhaps they are right; nonetheless, he had a real problem on his hands. IBM’s stock was declining in value by double digits; early in the Depression, sales were dropping, too. In some countries, the Depression was less severe, such as Germany, where IBM was opening new sales offices. Watson had to cheer the troops on, to give them reason to use their skills and resources. The option of giving up was not a good one for any IBMer, let alone their customers. Watson had no choice but to speak in the language of the day to motivate his employees relentlessly, every day, worldwide.⁴ IBM had to fight back. It worked. Add in some spectacular luck, and that is how IBM navigated through the Great Depression.

The Great Depression represented IBM’s first massive existential threat that could have crushed the company. Thousands of other firms failed in the 1930s, although larger enterprises fared better than smaller ones. The threat to IBM came in two forms: economic and political/legal. Global trade and national economies shrank, which translated into lower demand for IBM’s goods and services. Political and regulatory problems escalated. As economic stresses exacerbated, political tensions complicated IBM’s relations with government agencies in Europe and in the United States. Governments were both customers and regulators. If chapter 3 focused on what IBM did internally to expand its business, being more in charge of its destiny than responding to the economy in the 1920s, during the 1930s IBM responded to circumstances largely out of its control. Watson was not yet done creating the company he wanted, so he pushed forward, driven by his optimism that the Depression would soon end. A major proactive strategy he pursued involved expanding business outside of the United States. Employees turned over every rock that they could find worldwide, looking for business. This chapter describes IBM’s activities in the 1930s. What emerges is a picture of a company that refused to seek cover while the storm of the Depression blew over it; it fought back. By the end of the decade, IBM had survived, indeed thrived, but then faced a world where the Great Depression had been replaced with a greater calamity: World War II.

HOW IBM DEALT WITH THE GREAT DEPRESSION

It is rare to find specific events that so change circumstances. The assassination of President Abraham Lincoln in April 1865 led the North to turn harshly on the Confederacy, the Japanese attack on Pearl Harbor in December 1941 brought the United States into World War II the next day, and the 9/11 attack in 2001, which ushered in a war against Islamic extremists and embroiled the United States in conflicts from Kabul to Iraq, come to mind. But one event that qualified for a nearly similar level of change occurred in October 1929, when the U.S. stock market sold off shares, diminishing private fortunes and the equity of many small investors to the tune of some $30 billion, which was followed by the onset of the global Great Depression. Economies on both sides of the Atlantic did not recover for a long time: the United States did not recover until it engaged in World War II. Europe went directly from depression into such a destructive world war that it did not achieve economic prosperity again until the early 1950s. It was not uncommon for U.S. corporations to see sales collapse or, if they were lucky, only shrink by a third or more. The world’s economy shrank to what it had been in 1913. IBM was not immune to the shock.

Back in 1929, during the greatest boom year of the decade, IBM was having another good year. IBM stock could be had in 1927 for $54 a share; in the fall of 1929, it topped $240 the month before the Crash—important to keep in mind, because IBM’s executives were heavily invested in the company’s stock, often having purchased it on margin. In November, less than two months later, IBM stock traded at $129 a share. The nation had gotten hooked on investing in stocks, from the wealthiest folks to those working in the mailroom; it seemed everyone was involved, and that was part of the problem. With the value of stocks rising so fast, people borrowed money to buy more shares, so when the market collapsed they had to pay for those they bought “on margin” or lose them. Many individuals went bankrupt. IBM was still making money, but the old-fashioned way, by generating business and profits in that first nine months of 1929. That year, IBM had six factories working full-time in North America and Europe.

The crisis had started a tad earlier when on Thursday, October 24, investors began selling in the belief that stocks were overvalued. The run quickly became irrational. Although the market temporarily calmed down over the next two days, the following week it headed down again. Disaster struck on Tuesday, October 29, in New York, when a great panic broke out, as it seemed “everyone” wanted to sell stocks. By the end of the day, people had traded over 16.4 million shares. That number traded in one day would not be matched again until 1968. Tens of billions of dollars in value evaporated that day. IBM’s stock sank, too, and within days it had lost half its value. Meanwhile, Watson and his senior executives were on their way to Endicott by train for a meeting that day and did not learn about the catastrophe until they arrived. Most of the nation learned the magnitude of the financial disaster from their newspapers the next day.

Instead of panicking, Watson assured everyone and the local press that the economy was sound and that businesses would survive. He was speaking out of the experience IBM had been enjoying all year of expanding business and, of course, from his natural optimism. But, as with so many other executives across America and Europe, he got it wrong. The world had changed overnight. For the next three weeks, Watson was forced to spend a great deal of time assuring his executives whose IBM stock had shrunk in value not to panic. He loaned some of them money to cover debts they had incurred investing. Everyone worried, from executives, to factory workers, to salesmen and customers.

At a staff meeting on November 18, Watson acknowledged that business would slow but that IBMers had to persevere in finding ways to grow the business. He ordered sales to sell to companies one would not have thought needed IBM’s equipment and to expand sales in Europe, Latin America, and Asia. He did not want to wait for the economy to turn around. He wanted IBMers to take action now. He instructed engineering to come up with new products and instructed manufacturing to hold down costs and increase productivity. Watson called on finance to work with sales to collect outstanding receipts from slow-paying customers. Every part of the company was going to have to chip in to overcome the crisis; being scared or fighting each other was not going to be tolerated. Watson declared, “The thing upon which we must rely is the organization. That is the biggest asset of the IBM. As members of the organization, we are all stronger men in this business today than ever before and better prepared to take care of the future of IBM.”⁵ He returned to his optimistic view: “The IBM spirit is one of ever looking ahead. Our goal is a bigger and better IBM.”⁶ “Ever Onward,” the name of IBM’s anthem, entered the company’s lexicon for a generation.

Watson believed what he said in the face of a rapidly deteriorating business climate and took actions in support of his optimism. It worked. IBM came out of the Great Depression a stronger, wealthier, nearly iconic company. Watson’s only misstep was perhaps being more optimistic than circumstances warranted. Many of his employees thought he was too optimistic, that he believed in his own hubris.

There were some business realities Watson and his employees could not ignore. It is important to understand these larger business issues, because Watson’s response proved fortuitous in hindsight, propelling the company closer to its near-legendary status. Getting these right provided strategic insights for the next generation of managers, who led IBM into the computer business. If one sat in Watson’s chair at the end of 1929, or during 1930–1931, a vision and a plan for dealing with unfolding problems were good to have, even if the company almost went out of business as it committed almost too much to the vision and the plan. Only careful modulation of how resources were deployed, notably cash and people, and perhaps the greatest piece of dumb luck ever to fall into the lap of a company, saved IBM from shrinking back to a small niche firm.

IBM’s customers and the economies of the United States and Europe continued to deteriorate rapidly. The U.S. economy shrank by 8 percent in 1930 and by another 7 percent the following year. Hundreds of thousands of people were initially laid off, eventually 12 million; some 3,000 banks failed. Trade worldwide shrank, resulting in IBM’s manufacturing customers laying off more people, closing plants, and initially returning some equipment. Firms in banking and insurance wanted to delay acquiring more tabulators or time clocks. By the end of 1930, demand for all manner of office appliances had shrunk by 50 percent, and it kept dropping. IBM’s revenue peaked in 1931, at $20.3 million, driven by a relentless push by the sales organization to uncover every possible piece of business. However, IBM’s business shrank in 1932 and 1933, with the firm reporting revenue of $17.6 million for 1932. Watson paid his salesmen a salary to hold onto as many of them as possible, although hiring by branch offices essentially stopped.

Company mythology holds that Watson single-handedly made the decision to keep running the entire business—sales, R&D, factories—in anticipation of an upturn in demand, and he filled up warehouses with new machines to be ready for it. The historical record shows that indeed this is what he did. Although it was a bet on the future, it was not so risky. IBM had cash reserves to fund payroll and manufacturing, and while demand dipped, it proved less than that experienced by such competitors as Burroughs, NCR, and Remington Rand. The Depression did not end quickly, however. This one just kept lingering. While historians of IBM’s early history made it appear that Watson was unique in expanding production, which he was within the office appliance industry, other firms in other industries invested in the future, a finding Mira Wilkins pointed out as early as 1970.⁷ Technological innovations proceeded in many industries, too, so IBM was not unique in its actions. Watson and his executives were talking to peers in other industries, picking up lessons along the way.

Then IBM got a break—the greatest one in its history. It began with the election of Franklin D. Roosevelt and his Democratic Party, ushering in the sweeping reforms of the New Deal in 1933. Elected to fix the job market and to end the Depression, the Roosevelt administration moved rapidly to increase the engagement of the federal government in the nation’s economy. Initially, it sought to cut supplies of manufactured goods and agricultural production to stabilize prices. It established new agencies to improve labor conditions and farm productivity, protect banks from closing, and block wild stock speculation. Many of the laws and agencies needed to carry out its program were created in the first 100 days of the administration, during spring and early summer of 1933. In hindsight, we know that the depressed economy lingered until the start of World War II.

Roosevelt’s initiatives rescued IBM in two ways. First, his agencies needed more information to determine how best to improve the economy. They experimented with new public policies that also needed to be measured for results. Second, these activities caused businesses to collect more data either to respond to the government (e.g., Social Security, other labor reporting) or because the economy in their industry was recovering. Both developments were only partially anticipated by IBM’s management and sales organization. True, Watson was almost alone in his optimism. Although he had argued early on to prepare for the surge in demand that would come when the Depression ended, as the hard times continued, getting ready was rapidly depleting his cash reserves, causing board members to wonder if he should be replaced with someone prepared to cut expenses, as it seemed everyone else was doing. His competitors were doing that, and their CEOs were asking Watson why he was not doing so as well.

The problems his critics saw were visible. Between 1929 and the end of 1932, Watson increased IBM’s manufacturing capacity by a third. Cash reserves could only carry IBM to the end of 1933; then it would have to slash production and other expenses. As the months ticked by, the company’s senior management team urged a pullback, even though disagreeing with Watson required courage because IBMers were reluctant to cross him.

Sales stalled in 1933 and 1934—not shrinking but slowing—meaning money from leases still came in, making it possible to manage cash flows. The value of IBM’s stock fell back to levels not seen since the last recession, in 1921. Watson kept arguing that the good times would return soon. Meanwhile, he continued to do some hiring, although his executives thought he hired too much, to build up manufacturing capacity and to expand in different markets and geographies. In 1930, IBM had 6,346 employees; it ended 1934 with 7,613, an increase of some 20 percent. Recall that to ease things a bit, in 1934 Watson sold the scales division to Hobart Manufacturing, although a year earlier he had acquired the Electromatic Typewriter Company. These moves involving hiring workers, expanding production, and purchasing a company were actions normally done in boom times, not during a depression. Watson seemed headed for failure, and he came close to disaster as his cash on hand and credit options diminished. Nevertheless, 1935 was also the year he launched Think magazine, aimed at employees and customers, as a slick, high-end, expensive trade publication, publishing articles by famous authors and personalities. That is when the great miracle occurred, the most essential piece of good fortune in IBM’s history.

Experienced sales professionals argue that lucky breaks are usually earned, because of prior relations that had been built, a deep understanding of what a customer needed (or wanted), and salesmen who were present as an opportunity surfaced so they could seize it with knowledge and good timing. In short, good things did not happen by accident. For IBM, the lucky part was President Roosevelt being elected and implementing the New Deal, which launched a more activist involvement by officials in the nation’s economy. Crucially for IBM, the New Deal led to massive increases in the use of information, and the company knew how to respond to that circumstance.

On August 14, 1935, President Roosevelt signed the Social Security Act, creating a national insurance program for the aged, a pension program that eventually expanded to include an economic social safety net for other groups, such as orphans and widows. But the initial legislation, similar to programs already in existence in parts of Europe, called on employers and employees to contribute a portion of all employees’ salaries to a fund maintained by the U.S. government to pay recipients. When an individual reached retirement age, they would qualify for a pension. In the mid-1930s, the central requirement relevant to IBM was that the law mandated that employers track the hours, wages, and dollars paid to the Social Security Administration (SSA) for the vast majority of private sector employees in the United States. This data had to be sent to the SSA, which in turn calculated payments and then transmitted the information to the U.S. Treasury Department, which then sent monthly checks to qualified recipients. These actions involved thousands of businesses and millions of individuals.

Congress stipulated that the SSA set up and start running rapidly, as its funds had to be distributed as part of the larger campaign to stimulate the economy and to deal with a dire financial crisis among the elderly. The government set up the new agency between the summer of 1935 and the following spring, opening up hundreds of field offices all over the nation. The SSA developed the concept of social security numbers issued to every individual. By April 1937, over 25 million people had a social security number. Several million more did by the end of the decade. The SSA put out bids for office equipment to handle all the necessary processing.

What clearly was now the largest accounting project in the history of the nation was up for grabs. To make a long story short, IBM won the business to provide the necessary equipment for three reasons. First, as was normal IBM practice, IBMers worked with the SSA to design a system for how the agency could use IBM’s products. IBM engineers included proposed changes in the machines wanted by the SSA, quickly implementing desired modifications so there was a system that SSA and IBM believed would work, and it did. Second, IBM priced its proposal competitively, since cost was a criterion for selecting the winning bid.

Third, and most important as it turned out, was IBM’s ability to respond quickly in providing equipment. Remember all those machines Watson was storing in anticipation of a rebound in the economy? This was it for IBM. IBM could also make more machines, parts, and cards (figure 4.1), because it had fully staffed manufacturing organizations, unlike those vendors that had trimmed their sails. IBM was ready to go. In addition to SSA’s needs were those of all the companies that had to collect information for the SSA. They, too, needed punch cards, sorters, and tabulators. IBM proved successful in supplying the SSA and so many other businesses, which in turn led other federal agencies to sign on with IBM to process their information needs. IBM had proven it could successfully handle very large projects.

Figure 4.1

The U.S. government became a massive user of IBM punch cards beginning in the 1930s in support of the Social Security Act. Photo courtesy of IBM Corporate Archives.

It is difficult to exaggerate the importance of the Social Security win to the evolution of IBM. That one piece of business, along with its effects on other agencies and businesses, wiped out the Great Depression for IBM. That transaction handed IBM a potential market of 20,000 other companies that would need to process social security data. When the books were closed on IBM’s business in 1937, revenue had increased by 48 percent over 1935’s, and by the end of 1939, by 81 percent over 1935’s.⁸ In 1935, with minimal impact from the law but with some business coming in from the federal government, IBM’s revenue climbed by $2 million over 1934’s, to $21 million from all sources, not just the U.S. government. The first big revenue year for the SSA project was 1936, when IBM generated $25 million in total revenue. The following year, IBM brought in $31 million. By 1937, the SSA had installed more than 400 IBM accounting machines and over 1,200 keypunch machines. Other agencies even discarded their equipment from NCR, Burroughs, Remington Rand, and others to become IBM-compatible, so the effect on IBM’s balance sheet was immediately measurable and permanent.

Historians and IBMers traditionally explain the Social Security win as a single dramatic event, even though that agency only accounted for approximately 2 percent of IBM’s revenue.⁹ As a single event, its importance would clearly have been exaggerated, particularly inside IBM, but it is best understood as a catalyst. Within several years, its success stimulated such significant increases in IBM’s revenues from other U.S. government agencies that these agencies contributed approximately 10 percent of the company’s total. But recall that meeting the reporting requirements of the SSA led other U.S. companies to acquire IBM’s equipment, so when the SSA project is considered in its totality—SSA, government sales, private sector conformance to SSA reporting—that original order and the ongoing project as a whole was one of the most significant chapters in IBM’s history. Most IBM sales offices in the United States felt the consequences, and many hundreds of IBM employees personally did, too. Most observers of IBM’s history concluded that this win and others related to it gave IBM dominance over the data processing business in the United States until the 1980s.¹⁰ No other company in the office appliance industry so dominated its market for as long as IBM did. If Watson wanted to build a greater company than Patterson at NCR, he now had done so.

To get an even greater sense of his victory, look at the profits, as they were greater than the percentage increase in revenue growth. By 1939, IBM was harvesting nearly 25 percent in profits out of its rapidly increasing revenue. That year, IBM’s profits amounted to $9.1 million on $39.5 million in revenue, whereas the profits of its top three rivals—Burroughs, NCR, and Remington Rand—combined totaled only $7.6 million. Remington Rand produced more revenue ($43.4 million versus IBM’s $39.5 million), but that included sales of office furniture.¹¹

Watson had no idea how successful IBM’s recovery would be. Neither did Congress or the SSA understand what a burdensome effort they imposed on corporate America, let alone the government. But Watson needs to be given credit for being ready across all fronts for an economic revival: he had a sales organization in place in both Washington, D.C., and around the country, a fully operating manufacturing organization with skilled workers and the components they needed, and an adequate supply of modern data processing products that could be shipped in days to the SSA. That agency located its operations in Baltimore, where it could find enough space quickly enough in an old Coca-Cola facility (the Candler Building). IBM trucks could roll in from Endicott, a trip that took less than a day door-to-door.¹² Kevin Maney, a leading biographer of Watson, cleverly, but accurately, summed up Watson’s role: “Watson borrowed a common recipe for stunning success: one part madness, one part luck, and one part hard work to be ready when luck kicked in.”¹³

We need to probe deeper into the “hard work” piece of this story, because, without it, all the luck in the world would not have been of any use, as IBM’s rivals learned to their regret. Not until the massive information demands of World War II, which even highly successful IBM could not meet by itself, did other rivals regain momentum and prosperity.

RELATIONS WITH GOVERNMENTS AND THE CREATION OF A CORPORATE IMAGE

During the 1920s, Watson established relations with senior U.S. and European political leaders to expand IBM’s presence and prestige. By the end of the decade, he had met and communicated with U.S. presidents, including Herbert Hoover, a staunch advocate of fact-based decision making since serving as U.S. Secretary of Commerce in the early 1920s. In the 1930s, Watson expanded IBM’s worldwide contacts with public officials. He and his executives were quick to endorse activities of the Roosevelt administration, breaking from many other business-oriented Republicans, who viewed Democrats with suspicion. Watson made it a personal mission to cultivate Roosevelt, which he had begun to do when FDR was governor of New York, because IBM had more employees in New York State than anywhere else in the world. He continued that initiative in Washington, D.C. Watson communicated frequently with Roosevelt, thinking of himself as an influential member of the president’s inner circle, which was an inflated view of his own importance. But he supported FDR in speeches, defending the New Deal in business circles, particularly in the New York City area, and within IBM.

For example, when the president announced an employee redeployment program in July 1933, Watson fired off a telegram to the White House: “International Business Machines Corporation endorses your program and has taken steps to put it into effect. Congratulations on your splendid address.”¹⁴ In a speech to employees on September 7, 1933, Watson praised the administration’s National Recovery Act (NRA) program, stating, “I have been interested in keeping our people employed” and “we were reaching a point in the affairs of this nation where something different had to be done.” He added, “The National Recovery Act, to me, is one of the fairest and squarest propositions that has ever been presented, because it not only takes care of employees, but it also looks after stockholders.”¹⁵ And so it went through the 1930s. In the 1920s, Watson had promoted free trade and commerce worldwide, too. U.S. presidents appreciated his support, as he had cultivated a visible profile by the late 1920s. He used his growing celebrity to defend public policies. His ties to Roosevelt were the most intimate he had with any U.S. president, flowering at a time when FDR was being criticized by many CEOs, such as Henry Ford. At one point, President Roosevelt wrote to Watson, “You go back and tell them [business executives] that I have to think about millions of people, that my concern is to take care of them and if I am successful, I’ll automatically take care of the rest of you.”¹⁶

Despite his support for the New Deal, often more out of idealism than for business reasons, and winning the Social Security contract, IBM’s dealings with the federal government were seriously troubled. Patent issues in combination with growing market share created difficult relations with the U.S. Department of Justice, while at the same time IBM was selling increasing amounts of its products to federal agencies and Watson was cultivating the White House. Such problems had dogged IBM from its earliest days and continued almost to the end of the twentieth century. Though often overlooked in earlier histories of IBM, the events of the 1930s were not lost on the company’s senior leadership, beginning with Thomas Watson Sr. but later also by his son Tom Jr. in the 1950s and then again by the same son when he faced antitrust litigation near the end of his term as CEO in the early 1970s.

IBM’s patent problems originated when Hollerith obtained patents for his tabulating equipment in the 1880s. When James Powers started making his own machines in 1914 in his own firm, the Powers Accounting Machine Company needed to license some of Hollerith’s patents now owned by C-T-R. Just before Watson arrived at C-T-R, the firm had agreed to license them but also fixed minimum prices James Powers could charge his customers and limited what technologies he could use. This agreement violated the Sherman Antitrust Act of 1890 and the Clayton Act of 1914. C-T-R also had insisted on harsh terms, forcing James Powers to fork over 20 percent of all his revenue. Over the years, the U.S. Department of Justice had observed that C-T-R, then IBM, dominated the punch card business.

The terms with Powers Accounting were renegotiated in 1922 and again in 1931 with Remington Rand (which now owned Powers Accounting). This last time they cross-licensed each other’s patents and settled various disputes over fees. In 1932, the Justice Department filed suits against both IBM and Remington Rand, accusing them of restraining commerce through this patent pool. The government’s lawyers challenged the practice by both firms of leasing, never allowing purchase of machines; of forcing users to buy only their cards; and refusing to sell cards to anyone who did not use their machines. The U.S. Government Printing Office (GPO) had earlier concluded that it could have saved considerable sums if it had been allowed to manufacture cards without paying IBM a fee. The case was litigated between 1935 and 1937.

Here was a case where, as one historian put it, the government was the “prosecutor, litigant, and customer.”¹⁷ It had to defend the antitrust laws yet simultaneously leased machines and consumed millions of cards each year. The case reflected the multifaceted relations IBM had with national governments. Such contacts demonstrated that national governments consisted of ecosystems comprised of multiple agencies and departments often working at mixed purposes. As a result, IBM faced conflicting tensions—litigation and, simultaneously, close political and business relations. Remington Rand faced a similar set of circumstances but immediately agreed to a settlement to get the case behind it. Watson had to decide what to do about the charges that he was operating a cartel and restricting trade in the sale of cards. As part of the discovery process, IBM turned over to the Justice Department a large body of records. They showed that IBM, and C-T-R before it, was a rough player in the marketplace, aggressive in wanting to dominate sales of its equipment and in constraining competition. Watson was a secretive person and therefore disliked letting out that kind of information.

He had cause to worry, because IBM dominated 80 percent of the market, and any change to IBM’s terms and conditions posed a potentially huge loss of revenue to the company. It took years for government lawyers to see the unfolding IBM dominance and the role Remington Rand played, too, especially as the federal government became increasingly dependent on their technologies. The government was forced to pay a fee for cards produced by the GPO, irritating to officials concerned with rising costs for hundreds of millions of cards at a time when tax revenues were declining because of the Great Depression. The GPO had been pushing for litigation since the late 1920s, so it was a long-festering issue.

Federal prosecutors maintained that IBM prevented its customers from acquiring products from other possible suppliers, especially cards. The discovery information obtained from IBM demonstrated that profits from card sales were huge and that the company did not tolerate competition. In 1936, the U.S. Supreme Court sided with the Justice Department on the issue of card sales. It noted that IBM had intended “to prevent competition and to create a monopoly in the production and sale of tabulating cards,” recording that IBM made 3 million cards annually, “81 percent of the total,” and that IBM collected 10 percent of its revenue from card sales. The justices concluded that this behavior “tends to create monopoly, and has in fact been an important and effective step in the creation of monopoly.”¹⁸ The U.S. Supreme Court ordered IBM to stop prohibiting its customers from using non-IBM cards. Meanwhile, Remington Rand and IBM nullified their patent cross-licensing agreements, thereby eliminating the first of the two charges against them. IBM lowered the cost of its cards to the government, while no competitors came forward to sell similar ones.

By the time the Supreme Court rendered its decision, IBM was well on its way to selling vast quantities of cards. It continued to dominate both the tabulating machine and card markets. While the lawsuit had no appreciable effect on IBM’s business, as sales continued to grow from federal and commercial users in the United States, it was Watson’s second bout with the Justice Department, the first having been his conviction back in the NCR days. Every time the U.S. Department of Justice raised a concern with IBM’s behavior, Watson’s stubborn streak showed. He would not give in lightly to lawyers and judges. Disturbing to him was a fundamental disagreement with the government that never went away: if a company became big enough to dominate a market, thanks to being a successful business, it should not become subject to antitrust litigation. That the government pursued other firms in a similar situation, such as Standard Oil, American Tobacco, and DuPont, made no difference to Watson and his executives. To Watson, it was just wrong.

Patent protections did not play a role in this trial, making it possible for IBM to continue collecting and protecting its patents. The one cloudy issue in patent litigation was the original Hollerith-Powers agreement of 1914, which had become the basis for the government’s accusation that both firms had formed a cartel. Watson and his executives remained mum about the case, a sign that they had been nervous about the lawsuits and settlements. They turned their attention to getting business and promoting the greater IBM. IBM linked relations with officials to what it did with the press, increasingly recognizing that both constituencies affected one another.

Watson & Company had made it a point to engage with the press all through the 1920s and 1930s, having the IBM president’s speeches reported on hundreds of times each year and putting out press releases. Slowly during the 1920s and increasingly in the 1930s, both the business community in the United States and the public came to learn more about this successful company and its celebrity CEO. They had already learned that he was the best-paid executive during the Great Depression, making more than any other famous person, including movie stars. The company was successful, and many people knew that fact. The Great Depression did not press down IBM. As IBM went from one success to another, Watson the man and Watson the company fused into one. He was IBM. Biographers spoke of his expanding ego as his sense of self-importance grew, but for him it was all about promoting “The IBM Company,” of constantly pushing his employees and the world to make greater use of data processing and increasingly to embrace his idea of World Peace through World Trade.

The economic boosterism of the period was not unique to Watson, just exaggerated in his case. As president of the International Chamber of Commerce in 1937, he found an even larger platform to promote trade and, in the process, IBM. He had the logo “World Peace through World Trade” painted on the side of IBM’s new corporate headquarters in midtown Manhattan.

IBM AND THE 1939 WORLD’S FAIR

Nothing seemed to capture Watson’s growing sense of the importance of both himself and IBM more than the World’s Fair in New York City held at the end of the decade (figure 4.2). Of the more than a dozen such fairs held in the United States during Watson’s lifetime, this was the most extravagant. Major corporations built pavilions the size of a square city block. Every exhibitor hawked the future. General Motors installed an elevated pathway to guide visitors through its vision of the future urban America. RCA installed television sets—something Americans saw for the first time. A kitchen filled with new appliances gave families something to dream about, including dishwashers and robots. Life was going to be fantastic. The Great Depression had been beaten. Pavilions built by nations promoted peace while Adolf Hitler occupied Czechoslovakia.

Figure 4.2

The IBM exhibit at the New York World’s Fair, 1939–1940. Photo courtesy of IBM Corporate Archives.

Watson quickly signed on to help with the fair, donating money and then renting space in a pavilion, even though IBM was still a relatively small company compared to some of the behemoths that were its customers. He convinced the organizers to declare an IBM Day two years in a row to promote his company as if it were as large and important as GM, Ford, or RCA. May 4, 1939, was the first IBM Day, set on the twenty-fifth anniversary to the day when Watson showed up to work at C-T-R. IBM took out a full-page advertisement in the New York Times. Watson invited 4,000 guests to IBM Day, which included IBMers, executives, customers, luminaries, and political figures. Seventeen mounted riders led a parade up to the building, along with the IBM band and a car with Watson in it. Inside the pavilion, Watson had IBM’s products on exhibit. On the walls hung paintings from the 79 countries where IBM had a presence. Pomp, ceremony, and speechmaking fit his style. Watson delivered a message of economic success and world peace at a time when the clouds of war were rolling over Europe and Asia.¹⁹ In the heat of the moment, he reminded his thousands of guests that IBM’s future accomplishments would exceed those of the previous 25 years, arguing that IBM was not so much a business “as a great world institution.”²⁰ The IBM staff gave him a portrait of himself to celebrate his quarter century with the company.

The next year on IBM Day, May 13, 1940, events unfolded differently but also provided a window into the culture and practices of the company. Watson had invited thousands of IBMers and their spouses to the fair; some ten thousand committed to arriving from all over the United States, Canada, and even a few from other countries, the Americans largely on 12 trains chartered for that purpose. As in the previous year, his staff launched a media campaign to let Americans learn about the ten thousand showing up. It cost IBM just over 10 percent of its annual profits to fund this event. The day before the event, IBM offices and factories in the United States closed as employees and families headed off to New York. It all seemed so exciting. While rounding a curve at Port Jervis, New York, the fourth IBM train crashed into the third IBM train. Some 400 people suffered cuts and bruises, 35 people required hospitalization, but nobody died. Watson soon received a phone call at his home about the accident, immediately rallied his family and executives to help, and ordered IBM’s media people to keep the story out of the newspapers. Soon enough, the press picked it up, but the point of this story is that Watson thought of his employees as an extension of his family. Kevin Maney, his leading biographer, captured Watson’s thinking: “Just as he expected unerring loyalty and extraordinary deeds, he reciprocated, giving his complete loyalty and nearly all of his energy.”²¹

Watson took charge of this crisis out of instinct. He arrived at Port Jervis, by which time the injured had been moved to nearby hospitals. He and his wife talked with IBMers at the site, while his secretary, Fred Nichol, in New York sent doctors to Port Jervis. Although he arrived home late that night, the next day Watson showed up at the World’s Fair for IBM Day. Four months later, the fair closed, a resounding success. Forty-four million people had visited the fair. IBM garnered a great deal of positive exposure, but the world had already plunged into global war. For IBM, its employees, and hundreds of millions of people around the world, World War II upended everything.

IBM GOING GLOBAL

One reason IBM thrived in the 1930s was because of its expanding global business. While Watson had taken steps in the 1920s to expand overseas operations, the urgency to do so increased in the 1930s. Not all countries were in the depth of a depression, notably Germany, which had an economy more suited to IBM products than many other countries did. The benefits enjoyed from the Social Security Act came late in the decade and were unanticipated by IBMers. Meanwhile, the company called for finding business all over the world. IBM’s non-U.S. and Canadian operations accounted for a third of the company’s revenue, or over $8 million in both 1938—the last full year of peace—and 1939, the first year of the world war in Europe. That expansion had started with little C-T-R as Watson came into the company, and it kept growing until World War II.

IBM’s foreign experience raises a number of practical questions relevant to any history of an international corporation. How does one expand an American company into so many different cultures? How did IBM’s employees implement their business culture elsewhere, or should they have? How does a multinational corporation handle the different national business and tax laws? Answers were not obvious in 1914, much more so by the early 1930s at IBM, and even more so to historians today. The New Deal themes discussed earlier applied to two-thirds of the company’s business and obviously to what went on in IBM’s headquarters in New York, but much of what occurred in the rest of the world, while linked to events in the United States, also had their own features. These non-U.S. themes attracted a great deal of attention at IBM.

For one thing, IBMers sought out business opportunities, which led Watson to travel frequently to Europe during the interwar years. In 1927, he told U.S. IBMers that every time he went to Europe he found “limitless possibilities, tremendous opportunities and a great future” for IBM.²² For another, he imposed the values and practices of the American company everywhere and upon meeting European IBMers “found them imbued with the same spirit which actuates the members of our organization over here,” or at least wishing to be.²³ That year, IBM’s products were in good use in Great Britain, and the firm had just opened factories in France and Germany, meaning that IBM had a local presence in Europe’s three most advanced economies. IBM operated in 54 countries, and it would expand into 25 more by the start of World War II. Watson and his executives hired agents in a new country and, as business expanded, established a local company with sales (branch) offices. The boards of directors of these firms were populated with influential local elites, and branches were staffed with citizens of the country, trained in the same way as Americans and equipped largely with the same products, leasing terms, and IBM’s corporate culture and procedures. Watson continuously visited his growing empire to reinforce IBM’s way of doing things and to inspect what was going on. IBM’s expansion into markets outside the United States mimicked many of the same practices of its large customers, which also extended their businesses outside their home U.S. market.

In 1933, Watson closed the C-T-R holding company and transferred the firms it owned to IBM, some now as divisions. That transfer involved the old Hollerith Tabulating Machine Company, the International Time Recording Company, Dayton Scale Company, International Scale Company, and the Ticketograph Company. Watson’s move was logical, as it made reporting lines and accounting easier to manage as the company expanded. Table 4.1 chronicles IBM’s expansion in the 1930s. Clearly the company was expanding rapidly, even in difficult times. Between 1930 and the end of 1939, IBM opened 32 facilities in North America, 22 in Europe, 8 in Latin America, 5 in the Middle East and Africa, and 5 in Asia, most as directly owned subsidiaries.

Table 4.1
Chronology of IBM’s global expansion, 1930s
1930		Opened a sales office in Lima, Peru
1930		Established a direct subsidiary in Rome, Italy
1931		Opened a sales office in Bogota, Colombia
1931		Opened a sales office in Manila, Philippines
1932		Started opening sales offices in various cities in France, having already been in Paris since 1919
1933		Established direct subsidiary in Austria, replacing agent Furth & Company
1930s		Established a direct subsidiary in Norway
1930s		Established a direct subsidiary in Yugoslavia, called Yugoslav Watson AG
1932		Established a direct subsidiary in Morocco
1933		Established a branch office in Shanghai, China; previously had an agent
1933		IBM and its German subsidiary begin opening sales offices and factories in various cities in Germany
1933		Established a direct subsidiary in Czechoslovakia; established card plant in 1935
1934		Established a direct subsidiary in Poland to replace the Block-Brun agency
1934		Established a branch office in Sao Paulo, Brazil
1935		Moved its European headquarters to Geneva, Switzerland
1935		Established a sales office in Bermuda
1935		Established an office in Goteborg, Sweden
1935		Opened a sales office in Ankara, Turkey
1935		Opened a sales office in Athens, Greece
1936		Expanded its French operations, which dated from 1919, by establishing Compagnie Electro-Comptable de France (CEC)
1936		Established a card printing plant in the Netherlands
1936		Opened a sales office in Calcutta, India
1937		Established a direct subsidiary in Yokohama, Japan, called Nihon Watson Tokei Kaikei Kikai (known also as Watson Japan), and a card plant
1938		Opened a sales office in Malmö, Sweden
1938		Established a sales office in Johannesburg, South Africa
1938		Established a direct subsidiary in Romania, the Compania Electrocontabila Watson
This list is not complete, as in many countries multiple offices were opened in the 1930s, such as in Great Britain, Germany, and France, while other obvious candidates had started operations in the 1920s, such as Mexico City in 1927. Operations had started even earlier in Brazil (1917) and Canada (1914). Source: IBM Corporate Archives, “Frequently Asked Questions,” April 10, 2007.

Looking back on the 1930s from the perspective of the early twenty-first century, we probably understand events better than Watson did. Fascism and the harsh brand of National Socialism (Nazis) were spreading over Europe in the 1920s and 1930s, the Japanese Empire was rapidly militarizing, and Adolf Hitler came to power with an agenda to fundamentally change the course of Europe’s destiny. One can ask, how much did Watson understand? In November 1933, the year Adolf Hitler became German Reich Chancellor and the Nazis came to power, Watson reported in IBM’s Business Machines that on his recent trip to Germany he found the German IBMers “intensely proud of the fact that for the first nine months of 1933 they were leading all countries of the world in percentage of quota, and are determined to keep their lead.” He had just opened a factory in Germany that would “contribute greatly to [IBM’s] future success there and throughout Central Europe.”²⁴ Had he not noticed the changes under way in Germany? If so, he did not share them in public. Over the next several years, several German branch offices opened.

When a national economy industrialized or formed large commercial enterprises and government agencies, these organizations became the kinds that could most benefit from IBM’s products. IBM would establish a presence by forming an alliance with a local agent. This approach worked reasonably well. One in particular, however, complicated life for IBM. Back in 1910, Willy Heidinger, a tough, strong-willed entrepreneur, had established a firm, Deutsche Hollerith Maschinen Gesellschaft mbH (better known as Dehomag), as an agent to sell Hollerith equipment in Germany. The Americans had a similar arrangement in Great Britain to sell punch card equipment through the British Tabulating Machine Company (known as BTM). The German firm sold all over Europe, whereas BTM sold only in Great Britain and the British Empire. By 1914, the Germans had 44 accounts, Powers no less than 4, while BTM probably had closer to 55 by the end of World War I. The German and British firms survived the war and thrived during the 1920s and 1930s, even investing in local R&D. After the war, Watson posted long-time Bundy Manufacturing employee Andrew Jennings to Paris to expand European operations. Jennings was an aggressive entrepreneur, quickly setting up operations all over Western Europe. Dehomag became the largest of this collection of companies and agencies, pursuing the kinds of customers C-T-R and IBM had in the United States: banks, railroads, large insurance companies, government agencies, and manufacturing firms. When business resumed after the Christmas holidays of 1924, BTM had 100 customers, while the Germans had a larger installed base of 115 tabulators and 100 sorters. Powers had fewer accounts.²⁵

However, the German relationship became problematic. In the early 1920s, Germany experienced horrible inflation that required people to use baskets full of paper currency to buy a loaf of bread. Dehomag at one point was unable to pay royalties to C-T-R, so Heidinger agreed to turn over half ownership of his company to Watson, who quickly expanded that to 90 percent ownership. The German had no choice but to settle for 10 percent ownership to wipe out his debt to C-T-R. Heidinger hated Watson for trapping him this way and never forgave him. The takeover was a logical move for Watson to make, albeit harshly done, as he consolidated control over his markets around the world. What he could not realize was that during the Nazi period he would face serious problems as a result of Heidinger still being at the helm of the German operation.

Watson, Jennings, and others never trusted Heidinger, who enjoyed legal and mental combat with customers and IBM as much as he thrived on business. In the process, Heidinger held back information from IBM’s auditors, one of whom called him “a very selfish man,”²⁶ but he ran the business well. The newly installed Nazi regime wanted to use punch card equipment to work with massive quantities of new data, which brought more business to the German subsidiary. Because of Heidinger’s success across Europe, Watson tolerated his rebellious behavior, something he never did with U.S. executives. When Germany went to war with the United States in 1941, Watson had a huge problem on his hands thanks to Dehomag’s success and close ties to the Third Reich, discussed further later.

Meanwhile, overall, European business grew and, like Watson, Jennings remained optimistic about the future. He opined, “The European business will exceed that done in the United States of America.”²⁷ The overall business for tabulating equipment was still small, however, generating income of $1.6 million in the peak year before the Great Depression, not a great deal when compared to IBM’s overall net income of $7 million.²⁸ In addition to the existing British, German, and French operations, IBM-owned operations opened in Finland, Norway, Belgium, Portugal, Yugoslavia, Poland, Hungary, Turkey, Bulgaria, Japan, Mexico, Brazil, and Argentina, among other markets.

IBM compelled its subsidiaries to sell and service the same products, with minor exceptions, largely to control costs. Manufacturing overseas for the European market depended on whether it was less expensive to do so, say in France, than in Endicott. Dehomag had manufacturing in Germany and outsourced manufacturing, too, making it possible for the firm to go from less than five hundred tabulating machine installations in 1930 to more than twice that many by the end of the decade.²⁹ European customers embraced these products for the same reasons as the Americans. By the start of World War II, IBM had become a global enterprise. Table 4.2 shows the breadth of IBM’s growth from 1914 through 1940, closing out the company’s prebehemoth phase.

Table 4.2
IBM’s growth, 1914–1940, select years (revenue in millions of dollars)
Year		Revenue		Number of employees
1914		4		1,346
1924		11		3,384
1934		19		7,613
1936		25		9,142
1938		34		11,046
1940		45		12,656
Source: Emerson W. Pugh, Building IBM: Shaping an Industry and Its Technology (Cambridge, MA: MIT Press, 1995), 322.

As the company improved its performance, Watson aspired to leverage this celebrity status to help IBM, but biographers also think he personally wanted to do more, perhaps out of ego. He hosted senior public officials and national leaders at IBM events and used his presidency of the positively regarded International Chamber of Commerce (ICC) as a platform to influence world events. Unfortunately in hindsight, Watson, after many years of membership in the ICC, was elected its president in 1937. He knew little about international politics when he became president, as global politics were turning ugly. Benito Mussolini was running Italy. Adolf Hitler was jailing dissidents and ethnic and religious minorities, and was beginning to implement plans for dominating Central Europe. Spain was in the midst of a bloody civil war, with Hitler supporting the Nationalists, and Josef Stalin, another dictator, the Republican side. Japan was in the midst of war, expanding its empire in Asia. The Great Depression still lingered.

Germany became a problem. The 1936 Olympics in Berlin introduced to the world a disturbing picture of a militarizing society. IBM and other U.S. firms, including such iconic companies as Standard Oil, Quaker Oil, three U.S. automotive companies (Chrysler, General Motors, and Ford), and General Electric, were selling to the Germans. Their CEOs knew each other and Watson; all were IBM’s customers. None wanted to pull out of Germany, since they believed Germany would dominate Europe, and so to pull out of that market was to walk away from much of Europe.³⁰ It is not certain whether Watson subscribed to this view, but he probably did, since U.S. CEOs shared similar views on many issues. In 1937, the ICC held its annual conference in Berlin, which Watson hosted as its president. While there, he met Hitler and accepted a medal from the Nazi regime for his international business leadership in the ICC. Watson believed he could talk Hitler and others out of reverting back to world war and achieve “world peace through world trade.” The Nazis hailed him as a business leader.

Watson was pleased with his German award, not yet realizing it would prove to be a mistake to have accepted it. He left Berlin to visit 11 other countries, touting his message of peace through trade. In 1937, Hitler’s most heinous activities had not yet started, although Americans and Western Europeans were already nervous about his intentions. Watson’s peers in other companies believed they could still do business with Germany. Four more years would pass before Germany declared war on the United States. Henry Ford received a more prestigious award than Watson’s from the Germans as late as July 1938, after Germany had annexed Austria, while earlier U.S. corporate executives had feted the German ambassador to the United States in New York with both Nazi German and U.S. flags on display. Watson began writing to the Germans, cautiously urging them not to persecute religious minorities, as doing that would hurt business. With the U.S. entry into World War II, it became obvious how naive Watson had been in his dealings with the Germans, an issue discussed further in chapter 5.

IBM AT THE END OF THE GREAT DEPRESSION

Many observers have written about how Watson became increasingly arrogant, overconfident in his ideas and actions, and in his own mind even essential to the world’s prosperity. This behavior helps to explain why his optimistic and relentless pressure on everyone around him made it possible for IBM to perform the way it did. One could not execute poorly—that was just not tolerated. Watson obsessed over this issue for decades. Almost every speech he gave spoke about personal commitment and proper execution. One example of that attitude regarding the work of his employees was how they ran an “IBM Family Dinner.”

Recall that Watson spent the majority of his working life on the road, visiting customers, employees, and political figures, giving speeches, receiving awards, and hosting an endless number of Family Dinners all over the world. Other than the train wreck on the way to the World’s Fair, one would be hard pressed to find any event in which he participated that was not run properly as planned; the IBM culture would not tolerate less. The poor branch manager in Nashville or Madrid who learned from headquarters that the “Old Man” and Jeanette, his wife, were coming to host a Family Dinner in two or three months had his work cut out for him. His career would be on the line. He would spend enormous amounts of time booking a hotel ballroom; negotiating terms and a menu for the meal; preparing, printing, and sending out formal invitations to every IBMer and spouse within a hundred or more miles; tracking R.S.V.P.s; arranging logistics to pick up the Watsons and their entourage of executives and staff at the train station; ensuring they had hotel rooms; and flooding everyone with accurate, up-to-date itineraries. There might be music to include in the evening’s events, never alcoholic beverages, and if an IBM glee club was to be used, it had better be well rehearsed. There were sales calls on the local mayor or governor and certainly on several presidents of the branch’s accounts, all carefully choreographed, with both sides properly briefed on issues and responses to questions. For the branch manager, such events demonstrated his managerial prowess and access to the senior executives of his accounts.

Now consider the hundreds of managers around the world doing the same thing for over 40 years. Their activities were so ubiquitous, so routine, that rarely did IBMers writing their memoirs mention them, yet they were obviously so important that invariably photographs of Family Dinners with them posing with Watson and his wife appeared in their publications. That style of staff work for Watson spilled over into how the company’s executives were handled. While they might seem like a waste of time and talent, these events taught young IBMers what completed staff work looked like and how certain events important in the company’s culture should be handled. It might be that in one’s long career at IBM they would attend only three or four Family Dinners, but each would have been prepared meticulously.

Field inspections by Watson also had a common feel to them, a tradition in managerial practice that is still in evidence at IBM. New York set the agenda and called for the event, but local IBMers were expected to pull it off flawlessly. That this behavior was well in place by the start of the 1930s adds evidence demonstrating that IBM’s corporate culture of THINK existed back then, hardwired into every corner of the company, even extending into organizations of its customers worldwide. By World War II, IBM had become well known and its CEO a celebrity, joining the likes of Henry Ford and Thomas Edison. The press kept IBM in front of the public more in the 1930s than in the 1920s and no longer buried on page 3, as had happened with the announcement of C-T-R’s formation in 1911. But did IBM’s image have a discernible impact on the world yet?

A salesman, and IBM’s management, would argue yes, because their customers were willing to spend millions of dollars leasing equipment and buying hundreds of millions of punch cards. Its image and the relevance of its products were central to the company’s success. Proof came during the Great Depression, when IBM’s customers did not return leased equipment as extensively as they did products from other vendors, although they used them less. IBMers worked to ensure that leases continued, although card sales declined. Revenue continued to arrive at a steady rate for accounting equipment and sorters, while the number of keypunch machines increased. Lease revenue dipped from $11.5 million in 1931 to $10.5 million the next year but then rose to $12.2 million in 1934 and subsequently shot up to $29.6 million in 1939. Sales of punch cards reached $3.4 million in 1932, dropped to $2.8 million for each of the next two years, and then returned to their 1931 level in 1934. Revenues for time clocks and scales shrank immediately, but IBM’s overall income remained flat, thanks to the Tabulating Machine piece of the business.³¹

After implementation of the U.S. Social Security Act, U.S. firms had no choice but to use IBM’s equipment, since it was compatible with SSA’s. Both used the same formats and cards. So did the U.S. Treasury Department. Government agencies in Europe with similar applications argued that use of punch cards made a difference in their work. IBM’s equipment contributed to a new style of management of large organizations, which relied increasingly on large bodies of data to inform decisions and on the timely preparation of accounting and financial reports. Manufacturing floor operations, billing, and other uses were often conducted using smaller, less sophisticated office equipment, such as billing machines and desktop calculators. In the interwar years, management teams learned about the possibilities of data processing, experiencing enough benefits to offset the cost of using IBM’s products.

Did Watson’s high profile influence the role of other executives in various industries and countries, or was he an uber-example of a larger trend in business? He had become a celebrity.³² Unknown to the public were his communications with President Roosevelt, dispensing all kinds of advice regarding business matters, most of which FDR ignored. But Watson made so many speeches to groups of hundreds and thousands of people, often reported in the press, that he seemed to be an emerging voice of the business community, especially in the United States and within the International Chamber of Commerce. It did not hurt that IBM had expanded across Europe and Latin America and had thrived while other firms suffered. Many of the social and business elite where IBM had a presence knew something about this company by the end of the 1930s. They understood it was successful and well run. They had been exposed to a smattering of IBM’s unique culture of optimism. They increasingly heard that its employees sang songs celebrating Watson but also that IBM was introducing the world to “thinking machines.”³³

We are still left with a question: Was Watson a unique celebrity CEO or just another version of a U.S. business leader? In hindsight, he was probably both—a relentless promoter of IBM but also now filled with a bolder ambition to use his celebrity status and success to play the role of statesman with some of the most dangerous people in European history. In that game, he played the amateur, but as a business leader, he and his company made the prosperity they enjoyed in the 1930s seem like child’s play. However, he needed a stage, a platform, on which to perform. William Lazonick reminds us that American managerial practices affected executives at all levels.³⁴ Watson was a part of his own IBM ecosystem. World War II hurried the company to a new destiny that could not have been imagined by a novelist. That is the story we turn to next.

Notes

  1. Thomas J. Watson, Men—Minutes—Money: A Collection of Excerpts from Talks and Messages Delivered and Written at Various Times (New York: International Business Machines Corporation, 1934), 473.

  2. Quoted in Lorena Hickok, Richard Lowitt, and Maurine H. Beasley (eds.), One Third of a Nation: Lorena Hickok Reports on the Great Depression (Chicago: University of Illinois Press, 1981), 223.

  3. In a speech delivered on September 27, 1933. See Watson, Men—Minutes—Money, 866.

  4. To hear Watson deliver his message to IBMers, in this instance in 1937 to salesmen, visit http://www-03.ibm.com/ibm/history/multimedia/wav/opportunitywav.wav.

  5. Watson, Men—Minutes—Money, 306.

  6. Ibid., 308.

  7. Mira Wilkins, The Maturing of Multinational Enterprise (Cambridge, MA: Harvard University Press, 1974).

  8. International Business Machines Corporation, Annual Reports, 1935–1939.

  9. Martin Campbell-Kelly, William Aspray, Nathan Ensmenger, and Jeffrey R. Yost, Computer: A History of the Information Machine, 3rd ed. (Boulder, CO: Westview, 2014), 39; Arthur L. Norberg, “High-Technology Calculation in the Early 20th Century: Punched Card Machinery in Business and Government,” Technology and Culture 31, no. 4 (October 1990): 753–779; Lars Heide, Punched-Card Systems and the Early Information Explosion, 1880–1945 (Baltimore: Johns Hopkins University Press, 2009), 211–219, 221–222.

10. We can go further and say that a similar dominance occurred in the European market after World War II. No other company in either the office appliance industry or hardly any other major industry in the United States so dominated its market for as long as IBM.

11. Robert Sobel, IBM: Colossus in Transition (New York: Times Books, 1981), 87.

12. For a film showing the equipment in use, see U.S. Social Security Administration, “The Systems Story—Social Security,” https://archive.org/details/0888_IBM_Day_New_York_Worlds_Fair_May_4_1939_18_01_01_00.

13. Kevin Maney, The Maverick and His Machine: Thomas Watson Sr. and the Making of IBM (Hoboken, NJ: John Wiley and Sons, 2003), 156.

14. Watson, Men—Minutes—Money, 844.

15. Ibid., 845.

16. Sobel, IBM, 89.

17. Ibid., 91.

18. International Business Machines Corp. v. United States 298 U.S. 131 (1936).

19. IBM produced a movie of its role at the fair. To see this, visit https://archive.org/details/0888_IBM_Day_New_York_Worlds_Fair_May_4_1939_18_01_01_00.

20. Quoted in Maney, The Maverick and His Machine, 234.

21. Ibid., 237.

22. Watson, Men—Minutes—Money, 114.

23. Ibid.

24. Both quoted in Maney, The Maverick and His Machine, 879.

25. Deutsche Hollerith Maschinen Gesellschaft, Festschrift zur 25-Jahrfeier (Berlin: Dehomag, 1935), 31–50.

26. Quoted in Edwin Black, IBM and the Holocaust: The Strategic Alliance between Nazi Germany and America’s Most Powerful Corporation (New York: Crown, 2001), 76.

27. Quoted in James Connolly, History of Computing in Europe (New York: IBM World Trade Corporation, 1967), 28.

28. Sobel, IBM, 135.

29. Connolly, History of Computing in Europe, 133.

30. Maney, The Maverick and His Machine, 204.

31. Sobel, IBM, 83–84.

32. While he sought publicity, he wanted to control what kind. Articles discussing his wealth were not among them.

33. Ironically, in 2016, IBM launched a worldwide marketing campaign touting the abilities of its Watson computer, which it branded as “Cognitive Business.”

34. William Lazonick, “Understanding Innovative Enterprise: Toward the Integration of Economic Theory and Business History,” in Business History around the World, ed. Franco Amatori and Geoffrey Jones (Cambridge: Cambridge University Press, 2003), 42–43.