Strange Passage

(See front cover)

It is humidly hot in Sumatra; the intense sunlight encourages luxuriant plant life. One of the chief Sumatran products is, as all the world knows, rubber. South American rubber is garnered mainly from wild trees, carried through jungle paths. In the Far East and Middle East the business is much more highly organized. To handle the product roads have been built, heavy trucks imported; railroad tracks have been laid. The only primitive factor remaining is the labor--cheap labor that can be bought for about 30-c- a day. Loinclothed natives do most of the work. They slit the rubber tree's bark, gather the soft flowing latex, load it into tank cars. This type of worker has no pride in his job, nor does he become devoted to the boss directly over him. Yet last week perhaps a few of the natives working on some 46,000 acres of Goodyear Rubber Plantation Co.'s Sumatran rubber land heard of a change in bosses, of indirect, remote bosses, for it became known that control of Goodyear Tire & Rubber Co. has definitely passed to the Cyrus Stephen Eaton-Otis & Co. interests.

Mr. Eaton's journey from the herring-savored village of Pugwash, Nova Scotia, to remote control of thousands of natives in Sumatra has been indeed a strange passage. Yet upon him it has left none of the travel marks that are found on most tycoons who have made similar trips from nowhere to the inner circle. He has none of the restlessness of a Ulysses, such as drove the late great Thomas Fortune Ryan from enterprise to enterprise. Nor has he the swagger of a Magellan, such as is found in Motormaker Chrysler.

Most important of the many milestones along the obscure Eaton route was 1905., when he graduated from McMaster's University (Toronto) and descended upon the U. S., settling in Cleveland. In this first excursion there was, however, no quest for a golden fleece. Mr. Eaton's sole purpose in coming to Cleveland was to join an uncle, Dr. Charles Aubrey Eaton,* in spreading the Baptist Gospel, although he himself was never ordained.

Just what extra-curriculum activities engaged Mr. Eaton during the ensuing period is not clear. But something must have kept him busy, for when during the panic of 1907 a member of the congregation made a proposition, he was able to secure some stray public utilities in Iowa. No slow-growing oaks sprang from these little acorns. Within eight years he was estimated to control $2,000,000,000 of invested money in Mid-West gas, power, light and traction companies. Now he is one of the foremost U. S. utility men, has been especially active in developing the United Power & Light Co.

To account for this rapid expansion, Eatonists give credit to neither stock manipulations nor managerial ability. His special genius is in organization. Speaking in exact, ministerial tones, casting penetrating looks from his blue eyes, he wields great power when it comes to exhorting ancient industrial rivals to quell their jealousies and lock their arms in Christian fashion before fighting the fight for bigger profits.

At his Otis & Co. office Mr. Eaton is taciturn, secretive. It is said only two other men know the complete ramifications of his power. Rash would he be who tried to estimate the total Eaton wealth, yet when one sums up his expenditures it is apparent that such a yield can come only from tremendous capital. Pugwash has benefited from many improvements paid for by Mr. Eaton. Although he seems uncomfortable in the presence of people other than his wife, Margaret, and their seven children, he claims that the Pugwash betterments have been made to lure people there and keep him from being lonely. In Northfield, Ohio, he has a large home, "Acadia Farms," and a large stable, riding being his chief hobby. At the Summit Hunt he stages an annual one-man horseshow, owning most of the entries, most of the club, and winning, between himself and his family, most of the prizes. When in Manhattan he always uses the Biltmore's presidential suite.

After his accomplishments in utilities, Mr. Eaton turned to another great basic industry, steel. This he did by purchasing virtual control of the tottering Trumbull Steel Co. Only last month the final details for rounding out his steel plans were announced. Yet since then there have been rumors that his Republic Steel Corp. will acquire a new unit, Gulf States Steel.

After such success in two great basic industries, it was natural that Organizer Eaton should turn to another, to one, indeed, which would welcome his genius for organization. Although, unlike electricity and steel, rubber is not an obviously basic commodity, it has thousands of essential uses. Some, like waterproof footwear, are only useful luxuries, but many of its products are vital--surgeon's gloves, insulation, tires, hosing. But instead of entering this industry with the purchase of a small company, Mr. Eaton went after a leader.

Goodyear. The Goodyear Tire & Rubber Co. was formed in 1898. By 1915 it had become the largest manufacturer of tires in the world. In 1921 it was hard hit by the business depression and was taken over by a voting trust in which Dillon, Read & Co. were leaders. By 1926 Goodyear had become the foremost consumer of crude rubber and the largest producer of finished rubber articles in the world. Stockholders in the company are frequently reminded: "MORE PEOPLE RIDE ON GOODYEAR TIRES THAN ANY OTHER KIND"; "MORE PEOPLE WALK ON GOODYEAR HEELS THAN ANY OTHER KIND."

An important new development in Goodyear is its large scale entry into the aviation field with the formation of Goodyear-Zeppelin Corp., a subsidiary mentioned as about to form a trans-Pacific airline with Dr. Hugo Eckener.

Behind this aggressive aviation policy of Goodyear is Paul W. Litchfield, its president. Born in 1875, Mr. Litchfield went to M. I. T. and joined Goodyear in 1900 as a factory manager, becoming president in 1926. A prolific writer on business and economic conditions, he also has had much to say about aviation. A typical Litchfield pronouncement in 1927 was: "The important thing is that the work go on, that in laboratory and workshop, in the airdrome and flashing down the air lanes, the sons of Martha and the sons of Mary . . . drive ahead on their labors and their researches, testing and trying, discarding and rebuilding, building better ships and still better ones."

With over 200 wholesale distributing points outside of the U. S., Goodyear is a world-wide organization. Ramifications in this country include a 37,000-acre cotton plantation in Arizona, coal mines in Ohio, textile mills in California, Georgia and New England.

Probably Mr. Eaton's main reason for choosing Goodyear for his entrance into rubber is because it is the world's largest rubber company. But another is that while many rubber companies are suffering from poor earnings, Goodyear is prospering. A few days after Mr. Eaton's control was reported, the Goodyear 1929 statement was released. Its profits were $19,864.374, the best since 1925, and standing against $13,327,843 in 1928. Net sales made a new record of $256,227,067 despite lower prices, while the number of tires sold went up 14.6%.

Since Mr. Eaton's policy in rubber will probably resemble his steel methods, it is likely he will first absorb smaller units, then effect a large merger. The Seiberling Rubber Co., whose Frank A. Seiberling is a onetime (1898-1920) president and now director of Goodyear and an Eaton friend, is expected to be the first acquisition. A merger with the U. S. Rubber Co., control of which recently passed to the du Ponts, is regarded as an ultimate possibility.

Conditions. When Herbert Clark Hoover was Secretary of Commerce he wrote: "The world has often enough seen attempts to set up private monopolies, but it is not until recent years that we have seen governments revive a long-forgotten relic of medievalism and of wartime expediency by deliberately erecting official controls of trade in raw materials of which their nationals produce a major portion of the world's supply, and through these controls arbitrarily fixing the prices to all of the hundreds of millions of other people in the world."

The conditions to which he referred were exemplified by the British Stevenson Act, passed in 1922 and aimed at the stabilization of the price of rubber. The general effect of the Act was to restrict production to about 80% of capacity, and to regulate exports so that the price would hover around 30-c-. The result was of course that other rubber-producing countries entered into full production, and soon the price of rubber fluctuated over wide margins. The Act was repealed last November, with crude rubber selling around 15-c-.

Low prices of crude material caused large inventory losses to companies which had stocked up, serving to unsettle the industry in general. The demand for rubber is inelastic in that it does not expand with lower prices. The result is that lower prices are not offset by increased sales. These conditions were reflected most of all in the tire trade.

Tires. About 80% of rubber is used by the automotive industry, and most of this goes into tires and tubes. After a very erratic period, the tire industry is being stabilized through changes in the distributing end. Lowered profits on each unit have made dealers try to increase sales by handling only nationally-known brands. This has helped to eliminate competition among the manufacturers, for whereas there were 250 to 300 tire companies in 1921, there were 115 in 1926, and 85 last year of which about 30 are important. While dealers have been eliminating the manufacturers, the manufacturers have been slashing away at the ranks of dealers, whose number has dropped from 175,000 to below 100,000. This has been due to the entry of the companies themselves into retailing, and the establishment of master service stations by Firestone and Goodrich, with Goodyear expected to follow soon.

Control. No individual stock purchases gave Mr. Eaton the Goodyear control. It came in a complex and roundabout fashion, both through the holding of Continental Shares, Inc., which is sponsored by Otis & Co., through the holdings of private investment trusts in the Eaton family, and, in a great part, through stock owned by friends.

In Cyrus Eaton therefore is embodied a new type of U. S. capitalist, not satisfied with merely investing or managing, but directing the flow of invested capital. And, to the especial pride of Clevelanders, he is one of the biggest of first-magnitude tycoons who have their base of operations west of Wall Street.

*Then pastor of the Euclid Ave. Church; now Congressman (since 1925) from the fourth New Jersey district.

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