The Profiteers

by Sally Denton

  Bechtel and McCone made a formidable team. Steve was a heavyset “jaunty fellow,” a workaholic and consummate salesman with male-pattern baldness and naked ambition. McCone was a tough “hard-boiled” man with a “molten temper”—a rigid Catholic convert whom muckraker I. F. Stone once accused of having holy war views. Bechtel thought McCone “the perfect material for a business partner,” once describing him as “a real grind, with rare analytic ability and no-nonsense personality.” Bechtel-McCone obtained immediate contracts in the fields of both petroleum and chemical processing. SOCAL hired the firm to build a refinery in Richmond, California; Hercules Powder Company contracted for an ammonia plant; Union Oil Company awarded a contract for a solvent treatment plant; and Standard Oil Company of Venezuela brought them in to build three pipelines in that country. Before Bechtel-McCone was formed, there had been only one Bechtel concern that had evolved from Dad’s early contracts throughout the West. Now there were two distinctly different entities divided according to undertaking. W. A. Bechtel Co. pursued heavy construction projects, while Bechtel-McCone specialized in engineering and construction of processing plants and refineries. Steve remained at the helm of both.

  Barely a year after its formation, Bechtel-McCone had more than ten thousand employees working on pipelines, chemical plants, and oil refineries throughout the West and extending into South America. But even those burgeoning start-up results were paltry compared with what was about to come. In 1939 Adolf Hitler invaded Poland, and by June 1940, Nazi Germany controlled Belgium, Norway, the Netherlands, Denmark, Luxembourg, and France and was preparing to launch an air assault on Great Britain. It didn’t take any “great foresight,” as the company’s internal history put it, to see that America would soon be drawn into the war in Europe. “Like others, the Bechtels were alert to the implications and lost no time getting their resources ready for the country’s service.” Two years earlier, Bechtel and McCone had studied the shipbuilding industry, envisioning a new market that “seemed about ripe to become a big-volume business,” Steve would say.

  Once again, the federal government would deliver a historic, unprecedented boon to the Bechtel combine. In 1939, in preparation for war, the US Maritime Commission announced the creation of a massive shipbuilding operation and called for bids on a wartime cargo fleet. The British followed, declaring that it sought American shipyards to rebuild that country’s antiquated merchant fleet. Since the eastern shipbuilders were operating at full capacity, both the British and American naval services were seeking contractors on the Pacific Coast. By summer 1940, the various Bechtel entities—a veritable syndicate of interwoven companies and subsidiaries—were building the navy’s air bases in Texas and the Philippines, the army’s Fort Ord and Camp Roberts in California, and its massive aircraft modification center at Birmingham, Alabama, where the B-24 and B-29 bombers were retrofitted. Before the end of 1940, Bechtel-McCone had a $210 million order for sixty freighters—a contract that would swell to $3 billion within the next three years. Thanks to government contracts, Bechtel-McCone became one of the world’s largest shipbuilders of cargo vessels, tankers, and troop transports, earning McCone the moniker “the American Onassis.”

  At the same time, they built the top secret 1,600-mile pipeline from Canada to Alaska in the face of the most remote and rugged conditions. Under the aegis of the War Department—and in response to what Bechtel called the “Japs” threat to Alaska—the CANOL project was so clandestine that no formal contract was executed. Its budget was buried in a war appropriations bill. The four thousand workers would not learn of the location until they arrived in the unexplored Yukon wilderness, where, as the “Bard of the Yukon,” poet Robert W. Service described it, “the mountains are nameless and the rivers all run God knows where.” A congressional investigation led by Missouri senator Harry S. Truman found that the obfuscation on the part of Bechtel and the War Department was less about the Japanese and more about hiding the project from a longtime Bechtel critic, Secretary of the Interior Harold Ickes. By the time the pipeline was completed, two years behind schedule and just three months before the Japanese surrender in 1945, the costs had quadrupled from $25 million to $100 million, with Bechtel and McCone profiting enormously.

  Enwrapping their empire building in patriotism, Bechtel’s official statements proclaimed that the company had “just begun to fight!” and was “strengthening the nation’s sinews for war.” With his typical cockiness—albeit with some validity—McCone told a Washington audience that without the ships produced by Bechtel-McCone, “the war would have been lost.” Perhaps their nationalistic instincts were sincere—for they had “built the ships that carried the guns that had won the war,” as their sponsors saw it. But their detractors, which included members of a congressional investigative committee, were equally passionate. The two men had turned an initial investment of less than $100,000 into gross revenues of hundreds of millions—bounty that many in Congress considered obscene plunder. “I daresay,” testified Ralph E. Casey of the General Accounting Office (GAO) in 1947, Congress’s watchdog arm, “that at no time in the history of American business, whether in wartime or peacetime, have so few men made so much money with so little risk and all at the expense of the taxpayers, not only of this generation but of generations to come.” Still, despite numerous allegations of wartime profiteering lodged against Bechtel-McCone, no formal charges materialized. Since the firm was held privately—like all of the Six Companies spin-offs—it was impossible to “cast up a worthwhile profit-and-loss statement,” Fortune reported, despite the fact that the monopoly was built entirely with public money.

  CHAPTER SIX

  Patriot Capitalists

  “We’re not worried about any postwar letdown,” Ken Bechtel told a magazine at the war’s end. It was a moment when wartime contractors feared the public trough would dry up. “For us, the postwar is the period when we will really come into our own.” With distinctive prescience, the Bechtel enterprise turned its attention overseas to war-torn Europe and the oil-rich Middle East. Steve’s vision was not unanimously endorsed within the family firm, but his brash insistence overcame the internal resistance. “Nobody around here wanted to go foreign,” one of his senior executives recalled the pushback against Steve’s international diversification.

  Bechtel-McCone had first moved overseas with the construction of the far-flung naval bases stretching ten thousand miles from Alameda, California, through Pearl Harbor, Midway, Wake Island, Guam, and the Philippines. During the war, the firm had also built refineries in Saudi Arabia for the Arabian American Oil Co. (Aramco), as well as the entire Aramco headquarters city at Dhahran, and railroads, port facilities, and highway systems for the Saudi royal family. Called “quasi-industrialists” by Fortune magazine, the company’s tentacles were beginning to reach around the globe. “Size can work to your advantage if you think big,” Steve once told Time magazine. “You just recognize it and move the decimal point over.”

  Along the way, Steve Bechtel and John McCone had made millions of dollars personally through buying large blocks of stock in their wartime clients’ companies, such as SOCAL. After the war, their interests diverged, with McCone preferring to work for the government rather than private industry. The result was the formation of a new umbrella entity that included all of McCone’s and the Bechtel family’s corporate interests. Steve would guide the new megacompany, now called the Bechtel Corporation, while McCone advised the Truman presidential administration on matters relating to military preparedness and the creation of the Department of Defense.

  McCone’s move into the highest circles of government—first in defense and atomic energy, and ultimately in intelligence as director of the CIA—marked the genesis of the infamous “revolving door” that would define the Bechtel business model for the rest of the twentieth century and beyond. For a multibillion-dollar-a-year corporation whose profits were dependent on government contracts, the value of such high-level government access would be incalculab
le. In 1946, with McCone ensconced in official Washington, Steve Bechtel bought a controlling interest in the firm from McCone and other Bechtel family members, signaling what the company called “the birth of the modern Bechtel Corporation.” With Steve in command of all operations, “the company took off like a rocket,” according to his friend and lawyer, Robert L. Bridges.

  Steve formed a series of new corporate entities under his total control. He broke the family’s long-standing ties with Henry Kaiser and other Six Companies executives and brought in a new team of professional managers. Like-minded in temperament and vision, Steve’s men mirrored his conservative values: stalwart churchgoers, Boy Scouts loyalists, and earnest teetotalers. Native Californians who were educated primarily at Berkeley and Stanford, they were “hardworking WASP Republicans with equally hardworking WASP Republican wives,” a journalist observed. The Bechtelians were a colorless, sober bunch. “They are not always the easiest people to deal with—you wouldn’t want to go out for a drink with them after work,” a corporate insider once told a newspaper. “But they get the job done.”

  The most notable exception—and most crucial addition to the company going forward into the profitable Cold War period—was John Lowery Simpson, the uncle of Steve’s wife, Laura. Erudite and worldly, the San Francisco–born Simpson traveled in the most rarified circles of national and international finance and intelligence. He had spent the years leading up to and during World War I in Europe, where he worked for Herbert Hoover’s brainchild, the Commission for Relief in Belgium, which controlled the distribution of food in German-occupied territory, and had become a close personal friend of the future US president. A classic Renaissance man, Simpson embraced the adventures and opportunities presented during his seven-year tenure in Western Europe—a stint that “determined the entire future course of my life.” Brilliant and curious, cultured and fluent in three languages, the 1913 Berkeley graduate recalled being “full of virtue and high purpose” upon joining Belgian Relief. “Everything followed directly or indirectly from that decision,” he wrote, “interests, vocation, avocations.” And, especially, the associations he made with US government and business figures that lured him into the complex realm of America’s nascent intelligence apparatus.

  As Steve’s closest confidant and lifelong financial partner, Simpson possessed the stellar Wall Street and OSS credentials that set the stage for Bechtel’s future fortune building. It was Simpson who would collaborate with influential government officials to insure the Bechtel family’s trajectory in Washington for decades to come.

  A voracious reader, Simpson had gone to Europe with literary ambitions, planning to pursue a career as a novelist and essayist. Based in Paris, he became an unabashed Francophile, immersing himself in the contemporary French literature of Anatole France and attending the theater, opera, and symphony. But when he was recruited by a fellow American “who had some sort of relationship with our Government although not a defined official status,” as Simpson put it, his calling took a turn. He decided to become an “actor in” rather than an “interpreter of” the world scene when he was enticed into what he described as “a rather Machiavellian scheme” to alter economic patterns and international trade relations by selling relief grain to bankrupt countries. “At this point I hope the incident is no longer classified,” he would write decades later. “It was rough play, but that is war . . . I was picked because I was considered discreet.” In his clandestine work for the US government, Simpson thought he was “making history” and “saving the world,” while creating a great American trade organization along the lines of the legendary nineteenth-century British firm Balfour, Guthrie and Company.

  Upon his return to the United States shortly after World War I, Simpson joined the New York office of J. Henry Schroder Banking Corporation—an investment bank founded in Germany that had become a global financial empire. There Simpson met three men associated with the firm who would do as much to direct the hidden forces of American government for the rest of the century as any other figures: John Foster Dulles, Allen Welsh Dulles, and William “Wild Bill” Donovan. The Dulles brothers and Donovan—powerful lawyers for the Schroder firm—were impressed with Simpson’s keen mind and his compatible view of world affairs. They invited him into an elite, secret organization known as “the room,” which was a cabal of three dozen bankers, businessmen, and corporate lawyers with backgrounds in intelligence who met in a nondescript Upper East Side brownstone to discuss geopolitical events throughout the world.

  Simpson rose through the Schroder organization, becoming a director and shareholder. During World War II, he took a leave from the firm to become the chief financial advisor for the US Army in Europe. Based in Switzerland—where Allen Dulles, as OSS station chief, was running a shadowy network of intelligence operatives out of the American Embassy in Bern—Simpson served as a liaison between Schroder’s clients throughout the world and the OSS. “An intelligence agency had been created for the first time in the United States which brought together under one roof the work of intelligence collection and counterespionage,” Allen Dulles later described the OSS, antecedent to the CIA, “with the support of underground resistance activities, sabotage, and almost anything else in aid of our national effort that regular armed forces were not equipped to do.” As Simpson navigated between Schroder and the army, he passed along vital intelligence information that he gathered in his travels to both Dulles and Donovan. The latter would become known as “the father of Central Intelligence.”

  As the war wound down, Steve Bechtel made an overture to the well-connected “Uncle John” Simpson, asking him to join the newly incorporated Bechtel Corporation as a consultant on “major politics, finance, and foreign operations.” In 1946 Simpson took Steve up on the offer, becoming chief financial officer of Bechtel. While Simpson brought a much-needed monetary expertise to the company, it was his role as a rainmaker that was his real value. Among those to whom Simpson would introduce Bechtel were the Dulles brothers. (John would become secretary of state under President Dwight D. “Ike” Eisenhower, while Allen would become the first civilian director of the CIA.)

  With Simpson, the company gained entrée not only into the highest levels of the American government but also into the blue-chip world of East Coast and international finance. As an original stockholder in the prestigious Schroder firm, Simpson’s associates included Avery Rockefeller and C. Douglas Dillon of Dillon, Read & Company. Through Simpson, Steve would be invited to become a director of J.P. Morgan & Company in New York. Simpson’s contacts would also result in Steve’s election to membership in the Washington-based Business Council—an exclusive group of major corporate executives invited to meet with the president, members of the Cabinet, and other key government officials to weigh in on matters of foreign, domestic, and economic policies.

  Once Simpson joined Bechtel, the air of secrecy and furtive arrangements more evocative of a spy agency than a multinational corporation took hold. The firm’s executives moved between the murky world of national intelligence and the only slightly more transparent dominion of private industry. Soon the lines became ever more opaque, and it was often difficult to determine if Bechtel Corporation was doing favors for the US government, or if it was the other way around.

  “Fast friends and golfing buddies,” one account described the relationship between Steve Bechtel and Allen Dulles. While “shanking irons into the Pacific at Pebble Beach, the two men would discuss the clandestine opportunities for a privately owned firm like Bechtel in Dulles’s shadow world.” Increasingly, their conversations took on the tones that would dominate the next decades in American politics: “America’s unadvertised geopolitical intent.” Internationalist, probusiness reactionaries, the two men traveled in what one author described as “those lucrative thickets where business, politics, and diplomacy overlap.” Convinced that the national security of America depended upon its access to oil, and containment of the Soviet Union, they turned their attention to the M
iddle East, which they saw as ground zero for future American—and Bechtel—supremacy in the world.

  Encouraged by Dulles to step up its operations in Saudi Arabia—where the company had built a refinery and pipeline in 1943—Bechtel became entrenched in the Persian Gulf. Steve began cultivating King Abdul Aziz ibn Saud, that country’s spiritual and temporal leader, whom he considered a “forward-looking monarch”; his son, Prince Faisal; and “a tight circle of Saudi advisers.” The relationship that Steve built with the Saudi royal family, as well as with a family-run empire called Bin Laden Construction, would transform Bechtel into a “globe-girdling behemoth.”

  With projects that included secret defense installations, military bunkers, airports, railways, chemical and fertilizer plants, and palaces for potentates, Bechtel eclipsed its few rivals in the Middle East, contributing to the rise of the notoriously potent oil cartel OPEC, or the Organization of Petroleum Exporting Countries. “In the Middle East program I cannot help but foresee tremendous possibilities pointing towards potentially the biggest development of natural resources ever undertaken by American interests,” Steve announced to his board of directors in 1947.