Industrialization and the Rise of Big Business Essay
Industrialization and the Rise of Big Business
From the period of 1870 to 1900, the United States became one of the world’s strongest and growing industrial nations. An industrial revolution that had begun with the manufacture of cotton and woolen textiles had, by the beginning of the 20th, transformed the production of most everyday goods. Ranging from food, clothing, appliances, and automobiles, the enormous output of industrial production led to the rise of big business as it coordinated methods of distribution and sales to forge an infrastructure for consumer culture. The rise of corporations, such as Carnegie Steel, J.P. Morgan, and Standard Oil, in the late 1800’s, was able to dramatically shape the country politically, socially, and economically and even continues to do so today through new modern finance and monopolies. Industrial growth was mainly fueled by a surplus in resources, immigration and therefore cheap labor, and major technological advances that expanded the capabilities of various industries. As technological advances transformed production and distribution, a wave of inventions, including the typewriter, light bulb, and automobile led into new industries. Through this boom in business, leaders learned how to operate many different financial activities throughout the nation.
Ultimately, they were able to become larger and the modern corporation was “born” into one of the most important roles in the future of business. These corporations seemed “new” for many people in the country, but corporations actually date back to the 16th and 17th centuries, where they were used by royalty and governments to organize exploration and possible colonization. Many businessmen and politicians had been suspicious of the corporation from the time it first emerged in the late 16th century. Unlike the partnership form of business, which dealt with a small amount of people on a personal level, the corporation separated ownership from management. In Adam Smith’s The Wealth of Nations, he warns that because managers could not be trusted to steward “other people’s money”, “negligence and profusion” would eventually result when businesses organized as corporations. In 1811, New York became the first state that passed legislation concerning protocol and procedure for becoming a corporation, and other states eventually adapted this as well. Corporations were well suited to meet the demands of the Industrial Revolution, which generated a giant increase in business opportunities which, in hand, required massive amounts of money but “over the last 150 years the corporation has risen from relative obscurity to become the world’s dominant economic institution” (Bakan 5).
“The genius of the corporation as a business form, and the reason for its remarkable rise over the last three centuries, was-and is-its capacity to combine the capital, and thus the economic power, of unlimited numbers of people” (Bakan 9). As corporations become more powerful and fuel development of large-scale industry, they affect politics. The men idolized by some and vilified by other, America’s 19th century Robber Barons were the true creators of the modern corporate era. The railroad was the first major monopoly in the United States. Since these railroads were massive undertakings, they required millions of dollars in capital investment. This was more than could be provided by relatively small group of wealthy men who invested in corporations at the turn of the century and the majority of the money was raised through the sales of stocks and bonds. With greed and corruption heavily present throughout the construction of the railroads, beginning in the 1890s, the corporation underwent a major transformation. The states of New Jersey and Delaware sought to attract valuable incorporation business to their jurisdictions by jettisoning unpopular restrictions from their corporate laws. In addition, they also repealed the rules that required businesses to incorporate only for defined purposes, to exist only for limited durations, and to only operate in certain locations.
Another move consisted of loosening control on merger and acquisitions and they abolished the rule that one company could not own stock in another. Soon the rest of the country, not wanting to lose out in the competition for the incorporation business, soon followed their examples with revisions to their own laws. With flexible freedoms and powers now available, there was a large amount of incorporations by businesses. However, with all the constraints on mergers and acquisitions gone, it was only a matter of time before companies bought each other out. “1,800 corporations were consolidated into 157 between 1898 and 1904. In less than a decade the U.S. economy had been transformed from one in which individually owned enterprises competed freely among themselves into one dominated by a relatively few huge corporations, each owned by many shareholders” (Bakan 14). The era of corporate capitalism had begun with all those consolidations and mergers. With the economy dominated by a few huge corporations, we find ourselves looking at the development of monopolies, development the states started by limiting the set laws. With the growing capitalism pressuring politicians, a bizarre law was passed by the Supreme Court in 1886.
“The courts had fully transformed the corporation into a “person”, complete with its own identity, separate from the actual people who were its owners and managers, like a real person, to conduct business in its own name, acquire assets, employ workers, pay taxes, and go to court. The logic of this law conceived if corporations were considered free individuals, or “persons”, corporations should be protected by the Fourteenth Amendment’s right to due process of law and equal protection of the laws, rights originally added to the constitution to protect freed slaves” (Hobsbawm 208). Trusts were becoming a problem after several years of abuse by major corporations. By the end of the 19th century, trusts used to crush competition and create monopolies throughout different industries had gotten to a point where the public demanded that there be something done. Congress ended up passing the Sherman Antitrust Act in 1890. This Act has two main provisions which apply to most of the corporations of the time.
Every contract or agreement, in the form of a trust or not, or conspiracy to restraint trade in commerce is illegal and second, it would be illegal for anyone to monopolize, try to monopolize, or conspire to monopolize commerce. The Sherman Act was just the first of a series of laws aimed at controlling attempts by business firms to conspire and establish monopoly power in industry and commerce. Other acts followed when it became apparent that the Sherman Act had loopholes. Teddy Roosevelt was known as the “trust buster” because of his anti-monopoly views. Many large corporations had complete control of an entire industry and Roosevelt went in to these companies and helped to stop this type of monopoly, even managing to break up Northern Securities and J.P. Morgan. A big supporter of labor, he set up child protection laws, which were used to prevent children to work in factories and set up workman compensation, which is a payment that employers had to pay employees who get injured on the job. After the Great Depression occurred sometime around 1929 until the early 1940s, Roosevelt stepped in and called for Congress to help him pass his “New Deal”.
“The “New Deal” was a package of regulatory reforms designed to restore economic health by, among other things, crushing the powers and freedoms of corporations” (Bakan 20). On March 9 Congress passed the Emergency Banking Act, which allowed the federal banks to be inspected. They also passed the Glass-Steagall Act, which had stringent rules for banks and provided insurance for depositors through the newly created Federal Deposit Insurance Corporation (FDIC). Two more acts in 1933 and 1934, mandated specific regulations for the securities market, enforced by the new Securities and Exchange Commission (SEC). Several bills provided mortgage relief for farmers and homeowners and offered loans for home purchasers through. Also, the National Labor Relations Act of 1935 gave federal protection in the bargaining process for workers and established a set of fair employment standards. The National Labor Relations Act guaranteed workers the right to organize and bargain through unions and the Federal Fair Labor Standards Act of 1938, the last major program launched by Roosevelt specified maximum hours and minimum wages for most categories of workers. A monopoly is considered an economic situation in which only a single seller or producer supplies a commodity or a service.
Economic monopolies have existed throughout most of history and in modern times we still deal with their continued threat. We usually encounter monopolies when giant business firms began to emerge and dominate the economy. Usually more than one firm in the same industry grows and dominates the market resulting in oligopoly, in which the market is dominated by a few firms. A modern example is Microsoft, which was founded in 1975 by Bill Gates and Paul Allen. In 1985, Microsoft released the Windows OS, an OS with the same features of MS- DOS just with a graphical user interface added for ease of use. Windows 2.0, released in 1987, improved performance and offered a new visual appearance. In 1990 Microsoft released a more powerful version, Windows 3.0. These versions, which came preinstalled on most new personal computers, becoming the most widely used operating systems in the industry at the time. In 1993 Apple lost a copyright-infringement lawsuit against Microsoft that claimed Windows illegally copied the design of the Macintosh’s operating system.
In May 1998, the Justice Department and 20 states filed broad anti-trust suits charging Microsoft with engaging in “monopolistic” conduct. They wanted to force Microsoft to offer Windows without Internet Explorer or to include Navigator, a competing browser made by Netscape. In November 2001 Microsoft announced a settlement with the Justice Department and nine of the states. Key provisions included requiring Microsoft to reveal technical information about the Windows operating system to competitors so that software applications could be compatible with Windows, while also enabling personal computer manufacturers to hide icons for activating Microsoft software applications. A computer manufacturer could therefore remove access to Internet Explorer and enable another Internet browser to be displayed on the desktop. Corporations transformed the U.S. economy through breakthroughs in technology as well as new business practices and strategies.
“The early Industrial Revolution not only changed manufacturing technically but also introduced a new organization of industry. These innovations followed from the new machinery but had advantages of their own. Together, these changes constitute its economic impact” (Stearns). Americans created giant enterprises. Businesses such as Standard Oil and Carnegie Steel brought together huge stocks of natural resources and unprecedented quantities of modern machinery to mass-produce goods for domestic and international markets. In meeting these demands, American entrepreneurs pioneered the development of modern business with its large-scale production and widespread markets, first by developing the railroad industry and then by creating industrial corporations. These railroads were massive undertakings, they required millions of dollars in capital investment. This was more than could be provided by relatively small group of wealthy men who invested in corporations at the turn of the century and the majority of the money was raised through the sales of stocks and bonds. “Everything the stock market is, and was, rooted in the basic idea of capitalism. Without that idea, stocks and bonds would never have come to be.
Capitalism is an “economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market” (Hobsbawn 48). In the steel industry, Carnegie developed a system known as vertical integration. Carnegie bought his own iron and coal mines because using independent companies cost too much and was inefficient. Through this method he was able to charge less than any of his competitors. Unlike Andrew Carnegie, John D. Rockefeller integrated his oil business into horizontal. He followed one product through all its stages. Although, Carnegie inclined to be tough-fisted in business, he was not a monopolist and disliked monopolistic trusts. John D. Rockefeller came to dominate the oil industry. He created the first U.S. trust in 1882 by persuading the stockholders of the 40 companies associated with his to turn over their common stock to nine trustees in exchange for trust certificates. However, in 1911, the Supreme Court found that unlawful monopoly power existed in his company ordered him to dissolve it into smaller, competing companies. The development of trusts coincided with industrialization in the U.S. The trust movement was both a way to create large-scale business firms in this period and a downfall of the tremendous growth of industry.
The success of the Standard Oil Company and U.S. Steel company was credited to the fact that their owners ran them with great authority. In this very competitive era, many new businesses were being formed and it took talented management to get ahead and have the companies running smoothly while making a great deal of money. As corporations expanded they affected the social outlook of the nation and brought social changes fueled by the Industrial Revolution. “In the wake of the twentieth- century merger movement, many Americans realized that corporations, now huge behemoths, threatened to overwhelm their social institutions and governments” (Bakan 17). Many people believed that corporate greed and mismanagement had caused the Great Depression.
In response, business leaders embraced corporate social responsibility, believing that it was the best strategy to restore people’s faith in corporations. “New Capitalism” was the term that was used to describe the trend that softened corporations’ images with promises of good corporate citizenship and better working conditions. “By the end of WWI, some of America’s leading corporations, among them, General Electric, Eastman Kodak, National cash register, Standard Oil, and US Rubber, were busy crafting images of themselves as benevolent and socially responsible” (Bakan 18). As economic activities in many communities moved from agriculture to manufacturing, production shifted from its traditional locations in the home and the small workshop to larger and more capable factories.
A great amount of the population relocated from the countryside to the towns and cities where manufacturing centers were found. The overall amount of goods and services produced expanded dramatically, and the proportion of capital invested per worker grew. Industrialization gradually changed the nature of human life for many people. For the first time in American history, more than half the country’s population lived in cities. In Adam Smith’s The Wealth of Nations, he states that the most decisive mark of the prosperity of any country is the increase of the number of its inhabitants. On average, the population doubles in England and most other European countries around every 500 years. In America, the population doubles in about 25 years. With continued expansion of industrialization, America moves forward and advances with greater rapidity to the further acquisition of riches than any other countries. Key changes revolved around families as well, with work now farther from home, new specializations are required among some. While some women would be withdrawn from the formal labor force in order to supply domestic labor, and children were sent to school instead of being used in early industry. Outside the home, industrialization created new and unpleasant social divisions.
The gap between the factory owners and the growing number of workers widened. New forms of protest, including strikes and political action developed alongside the advancement of industrialization. For years they had working long days on the farms, it’s the nature of the work that was biggest issue. Factory work tended to be monotonous and made work more dangerous. While on the farm, in the midst of the hard work, there was socializing and irregularity for the workers. Once in the shop, the workers had to deal with strict time schedules, and harsh working conditions. While wages were often low in the early years of industrialization, they ultimately improved, creating new opportunities for consumption. A small number of workers could also rise to become more highly skilled, even entering the ranks of supervisors.
More substantial advancement, however, was rare. Most workers ultimately reduced their reliance on job satisfaction and sought shorter hours and higher pay instead. But life off the job did not necessarily improve rapidly. Working-class families might be tightly knit, but new tensions appeared. Many workers vented their frustrations on other family members and leisure life initially deteriorated with industrialization. Carnegie Steel, J.P. Morgan, and Standard Oil, are just some of the many corporations that rose in the late 1800’s, and were able to dramatically shape the country politically, socially, and economically and even continues to do so today. Without them, America would not be the world superpower that it currently is. The shift from and agricultural society into an industrial one may have been difficult for who lived during that era.
However, by the turn of the century, industrialization had transformed commerce, business organization, the, the workplace, technology and general everyday life in America into something solid and positively profound. Now we face the challenge of deciding whether to leave the market to itself or to have the government regulate or control it. I believe that government control won’t amount to anything because of all the extra work needed. If the market was left to itself then corporations may take advantage of certain elements and monopolies may dominate the market. This best compromise would be for the government to regulate the market in a way that corporations are forced to do legitimate and legal business.