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Michael Callicutt Dr. Claude Black HY 273 15th November 2011 The Different Business Practices of Andrew Carnegie & John D. Rockefeller Two of the most well-known and successful companies of the Industrial Revolution were the Standard Oil Company, and the Carnegie Steel Company. Both were exceedingly successful in virtually removing all competition in their respective fields of business and controlling almost all of the production capacity of their respective products in the United States. Their founders, John D. Rockefeller of the Standard Oil Co.
, and Andrew Carnegie of the Carnegie Steel Co. onducted business practices that were different from one another in how they dealt with competition as seen in the undercutting or cheap type buyout employed by Carnegie in comparison to the forced buyout by Rockefeller, how they consolidated wealth as seen where Carnegie horizontally integrated other steel mills to grow his wealth while Standard Oil later on in their history vertically integrated, how they managed public relations as seen where Carnegie attempted to suppressed any negative press while Rockefeller would balance it’s negative publicity by showing his philanthropic side, and how they treated their workers as seen by how Carnegie disregarded collective bargaining and safety for efficiency while Rockefeller valued worker loyalty through good wages, treated them fairly, and commonly rewarded them with bonuses.
The first immediate difference that is seen between the two men and their business practices is how they dealt with competition. Andrew Carnegie’s company would force the other steel mills in the Pennsylvania area to be bought out due to the cheap prices of the Carnegie steel.
The other, smaller competitors could not sell their steel for such as low price and still make a profit, and therefore had to allow Carnegie to buyout their mills. In opposite to Carnegie, Rockefeller would sometimes be known to hire thugs, or engage in compacts with other companies to join together to push prices up.
In Ida Tarbell’s well known expose on Rockefeller, The History of the Standard Oil Company, she quotes John Rockefeller as saying this on one of the schemes he engaged in to remove his competition: “You see,” he told them, “this scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good. ” Certain refiners objected. They did not want to sell. They did want to keep and manage their business. Mr. Rockefeller was regretful, but firm. It was useless to resist” (Tarbell 63).
This shows how Rockefeller would directly and forcibly remove his competition, whereas Mr. Carnegie would instead send his prices plummeting to prevent competitors from keeping up. Rockefeller’s business practices towards competition proved to be very effective, as many companies today still employ the same style of business. Alfred Chandler stated a most concise summary about the continuance of Rockefeller’s business practices, “We also see it reflected in the pages of the current business press. The logic that drives the creation and growth of large managerial enterprises is as relevant now as it was when John D. Rockefeller put together Standard Oil” (Chandler 132).
The second difference that is apparent between the two businessmen is how they consolidated their wealth and grew their business. While both companies followed the business model of horizontal integration through buying companies similar to their own, the difference between Rockefeller and Carnegie was that Rockefeller’s company later switched to vertical integration. The reason for this was mainly because it was simply a convenience because Standard Oil had come to control almost ninety percent of the oil refineries in the entire United States. By taking control of each step of the oil drilling, refining, and shipping process, he could maximize his profits and make production and transportation a non-issue.
While Standard Oil did come to basically control the price of oil in the United States, it never engaged in ‘predatory’, or deep and unnecessary price cutting to push out it’s competitors. John McGee states this about how Standard Oil accomplished this by other means: “It is correct that Standard discriminated in price, but it did so to maximize profits given the elasticities of demand of markets in which it sold. It did not use price discrimination to change those elasticities. Anyone who has relied upon price discrimination to explain Standard’s dominance would do well to start looking for something else. The place to start is merger” (McGee 168).
Carnegie on the other hand preferred to buy out all competitors that were in the same area of production as he was, and consolidate. Through consolidating most steel mills in the Pittsburgh/Pennsylvania area, he was able to control that particular step of the production process in the steel business, therefore maximizing his profits like Rockefeller, but in a different way. Carnegie preferred stable prices and stable business, and Harold Hotelling manages to place Carnegie’s view on why he consolidated his mills as such: “This is the fact that of all the purchasers of a commodity, some buy from one seller, some from another, in spite of moderate differences of price.
If the purveyor of an article gradually increases his price while his rivals keep theirs fixed, the diminution in volume of his sales will in general take place continuously rather than the abrupt way which as tacitly been assumed. A profound difference in the nature of stability of a competitive situation results from this fact” (Hotelling 41). This fact that Hotelling is referring to is what Carnegie was pursuing to eliminate: the ability to choose from one purveyor of a good or another, and the potential loss of profit from said choice. By monopolizing every mill that he could get his hands on, Mr. Carnegie began and almost succeeded in completely controlling every bit of steel refinery in the Northern United States. Another way that Carnegie consolidated his wealth was through his business motto, which was to make what was once a luxury a necessity.
In his own autobiography, The Gospel of Wealth, Carnegie himself stated this about how his methods of business changed the production business model significantly: “The inevitable result of such a mode of manufacture [home-made items] was crude articles at high prices. To-day the world obtains commodities of excellent quality, at prices which even the preceding generation would have deemed incredible. […] The poor enjoy what the rich could not before afford. What were the luxuries have become the necessaries of life. The laborer has now more comforts than the farmer had a few generations ago. The farmer has more luxuries than the landlord had, and is more richly clad and better housed. The landlord has books and pictures rarer and appointments more artistic than the king could then obtain” (Carnegie 6).
The third difference in the business practices of the two business men was how they manged public relations and other events of that nature. The general practice of the Carnegie Steel Company was to suppress any and all negative press about the company before or after it was published. The company’s Vice President, Henry Clay Frick, was especially known for being a ruthless businessman and lacking in morals for his practices. If there was any kind of negative press being released about the company or himself, he would immediately take any measures necessary to prevent it from being published. An instance where both Carnegie and Frick suppressed negative events towards the company was the Homestead Strike of 1892.
While Carnegie was not the one who ordered the private security agents to come and protect the plant, he did agree that the strike needed to be broken, and allowed Frick to proceed with breaking the strike. Frick hired the Pinkerton Detective Agency, a private security company, which sent 300 armed security guards to guard the plant. The strikers armed themselves too, and in an ensuing gun battle, many lives on both sides were lost. This is an example of how Carnegie dealt with most public relations issues. Rockefeller on the other hand preferred to largely balance out his negative press coverage or public relations by showing off his impressive philanthropic actions and his own solid personal religious beliefs.
He was an avid Baptist and donated millions upon millions to good causes such as the Rockefeller Medical Foundation. He did this to help offset the image his company had in the public eye. Many people of the time considered Standard Oil to be the monopolistic, overpowering, and predatory company that represented big business, corruption, and monopolies. For these reasons, Rockefeller had to work hard to balance out the negative of his own companies image with his own personal good acts and charity. The final way in which Rockefeller and Carnegie’s business practices were different was in the way they treated their workers through compensation, worker safety measures, and allowance of collective bargaining.
As this essay has previously mentioned, the Homestead Strike of 1892 was one of the largest, bloodiest and most well known strikes of the time, and is still remembered even unto today. The treatment of their own workers, while not without reasons, was usually how Carnegie Steel dealt with workers that used collective bargaining or unionizing to accomplish their goals. While Carnegie himself believed that not a single drop of blood should be shed over business disputes, his partner Frick did not see things in the same way. In opposition to Carnegie Steel, John D. Rockefeller instead chose to pay his workers very well, typically above market rate, as he saw this would save money in the long run.
By paying his workers higher-than-market prices, he lessened the chances of a strike occurring among his workers, as he saw that well-compensated and happy workers hardly ever lead a strike. He also paid his workers extra bonuses whenever he could, as another incentive to not go on strike. He was able to afford all of these extra labor costs because of his aforementioned business models, which allowed him to control most every aspect of oil production except the labor which produced it, which he treated very well. In conclusion, John D. Rockefeller of the Standard Oil Co. , and Andrew Carnegie of the Carnegie Steel Co. conducted business practices that were different from one another.
They were different in how they dealt with competition as seen in the cheap-pricing type buyout employed by Carnegie in comparison to the forced buyout by Rockefeller, how they consolidated wealth as seen where Carnegie horizontally integrated other facilities to grow his wealth while Standard Oil started with horizontal integration but later on in their history chose to become vertically integrated, how they managed public relations as seen where Carnegie attempted to suppressed any negative publicity while Rockefeller would balance his negative press by showing his philanthropic side, and how they treated their workers as seen by how Carnegie disregarded collective bargaining and safety for efficiency while Rockefeller valued worker loyalty through good wages, treating them fairly, and commonly rewarding them. Each founder had his positives and his negatives in the ways in which he conducted their business practices. History shows us that hindsight is perfect, and looking back on the events, olicies, and practices that made these men who they were, allows us to see how they truly different they were Works Cited McGee, John S. “Predatory Price Cutting: The Standard Oil (N. J. ) Case. ” Journal of Law and Economics. 1. (1958): n. page. Print. . Hotelling, Harold. “Stability in Competition. ” Economic Journey. 39. (1929): n. page. Print. . Chandler, Alfred D. “The Enduring Logic of Industrial Success. ” Harvard Business Review. 9. (1990): n. page. Print. . Carnegie, Andrew. The Gospel of Wealth and Other Timely Essays. Rev. ed. New York City: The Century Company, 1900. Print. Tarbell, Ida M. , and David Mark. Chalmers. The History of the Standard Oil Company. Mineola, NY: Dover Publications, 2003. Print.
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