9/23/2014 The Rise of Big Business

From Small Businesses to Corporations Until the mid-nineteenth century, most businesses were local and run by one person or family. Industrialization changed this! Corporation: company recognized as a legal unit that has rights and liabilities separate from each of its members. If a corporation experiences problems economic problems, investors lose no more than what they originally put in.

Corporations Find Ways to Maximize Profits Examples: Advertising Paid workers low wages Tried to obtain raw materials on the cheap Adopted new forms of business organization – horizontal and vertical integration Created research labs to foster innovation

Business Management Innovations Entrepreneurs and corporations developed more effective ways to decrease costs and increase profits. Horizontal Integration: system of consolidating many firms into one business Monopoly: exclusive control of one company over an entire industry. Trust: group of separate companies that are placed under the control of a single managing board in order to form a monopoly. Vertical Integration: system of consolidating firms involved in all steps of a product’s manufacture.

So is this good or bad? Two perspective emerged on big business: Some people were critical of wealthy industrialists and called them “Robber barons” Robber Baron: Someone who uses ruthless business tactics to make their profits such as paying workers low wages, buying out small businesses, and charging unfair prices for goods. Other people argued that wealthy industrialists served the nation positively and called them “Captains of Industry” Captain of Industry: Someone who through their business increased productivity, expanded markets, provided more jobs, or showed acts of philanthropy.

Advantages and Disadvantages of Big Business AdvantagesDisadvantages Large business are more efficient, leading to lower prices They can higher a large number of workers They can produce goods in large quantities They have the resources to support research and invent new items They have an unfair competitive advantage of small businesses They sometimes exploit workers They sometimes pollute the area around their business They have an unfair influence over government policies that regulate them

Social Darwinism and Business Some Americans argued that the nation would grow strong by allowing its strongest members to rise to the top and that it was wrong to use public funds to assist the poor. This belief is known as “Social Darwinism”

The Federal Government Steps In At first, the government believed in laissez-faire, or the theory in which the government should not interfere in the economy. This allowed corporations and entrepreneurs to be successful. After corporations and entrepreneurs took advantage of laissez-faire, the federal government stepped in to help make sure businesses were not unfairly limiting competition.

Why is competition between businesses in our economy a good thing?

Laws Against Anti-Competitive Practices Interstate Commerce Act: First act to regulate unfair business practices; prevented railroads from charging unfair prices for shipping. Sherman Anti-Trust Act: The purpose of this act was to stop monopolies and trusts from engaging in unfair business practices that prevented fair competition. This act was difficult to enforce.

Advantages and Disadvantages of Sherman Anti-Trust Act AdvantagesDisadvantages Congress could regulate trade and end monopolistic practices. Tried to eliminate hidden trusts that affected trade. Gave fines to those who formed trusts. Difficult to enforce. Used more frequently against labor unions than monopolies.

Primary Source!

Striking a Balance For years, the federal government found it difficult to strike a balance between regulation of the economy to protect consumers and allowing business to thrive. This is still a huge topic of debate – even today!

Choose one of these options on the next page in your notebook. J.P Morgan Cornelius Vanderbilt James J. Hill