The Triumph of Industry The Rise of Big Business

Corporations Develop Corporation- A number of people share the ownership of a business. If a corporation experiences economic problems, the investors lose no more money than what they had originally put into the business. Corporations access to large amounts of money, funded new technology, entered new industries and run large plants across the country.

Gaining a Competitive Edge Corporations tried to maximize profits in several ways: Paying workers less wages Advertising products Gaining a Monopoly Monopoly- Complete control of a product. Cartel- businesses making the same product would agree to limit their production and keep the prices high for that particular item. Trusts- Companies assign their stock to a board of trustees, who combine them into a new organization. The trustees run the organization, paying themselves dividends on profits.

CORPORATION FORMATION OWNERSHIP CONTROL AND MANAGEMENT NET PROFITS Organized by associates and legalized through state charter OWNERSHIP Stockholders, according to number of shares CONTROL AND MANAGEMENT Through Board of Directors, elected by the stockholders (usually one vote per share of stock held) NET PROFITS AND LOSSES Dividends: to stockholders = profits Lose: only the amount invested by stockholders according to number of shares LIMITED LIABILITY

BUSINESS ORGANIZATIONS Trusts or Monopoly Companies in related fields combine under the direction of a single board of trustees. Shareholders had no say. Outlawed today.

BIGGER IS BETTER A trust or monopoly controls an entire industry TRUSTS AND MONOPOLIES BIGGER IS BETTER A trust or monopoly controls an entire industry make product cheaper lower prices to customer

MONOPOLIES AND TRUSTS

VERTICAL AND HORIZONTAL INTEGRATION Vertical Integration You control all phases of production from the raw material to the finished product Coke fields Iron ore deposits Steel mills purchased by Carnegie Coke fields Iron ore deposits Steel mills Ships Railroads purchased by Carnegie Coke fields Iron ore deposits Steel mills Ships purchased by Carnegie Coke fields Iron ore deposits purchased by Carnegie Coke fields purchased by Carnegie Horizontal Integration Buy out your competition until you have control of a single area of industry MONOPOLY

Modern Day Example of Vertical Integration Ford Motor company What goes in an automobile? Why is it an advantage for a company to own/control all production? Vertical Integration You control all phases of production from the raw material to the finished product

Advantages Vertical Integration You are always in control of supply of the products you need In control of labor cost, land/resources Always in control of the cost Schedule your production of autos because you are in control of all factors

Other Vertical Integrations Boeing Swift & Company (Meat Producers) Anheuser-Busch: all grown by own producers McDonald’s: own cattle ranches AOL Time Warner

Horizontal Integration Examples Standard Oil United Fruit Company: bananas Dole Pineapple Horizontal Integration Buy out your competition until you have control of a single area of industry

Modern Day Examples of Horizontal Integration PG & E Comcast Starbucks Google

Formed the first modern corporations in the oil industry Standard Oil JOHN ROCKEFELLER Formed the first modern corporations in the oil industry Standard Oil Was the first billionaire in the U.S. by 1900. Used Vertical Integration and Horizontal Integration to gain a monopoly in the oil business. Cartoon Rockefeller

Rebates: discount or refund on “freight charges” robber Extortion: Forced against your will Rebates: discount or refund on “freight charges” Drawbacks / Kickbacks: Standard Oil gave certain railroads all its shipping business if it agreed to charge Standard Oil 25% to 50% less than its competitors Buyouts: Larger corporations forced smaller businesses to sell out Congress was “bought out” by the monopolies Spies: Stealing your competitor's ideas Small businesses complained “monopolies” eliminated fair competition

Captain of Industry ANDREW CARNEGIE Monopolized the steel industry Rags to riches story---came from Scotland very poor. Used scientific ideas (Bessemer Process) to develop a better way to produce steel and sell a quality a product for an inexpensive price. Used Veritcal integration. Carneige Picture

Was called “Rock a Fellow” by many JOHN ROCKEFELLER Controlled the railroad by forcing them to pay him rebates because of the volume of business he gave them. Was called “Rock a Fellow” by many Ruthless business man: “Pay no man a profit” Cartoon Rockefeller

Rockefeller/Control Govt Rockefeller was so wealthy, he dictated to the U.S. Government to protect big business---- laissez faire Rockefeller/Control Govt

Rockefeller would be hated by many because he had too much control over the oil industry and the government as viewed by the common man-----Some believed he was corrupt because he took away the right to compete---free enterprise