HI 125 - Lecture 10 PDF

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HI 125 – Lecture 10 Three Points 1. Big business emerges c.1840-1920 marked by the appearance of large scale, national; and global corps that departmentalized and ‘scientifically’ managed often based on these new technologies. 2. Railroads are the leading edge of these developments and they are among the first to encounter problems from competition that cause a tendency towards monopolistic structures and concentration. 3. Standard Oil is one of the most successful of the businesses in this period and pioneers’ new forms of corporate organization as well as a ruthless vertical and horizontal integration Part 1 – The 19th Century Industrial and new corporation Corps are becoming freely available – no longer need to beg like before New Networks: Railroads US and German Industrial Strength The second industrial revolution The struggle between labour and capital Mass production and consumption (national brands) – tremendous productivity Branding Marketing New global economic system Gold standard Financial engineering Part 2 – Big Business Emerges Overview – before 19th century The business world of the industrial revolution Small scale and artisanal Family owned and partnership, highly personal Regional markets Through important long distance networks that are seaborne Railroads change all of this Big Business Rise of big business (c.1840-1920) Defined by large capitalization, spatial breadth, administrative sophistication, mass production, and separation of ownership and management Made possible by transportation and communication networks, and mass production technologies Develops its own logic of concentration – it makes sense to get bigger and bigger to cut costs and receive a national audience. Concentration leads to monopolies.

Railroads Iron + Steal Railroads ‘democratize’ transportation and moves the new goods Wooden tracks used in British mines and as early as 1767 iron is substituted 1805 first general purpose railway (horse drawn) Railroads – Cultural Change Economic Transformation: lowers costs of transportation and increases speed of movement Social change: easier movement of people and growth of towns (idea of commuter towns) Business Organization changes Co-ordination, capital, and management Business no longer local: national markets and networks Time and space: nation building Sir Sandford Fleming! (1884) Central pacific (1862); Canadian Pacific (1881) Time zones Corporate Organizations Railroad corporations are different -Capitalization (huge) Employment (big) Logistics (complex) Organization (bureaucratic) Competition – Natural monopolies? Corporate Organizations Organizational innovations 1840s onwards Divisional Structures Data monitoring and reports: Western Union (1846 – 1866) Transportation and communication Legal structures are always corporations because they need the capitalization (need money) The problem with pricing – race to the bottom - Pools and cartels ->ICC (1887) (price fixing) Big Effects Transforms the scale of business and its production requiring new legal frameworks Formation of new administrative hierarchies and the concept of professional management Social Changes – The middle class with white collar, corporate jobs Concentration of wealth and power Networks Need to reduce competition

Part 3 – Standard Oil (important for midterm) Illumination is very important for business at night and grease for machines (before kerosene, the fuel was from whales) $5 Trillion Industry Begins Rock oil (petroleum) Illumination: kerosene 1858 oil springs, Ontario 1859 Edwin Drake hits oil in Titusville PA (drilled) Little capital needed to enter the industry People become rich overnight Discussion: A case Standard oil is important because: Need to drive volume forces concentration Pioneer in horizontal and vertical integration Need for new forms of corporate organization: the trust and the multistate holding company. John Rockefeller Born 1939 Baptist household (thrift and austerity) Enters grocery business (1859) He’s and numbers guy (bookkeeper and accountant) Not an oil driller but a refiner instead Oil: The early days US worlds leading producer (still is) I drink your milkshake (if I have property over oil, whoever gets it first gets to keep it) Cutthroat competition Price and supply fluctuate wildly Boom and bust (unstable market) Cartels (tried to fix boom and bust but didn’t work) Standard Oil (1870) Well run refineries – cost and volume business Exercise power of scale (by-products and costs) esp. railroads 1870 Standard Oil of Ohio incorporated Buy and join other companies to make bigger companies to cut costs and competitions (horizontal integration) Negotiate with railroads due to high volumes of shipments The Trust 1879 – 1882 Has the charter in Ohio so it may not have the same rights in other states Problem of state charters

1979 – first trust; 1882 second trust Standard Oils founded in different states 40 named companies + 41 investors 9 trustees + executive committee Book value of 55 million Leads to consolidation of the company (three major refineries)...