BIG BUSINESS BIG BUSINESS EMERGESEMERGES

Bessemer Bessemer ProcessProcess

Steel IndustrySteel Industry

Big BusinessBig Business

ANDREW CARNEGIE - ANDREW CARNEGIE - BUSINESS TYCOON ANDBUSINESS TYCOON AND

PHILANTHROPISTPHILANTHROPIST

What is a philanthropist?What is a philanthropist?

The Steel Industry

NEW BUSINESS NEW BUSINESS STRATEGIESSTRATEGIES

Andrew Carnegie’s Business practicesAndrew Carnegie’s Business practices• vertical integrationvertical integration

– bought companies that sold supplies bought companies that sold supplies • Coal, iron mines, a railroad line Coal, iron mines, a railroad line

– Carnegie thereby controlled every stage of the Carnegie thereby controlled every stage of the productive process from raw materials to marketing. productive process from raw materials to marketing.

• horizontal consolidationhorizontal consolidation – Bought out his competitors. Bought out his competitors.

• By 1899 Carnegie’s company was the world’s By 1899 Carnegie’s company was the world’s biggest industrial corporation and produced one-biggest industrial corporation and produced one-fourth of the nation’s steel.fourth of the nation’s steel.

• Result:Result: helped to concentrate power in a few helped to concentrate power in a few giant corporations and limited competition. giant corporations and limited competition.

? Business Practices ?? Business Practices ?

EXAMPLE:EXAMPLE:?? - - Carnegie SteelCarnegie Steel company. company. The company controlled:The company controlled:

* the mills where the * the mills where the steelsteel was was manufacturedmanufactured

* the mines where the * the mines where the iron oreiron ore was was extractedextracted

* the coal mines that supplied the * the coal mines that supplied the coalcoal,,* the railroads that transported the coal to * the railroads that transported the coal to

the factorythe factory* the * the ovensovens where the coal was cooked, where the coal was cooked,

etc. etc. vertical integrationvertical integration

? Business Technique ?? Business Technique ?

• Example: Carnegie Steel Example: Carnegie Steel – ?? acquiring competitors by acquiring competitors by

• pricing products so low that competitors pricing products so low that competitors could not compete and make a profit - Then could not compete and make a profit - Then buying them out. buying them out.

• By 1899 Carnegie’s company was the By 1899 Carnegie’s company was the world’s biggest industrial corporation and world’s biggest industrial corporation and produced one-fourth of the nation’s steel. produced one-fourth of the nation’s steel.

HORIZONTAL CONSOLIDATION

RESULTRESULT• Vertical integration and horizontal Vertical integration and horizontal

consolidation helped to concentrate consolidation helped to concentrate power within a few giant power within a few giant corporations and limited corporations and limited competition.competition.

Monopolies Monopolies

What Factors Contributed to What Factors Contributed to Carnegie’s Success? Carnegie’s Success? (According to him) (According to him)

1.1. Hard Work Hard Work

2.2. Shrewd Investment Shrewd Investment

3.3. Innovative Business PracticesInnovative Business Practices Better Products Better Products Lower Production Cost Lower Production Cost Hired talented peopleHired talented people

HOW DID PHILOSOPHERS HOW DID PHILOSOPHERS EXPLAIN CARNEGIE’S EXPLAIN CARNEGIE’S

SUCCESS? SUCCESS? SOCIAL DARWINISMSOCIAL DARWINISM1.PRINCIPLES OF SOCIAL DARWINISM

• Enables the strongest to survive• Justifies Laissez faire "allow to do"• Unregulated business/marketplace

2.SUPPORT FOR SOCIAL DARWINISM* Supported idea of responsibility and

blame* Protestant work ethic of many Americans* Poor must be lazy & inferior* Enforced by popular literature "Rags to

Riches" stories

Supporters of Social Supporters of Social DarwinismDarwinism

• Believed in a Believed in a Laissez-faire capitalismLaissez-faire capitalism

CapitalismCapitalism• an economic system in which most an economic system in which most

means of production are owned and means of production are owned and controlled privately, and capital is controlled privately, and capital is invested in the production, invested in the production, distribution and other trade of goods distribution and other trade of goods and services, for profit.and services, for profit.

TYPES OF BIG TYPES OF BIG BUSINESSESBUSINESSES

1.1. OLIGOPOLYOLIGOPOLY • Businesses producing similar products joined Businesses producing similar products joined

together – together – • only a few sellers in a marketonly a few sellers in a market

2.2. MERGERSMERGERS - one corporation bought out - one corporation bought out stock of anotherstock of another

3.3. MONOPOLYMONOPOLY - complete control over its - complete control over its industryindustry::

• production, quality, wages paid, & prices production, quality, wages paid, & prices • Eliminates competitorsEliminates competitors• only one seller in a marketonly one seller in a market

4.4. HOLDING COMPANIESHOLDING COMPANIES

STANDARD OIL COMPANY STANDARD OIL COMPANY (Trust)(Trust)

EST. BY JOHN D.EST. BY JOHN D.

ROCKEFELLERROCKEFELLER• joined competing companies joined competing companies

in a trust agreementin a trust agreement• Rockefeller gained control of Rockefeller gained control of

the Oil Industry in Americathe Oil Industry in America

5. trusttrust == people turn their people turn their stock over to a group of stock over to a group of trustees (group that runs trustees (group that runs separate companies as one separate companies as one company)company)

What message is this What message is this political cartoon trying to political cartoon trying to

convey?convey?

““Robber Barons”Robber Barons”OR “Captains of Industry”?OR “Captains of Industry”?• (22) (22)

American American billionaires billionaires by 1900by 1900

• Debate:Debate: Corrupt Corrupt businessmen businessmen OR Corrupt OR Corrupt system which system which they were they were embedded .embedded .

Coined by Matthew Josephson (European history – stealing)

UNREGULATED UNREGULATED BUSINESSESBUSINESSES

Ex. Of a Ex. Of a ROBBER ROBBER BARON:BARON:

• ROCKEFELLERROCKEFELLER• 1870 - Standard 1870 - Standard

Oil Company of Oil Company of Ohio -Ohio -.. Controlled Controlled 90% of the refining 90% of the refining business.business.

• Didn't pass along Didn't pass along profitsprofits

• Uneven Uneven distribution of distribution of Income in the U.S.Income in the U.S.

FIRST ATTEMPTS FIRST ATTEMPTS GOVERNMENT GOVERNMENT REGULATIONREGULATION

1.1. supreme court case supreme court case MUNN v. MUNN v. ILLINOISILLINOIS

Established the gov’t. right to ?Established the gov’t. right to ? INTERSTATE COMMERCE ACT – 1887INTERSTATE COMMERCE ACT – 1887

2.2. SHERMAN ANTI-TRUST ACT - SHERMAN ANTI-TRUST ACT - 18901890

Federal gov’t. law - made monopolies & Federal gov’t. law - made monopolies & trusts illegaltrusts illegal

Hard to enforce (almost impossible)Hard to enforce (almost impossible)

PROBLEMS OF PROBLEMS OF INDUSTRYINDUSTRY

1.1. Poor working conditions: low wages, long Poor working conditions: low wages, long hours, dangeroushours, dangerous

Led to Led to UnionsUnions being formed within being formed within the labor force.the labor force.• Organized workers fighting for better Organized workers fighting for better

wages and working conditions.wages and working conditions.

2.2. PollutionPollution

3.3. Overcrowding in CitiesOvercrowding in Cities

4.4. Crime and CorruptionCrime and Corruption

5.5. PovertyPoverty

6.6. Unregulated Businesses – led to corruptionUnregulated Businesses – led to corruption