Chapter 17Industrial Supremacy

The Rise of Industry• The American industrial system had steadily

grown at a faster rate than many European powers .– However, more change and growth took place

between 1870-1900 than even before.• American industries benefitted from a variety of

new technology • Changes in corporate organizations that

enabled more capital • Waves of immigrants that provided cheap labor

The Age of Steel• The rise of steel revolutionized the economy of

Western Pennsylvania and eastern Ohio.• The Bessemer Process– Developed by Englishman Henry Bessemer– Steel must be purified at a higher temperature than

iron to get all the impurities out.– Bessemer Converters blew air through the molten coke

to get it hotter.• Western PA was ideal for this industry because of

the abundance of iron ore that was mined.

The Bessemer Converters

Pittsburgh• The development of steel industry along the Great

Lakes region became commonplace.– Freighters along the lakes could easily transport the

ore, and railroads connecting the towns and cities could easily do the same.

– Pittsburgh became an ideal location because of its proximity to the mines, and confluence of the three rivers enabled easy transport.

• Railroads and steel companies often worked together since they needed the new steel rails and parts for their cars.

Rise of the Oil Industry• In 1859 Edwin Drake established the first oil well

near Titusville, PA.– As the oil pumped out 500 barrels a month and they

found new used for it the industry grew.– Eventually Quakers State, Pennzoil, and Wolf’s Head oil

companies were based out of nearby Oil City, PA.– By the late 1870’s oil grew to 4th among America’s top

exports.• Oil could be used to lubricate machines, light

lamps in factories, and later for fuel.

Corporate America• Corporation:– Groups of investors in a chain of businesses who each

receive a portion of the profit according to the amount invested.

– On the other hand, they only lose what they invested also, this is called Limited Liability.

– After the Civil War more companies became incorporated as business owners realized they would need more capital to compete in foreign markets.

Corporate America Cont.• Trusts:– Several companies give control to a board of trustees

who then handle finances and make decisions for all of them.• Burger King, McDonalds, Taco Bell, and KFC join a trust

together.• BK and KFC are doing well, but Taco Bell and McDonalds are

struggling – the board would use profits from the first two in order to help increase business for the others. Once they are stable again they allow the funds to be used otherwise.• In this way all four do better together as part of the trust

rather than by themselves.

Corporate America Cont.

• Holding Companies:– Manufactures no goods and has no customers– The purpose of a holding company is to buy stocks

in other companies.– Investors could hold a majority of stocks in

multiple companies through holding cos.– This is illegal today!

Corporate America Cont.• Horizontal Integration:– Consolidation of two or more companies from the

same industry.– Example: Verizon and ATT combine to make one large

phone company.• Vertical Integration:– Consolidation of two or more companies from

different industries.– Example: Verizon provides cell phone coverage,

Motorola provides the actual phone. These are different services that could be combined into one business.

Rockefeller’s Standard Oil Co.• Began his career as a book keeper

for a produce company in Cleveland when he was 16 years old

• He began investing in the oil industry shortly after Drake’s Well.

• Much like the gold rush, millions of people came to Western PA and Ohio hoping to buy oil rich land.

• Rather than risk all his money on a well that may never produce, Rockefeller purchased refineries where the oil had to be processed.

Standard Oil – Horizontal Integration• The Rebate: Rockefeller would give railroads oil at

a much cheaper rate in exchange for cheap transportation of his goods.– The rail lines would also give him information about

where his competitors sent their oil.– Basically, Rockefeller could stay in any market cheaper

than his competition until he got rid of them.• Once he gained control of the industry,

Rockefeller then expanded Vertically.– Built his own barrel factories, warehouses, pipelines,

and even developed his own freight cars and owned some of the significant banks in the U.S.

Standard Oil Cont.• Standard Oil was considered a trust – often

Rockefeller acquired control of a competitor, but allow them to stay in business while he ran their finances.

• Rockefeller’s refinery corporation which earned him over $1 Billion in his lifetime.– Eventually Rockefeller consolidated over 40% of

American refineries and controlled access to 90% of refined oil in the U.S.

Andrew Carnegie – Vertical Integration• Carnegie was an immigrant from

Scotland• He got his start as a clerk for a

railroad company.– He would invest leftover money from

his paychecks in iron ore deposits.– Eventually he made enough from his

investments to actually buy the railroad company too.

• Using his iron ore interests and control of Great Lakes railroads he was the first to bring the Bessemer process to America.

U.S. Steel• In 1901 Carnegie sold his shares of Carnegie Steel

to the wealthy banker, J.P. Morgan for $450 million.– Morgan then consolidated it with other investments to

create the U.S. Steel company based out of Pittsburgh.– Eventually U.S. Steel controlled almost 2/3 of the

nation’s steel production, and was worth over $1.4 billion.

Social Darwinism:• Applying the biological theories of Charles Darwin to

the business world.– In particular “survival of the fittest”

• The idea is that bigger businesses are more capable of surviving in the American market– Therefore small shop owners will eventually run out of

business.• They do this through a process called Economies of

Scale.– Big businesses may sell goods at a much lower price so that

they may eventually get rid of competition.– They are capable of doing this because they produce so much

more goods than other companies.

The Gospel of Wealth

• Idea developed and promoted by Andrew Carnegie.

• The belief that it is the duty of wealthy people to give back and take care of the less fortunate.– Belief in the “Gospel of Wealth” is

why Carnegie gave back so much of his fortune.

– Most of it to libraries, research institutes, and education.

Myth of the Self Made Man• Opponents of the corporate titans claimed their

power corrupted local, state, and national politics and threatened the republican way.

• They tried to defend their actions and provide rationale for society’s benefit.– They claimed that the new economy was actually

increasing the individuals opportunities and the ideal of the “rags-to-riches” stories.

• Unfortunately, few of them were actually like Carnegie or Rockefeller, most came from positions of wealth and their rise was more a result of ruthless tactics than ingenuity.

Horatio Alger• Originally a small town minister in Massachusetts,

but was removed from the pulpit over a sexual scandal.– He moved to New York and began writing stories that

revolved around poor boys moving from small towns to big cities in search of fortunes.

– Books sold over 20 million copies and made him wildly rich and popular.

– Alger’s name became synonymous with this myth of the self made man.

The Problem with Monopolies• By the end of the 19th Century laborers, farmers,

consumers, and small time manufacturers felt the need to change the system.– 1. captains of industry had created artificially higher

prices.– 2. this inflation of prices weakened the economy as a

whole until eventually it seamed on the verge of collapse with the Panic of 1893.

– 3. workers wages and conditions rarely improved or provided opportunities for them.• The gap between rich and poor had gotten too large.

Life of the Laborer• While conditions were initially enticing after the Civil

War, most laborers made well below poverty levels by the end of the 19th Century.– Wages were constantly adjusted, and much of the work

became seasonal, technological advancement reduced jobs as well.

– Factory laborers worked 10 hr. days – 6 days a week, steel workers had 12 hr. days.

– Conditions were alarmingly unsafe, and workman’s compensation was rare if at all.

• As corporate employers put more control of factories in the hands of managers the atmosphere became hostile.

Unions in America• Original attempts usually failed – Single shops or smaller specialized unions rarely had

power to stand up to employers.• When the economy faltered at times, the majority

of middle-class workers blamed union supporters for their troubles, rather than employers.– Molly Maguires: an Irish coal mining group in PA.• Used intimidation, violence, and murder to terrorize owners

for their rights.• Were viewed as the reasons why unions were dangerous.

Railroad Strike of 1877

• Eastern railroads cut wages by 10% as a result of 1877 recession.

• Workers decided to strike from Baltimore to St. Louis.– Strikers disrupted rail service which led to equipment

disruptions and outright riots in Pittsburgh.– President Hayes had to call in troops to put down riots

in West Virginia and Baltimore, and militia opened fire in Philadelphia.

– Over 100 people were killed over several weeks.

National Labor Unions• The Knights of Labor (1869)– Open membership to all “toiled” workers around the

country.– Excluded lawyers, bankers, liquor dealers, and gamblers– Included women and black members though.– Chapters met in their local assemblies that were loosely tied

to the national “general assembly”– Most of their goals were vague and long range

• Child labor laws, 8 hr. work day, adjustment to wage systems.

– Under Terrence Powderly the Union rose to 700,000 members in the 1870s and 80s.

– Experienced limited success, but when railroad strikes in Texas crushed local groups the Knights fizzled out by 1890.

Unions Cont.• American Federation of Labor (AFL):1886– Led by Samuel Gompers– Craft union that represented mainly just skilled workers• Were actually hostile to any attempts at unskilled unionizing.

– Resisted the idea of women workers who drove down prices and were used to break up bargaining.

– Rejected the ideal of government involvement, but rather understanding between laborers and employers.

– Favored primarily collective bargaining, but not opposed to strikes.

– Most extreme action was calling for a national strike beginning May 1, 1886 for a 8hr. work day.

Haymarket Square Strike• Workers for the McCormick Harvester Co. in

Chicago in April 1886.– Police harassed strikers and killed 4, the next day one of

them threw a bomb at police and killed 7, injured 67.– 8 Strikers were arrested, placed on trial and convicted

of murder.• No real evidence that the 8 had anything to do with the

bombing and trial was handled questionably.

– Sentenced to death, one of them committed suicide, 2 were executed and the rest had sentences reduced to life in prison.

The Homestead Strike (Pittsburgh 1892)

• Skilled Steel labor unions had the most power of any in the nation. Amalgamated Association of Steel Workers– As changes to the steel making process reduced the power of

these skilled laborers, Carnegie began cutting their wages.– At first the unions obliged, realizing their loss of power.– But eventually they struck when wages were cut and

management refused to bargain at all.– Plant immediately closed down, hired 300 Pinkerton agents to

guard the doors and, hired replacements.– Fighting killed 3 guards and 10 strikers and Pinkertons were

eventually forced to surrender.– Pennsylvania national guard brought 8,000 soldiers to diffuse

the situation and after 4 months the Workers surrendered.

The Pullman Strike (Chicago 1893-94)• Pullman Palace Car Co. made parlor and sleeping cars

for railroads.– Built the town of Pullman where workers rented houses run

through the company.– Winter of ‘93 the Pullman company slashed wages, but

retained the cost of rent.• Rent was already higher than similar housing in the area.

– Pullman workers united with the American Railway Union and together they shut down transportation from Chicago to the Pacific. (27 state economies were disrupted)

– When the governor of Illinois refused to protect the businesses they convinced President Cleveland to send 2,000 federal troops and eventually arrested all union leaders.