The Rise of BIG BUSINESS. 1 st Industrial Revolution (Pre-Civil War) Most business were family-owned...
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Transcript of The Rise of BIG BUSINESS. 1 st Industrial Revolution (Pre-Civil War) Most business were family-owned...
The Rise of The Rise of
BIGBIG BUSINESS
11stst Industrial Revolution Industrial Revolution (Pre-Civil War)(Pre-Civil War)
• Most business were family-owned• Produced goods for local or
regional markets.
A textile A textile factory factory
producing producing children’s children’s clothing in clothing in Baltimore, Baltimore,
MDMD
Transcontinental RailroadTranscontinental Railroad
Effects of Effects of TranscontinentTranscontinental R.R. Systemal R.R. System
• Created a nationwide market for goods.– What effect would this have on businesses?
• Allowed business to locate farther west.– How did this result in the economic growth of
the United States?
• Americans begin settling the West• West & East become interdependent
Rapid Economic Growth Rapid Economic Growth After the Civil WarAfter the Civil War
• Output of goods rises 7% per year after the Civil War.
• 1865: U.S. produces $2 Billion in goods
• 1900: U.S. produces $13 Billion in goods– U.S. most productive nation in world
by 1900!
American economy American economy depended on depended on
ENTREPRENEURSENTREPRENEURSPeople who take risks to create new
businesses using their’s (and others) money and talents
America’s Economic America’s Economic System Encouraged System Encouraged
Entrepreneurial Spirit and Entrepreneurial Spirit and Led to GrowthLed to Growth
What system of economics do we have in the U.S.?
CAPITALISM
What is Capitalism?What is Capitalism?• Most industries are run by private
businesses. – Government does not control
production/sale of goods.
• Businesses run by private individuals– Government does not control businesses
• Prices of goods determined by competition– Government does not regulate prices
How Competition How Competition Determines PricesDetermines Prices
The Jones Hat Co. produces & sells derby hats for $50 per hat
The Connolly Hat Co. starts up and produces hats cheaper & sells derby hats for $39.99 per hat.
WHAT EFFECT WILL THIS HAVE ON THE JONES HAT COMPANY?
Competition Regulates Competition Regulates PricesPrices
•To stay competitive, Jones Hat Company must lower prices.
REMEMBERREMEMBER
COMPETITION COMPETITION REGULATES REGULATES
PRICES!PRICES!Modern day example: Cell Phone Companies
Costs of Basic Cell Phone Costs of Basic Cell Phone PlansPlans
(Competition Regulates (Competition Regulates Prices!)Prices!)
THINK!THINK!Why are food prices high at the
Student Union?
Laissez-Fair?Laissez-Fair?HANDS OFF!
Government does not interfere in businesses
Allows competition to regulate prices
Think: Why should government take a “laissez-fair” approach
to business?
Business Structures Business Structures The way businesses were owned The way businesses were owned
& organized& organized
1.Proprietorship & Partnerships
Business completely run by one person or two people.
• Typically smaller businesses• One/Two people completely
responsible for businesses
Business Business StructuresStructures
2. Corporation Company that is owned by stockholders
(people who buy a share (%) of a business).– Stockholders elect a Board who makes
major business decisions– Board hires officers to run day-to-day
operations.– Show on Board
Why Businesses Why Businesses IncorporateIncorporate
• Allows the business to raise more money to expand (stocks)
• Owners not responsible for debt or failure of business
• Stockholders only liable for their share• Business not dependent on one
person & can continue after the founder is gone
3. Trusts & Monopolies
Trust – Merging of competing companies to create larger & more productive company.
Monopoly – When a trust gained complete control over an industry.
Business Business StructuresStructures
TrustTrust
Bought smaller oil Bought smaller oil companiescompanies
Controlled Controlled 90% 90% of all U.S. of all U.S. oil by 1879oil by 1879
2 Ways Businesses Got 2 Ways Businesses Got
BIGBIG1.Vertical Integration
2.Horizontal Integration
VERTICAL
INTEGRATION
HORIZONTAHORIZONTALL
INTEGRATIOINTEGRATIONN
The Industrial The Industrial TycoonsTycoons
(The Robber Baron’s, Captains of (The Robber Baron’s, Captains of Industry)Industry)Entrepreneurs who grew industrial
empires & accumulated tremendous wealth (often using questionable practices)
Andrew CarnegieAndrew Carnegie• Immigrated to U.S.
from Scotland at 12• Worked as a
“telegraph boy” for a Pittsburgh railroad
• Began investing in his 20’s/30’s and gained wealth
• 1870’s: Invested in steel
Carnegie Steel Carnegie Steel CompanyCompany
• Adopted & improved the Bessemer process
• Carnegie’s philosophy:– 1. Constant innovation (new technology to
reduce operating costs)– 2. Always sell product cheaper than
competitors– 3. Retain profits to take advantage of
opportunities (buying competitors).
Dominated throughDominated through
VERTICAL VERTICAL INTEGRATIONINTEGRATION
Carnegie integrated every phase of steel production
Owned iron ore mines in Minnesota
Ships to transport iron ore
Railroads transported raw materials in and finished steel out
Carnegie’s Vertical Integration:1.Improved efficiency2.Controlled the quality of his product at every stage of production3.Lowered costs by reducing “middle-man” fees and supply costs
Steel: Stronger & More Steel: Stronger & More ShapeableShapeable
Carnegie’s WealthCarnegie’s Wealth
• 1900: Carnegie Steel produced ¼ of all steel produced in the United States.
• 1900: Carnegie Steel Co. made a profit of nearly $42 Million
• Carnegie sold his share of Carnegie Steel Co. to J.P. Morgan for
$400 Million
Carnegie the Carnegie the Philanthropist Philanthropist
• After 1900, Carnegie spent the rest of his life giving his money away to worthy causes.
• Gave away $350,695,653 to worthy causes before his death.
• Gave away his last $30 million after his death
PhilanthropyPhilanthropy• Funded the construction of
3,000 libraries throughout the world
• Funded the construction of universities
• Funded the construction of Carnegie Hall in NYC
Other TycoonsOther Tycoons
John D. RockefellerJohn D. Rockefeller• Founder of Standard Oil
Company• Grew by Vertical &
Horizontal Integration
• Bought competitors until he controlled 90% of U.S. oil
Broken up under Sherman Anti-Trust Act in Broken up under Sherman Anti-Trust Act in 1911 in 34 companies1911 in 34 companies
Other TycoonsOther Tycoons
Cornelius VanderbiltRailroad Tracks
George Pullman Designed RR Cars
(Sleeping Car)
J.P. MorganFinancier, Corporate
Consolidator
Akron Akron ConnectionConnection
Akron becomes “Rubber Capital of the World” during 2nd Industrial Revolution
1900 1898
Firestone ParkFirestone Park
Stan Hywet Stan Hywet Home of Frank SeiberlingHome of Frank Seiberling