Ch. 23 Big Businesses

Big Businesses

Vertical Integration

• Combining into one organization; all phases of manufacturing from mining to marketing
• Example (Industrialist/Company)
  • An example of Andrew Carnegie, also known as the steel king. He bought railroad companies and iron mines.
• How did it help business?
  • It helped the business because by buying most of the railroad companies and iron mines he controlled the need for steel. By increasing the need for steel, more people bought it, gaining more money.
• How did it impact consumers?
  • Lower prices and less flexibility (you can end up losing money on investment)
  • Controlling process from start to finish; control over the quality of product
  • Himself buying a railroad-eliminated cost of railroad (eliminated middleman fees) and increases his revenue and profit because he cuts expenses
  • Ex. Carnegie Steel owned US Steel, which was then owned by JP Morgan, which became the 1st billion dollar corporation in US history***
  • Vertical Integration did end up producing  quality product at affordable prices, however, it can lead to the creation of a monopoly
  • It’s hard because employee costs are a key factor; sometimes Middlemen fees are less expensive

Horizontal Integration

• Allying with competitors to monopolize a given market--

• Example (Industrialist/Company)

  • Ex. Disney, Pharma companies, Marriott
  • JP Morgan bought out competitors when purchasing Carnegie Steel
  • JP Morgan Chase (Banking institution)
  • Rockefeller (Standard Oil company)
  • GDP: how much services and goods you are producing

• How did it help business

  • Reduced number of competitive companies in industry (increased allies) and helped to expand their market and or help them enter into new markets.
  • JP Morgan purchased Carnegie Steel; he bought out competitors and created the largest enterprise

• How did it impact consumers

  • Horizontal integration impacted consumers both positively and negatively. The positive impacts included that of increasing market share or power within the market and there was more diversification since both companies will combine their products and services in one. However, the negative impacts include businesses creating monopolies within the market.

Social Darwinism

• Theorists who argued that individuals won their status in life by competing based on their natural talents
• Example (Industrialist/Company)
  • Andrew Carnegie: Carnegie Steel Corporation
  • Gospel Of Wealth: believes that millionaires were trustees and the poor shouldn’t be given charity and they had to earn their wealth; wealth was only for certain people
  • William Grant Sumner- Advocate of Social Darwinism
  • Vanderbilt, Morgan, Carnegie ALL were supporters of Social Darwinism
  • God gave them special gifts that allowed them to succeed
  • Why are poor people poor?
• How did it help business?
  • The wealthy and powerful had simply demonstrated greater abilities than the poor; they had greater abilities which had more success, which was better for the economy; justifies monopolies and their accumulation of power
  • Laissez-faire (Lack of gov. Intervention) and racism/socioeconomic discrimination (superiority)
  • Most adaptable/resourceful; without gov. Intervention society will end up with nothing but well-run efficient businesses and it leads to monopolies and trusts
• How did it impact consumers?
  • Debilitated ability to climb the social hierarchy publicly doesn’t control prices by monopolies (Business controls it but doesn’t care about needs of people, they only want profit)

Monopoly

• Control of trade in the industry; business controls over industries: production, quality of goods, and price and wages within that industry
• Example (Industrialist/Company)
  • Carnelius Vanderbilt steamships- eventually goes to the railroad business
  • Competing against Hudson River steam boat association
• How did it help business
  • Raise prices w/o consequence--Earn more profit
  • How did it impact consumers
  • Harm consumer interests (people may not be able to afford their products)
  • No suitable competition to encourage lower prices/better quality products
  • Customers start to buy from the same seller---lack of competition and reduced quality

Trust

*Can have vertical and horizontal integration

• Competing companies join together by what is known as a trust agreement.

Divide market and sell products at agreed upon prices; form monopoly under one company;

• Example (Industrialist/Company)

  • An example of trust would be John D. Rockefeller’s Standard Oil Company (the 1870s) which eliminated his competition by taking over smaller oil companies
  • He has standard oil, he purchases oil companies, railroads, and shipping became one big company
  • Small businesses work together and absorb into one company, become purchased or become part of company; or refusal would mean that the company would bankrupt small business

• How did it help business?

  • The trust agreement helped Rockefeller’s business because he was able to take complete control over the oil business by applying new forms of technology and more efficient tactics.
  • Rockefeller’s Standard Oil Company controlled about 90 percent of the oil business.

• How did it impact consumers

  • Trust agreements impacted consumers mostly in a negative manner because they [the people] were forced to pay higher prices for items they needed on a day to day basis, the trust agreement also gave complete control of a specific industry to one company such as the Standard Oil Company which completely took control over the oil industry and made it impossible for smaller companies/businesses to make money.

• Technology, Labor, and Resources---Contributed most to American Industrial Expansion

Reasons for American industrial expansion:

• Natural resources
• Labor- immigration allowed for cheap labor
• Railroad networks
• American Ingenuity
• Innovations in transportation/communication- Patents:
• Mass-production methods/machinery
• Liquid Capital- money available for you to invest
• ***Large domestic market--Consumer base in US and No need to export a lot
• Aided in building transcontinental railroads, which allowed for economic boom and urbanization
• Did the work no one else wanted to do
• Added diversity
• Fueled mass-production methods by controlling machinery
• Led to future advancements of no child labor, health benefits, safer conditions (higher ceilings, more space to work in, more hygenic, and better wages)---more unity within lower class because they realized they were all being treated terribly by people with more money (and how the government would always support them); newer opportunities with technological advancements, which means more labor was available