The Rise of Big Business in America
One of the most far-reaching achievements of the turn-of-the-century United
States was the rise of modern business. The reorganization of business transformed
virtually every aspect of American life. Due to new forms of organization, American
firms became larger and more profitable than anything that had come before them.
Their growth led to fundamental changes in the American political and social structure.
Americans simultaneously embraced and challenged the encroachment of capitalist
enterprises in industry, finance, and transportation.
The concept of incorporation was key to the success of American business.
Corporations had several distinct advantages over other forms of organization. The most
basic advantage was the ability to pool small quantities of wealth from a large number of
people. This allowed corporations to amass wealth that had previously been
unimaginable. In addition, corporations offered investors protection against excessive
liability. Unlike other forms of partnership, corporations were protected by the doctrine
of limited liability. A shareholder in a corporation was committed only to the share
invested in the enterprise, and individual investors could not be sued for additional
damages. Incorporation made industries of scale not only possible, but also practical.
Another advantage of the corporation was its perpetual life. Businesses organized
around a mortal person would often fall into disarray when the person passed away.
With a corporation, the shares owned by the recently deceased could easily be
transferred to one's heirs. Such a transfer would have little if any impact on the life of
the corporation. The corporation became so commonplace that the Supreme Court of
the United States argued that it had all of the rights and responsibilities of the
individual. It was an important legal and social distinction.
The modern corporation relied on new forms of structure and organization. The
emergence of both vertical and horizontal methods of integration was crucial to the
formation of large international businesses. Vertical integration is based on the practice
of developing a corporate structure dedicated to obtaining control of supply, production,
and distribution lines. Andrew Carnegie's Carnegie Steel, which later became U.S. Steel,
was extremely adept in the art of vertical integration. Through a number of well-planned
acquisitions, Carnegie gained control over virtually every aspect of the steel industry. It
allowed him to control everything from the raw materials that were needed to produce
his steel, to the marketing and distribution of the finished products. Horizontal
integration, however, was even more prevalent in the emerging business climate of the
late 19th century. It reflected business's pursuit of market monopoly. John D.
Rockefeller's Standard Oil was especially efficient when it came to horizontal
integration. His acquisitions of competitors created such a monopoly that by the turn of
the century Standard Oil controlled more than 90 percent of the oil refined in the
United States. Carnegie and Rockefeller may have been two of the most successful
integrators of their time, but they were by no means the only ones to use these forms of
consolidation. Dozens of companies used one form of integration or the other.
The assembly line was another innovation that made the emergence of businesses
of scale possible. Meat packer Gustavus Swift not only benefited from the use of vertical
and horizontal integration, he also utilized the assembly line that Henry Ford later
perfected. Swift's assembly line was actually more like a disassembly line. He used the
mechanized line to slaughter, pack, and ship animals. The development of what became
known as "the American System" was crucial in the full utilization of the assembly line
process's flexibility and efficiency. Once interchangeable parts were incorporated into
the assembly line process, the factory began to replace the artisan's shop. Not long after,
skilled workers themselves were either replaced by assembly line workers or
incorporated into the process.
In order to manage these large new organizations, new levels of managerial
bureaucracy were formed. The deskill-ing of industrial workers created a need for a new
managerial class. No longer would apprentices and skilled workers control the means of
production. Professional managers came to replace foremen, skilled workers, and small
shop owners in supervising labor. In an ongoing attempt to increase efficiency,
managers sought to regulate all facets of the production process. Others practically
relegated human workers to the status of machines. Frederick Winslow Taylor provided
the intellectual foundation for these attempts at removing human inefficiencies from the
production process. He developed and promoted the concept of scientific management.
Taylor's The Principles of Scientific Management outlined his concept of scientific
management. Each task was broken down into its most basic components. Each worker
was gauged on his or her ability to complete the basic tasks using the most efficient
methods in a prescribed time. Taylor also argued for higher wages and a more rational
means of compensating workers. Businesses throughout the country paid homage to
Taylor's theories; but for the most part, they were unable to integrate his ideas into their
organizational structure. They also resisted paying workers more. These theories did,
however, fundamentally alter the way in which both business and labor were perceived.
Equally important to the development of modern businesses were new forms of internal
communication. Carbon paper, the typewriter, and the adding machine were only a few
of the devices that helped coordinate the internal activities of the increasingly large
corporate structures. Without these aids to communication, it would have been virtually
impossible for management to effectively organize businesses of scale and scope. New
technologies allowed corporations to become bigger and more powerful. Alongside
many of the traditional businesses grew other industries that supported business.
Insurance, banking, and finance fostered and were fostered by new corporate giants.
New sales and marketing practices were other important factors that allowed for the
expansion of American business in the 20th century. Without efficient modes of delivery
and distribution, American corporations would have had relatively primitive means for
marketing their wares. By the 20th century, the United States went from being a
fragmented market, characterized by low volumes, restricted markets, and high prices,
to a unified one, characterized by high volumes, a national market, and lower prices.
This transformation altered not only the way that manufactures and commodities
were marketed and distributed, but also had a profound impact on the life of the average
American. New consumer goods made their way into urban and even rural homes.
Montgomery Ward, Sears and Roebuck, and other distributors further advanced
marketing in the United States by providing national mail order houses for rural
customers. Products increasingly became less expensive and more readily available. As
products became more readily available, advertising developed to market them to the
growing consumer base. By the middle of the 1920s, the typical American had attained a
standard of living that would have been incomprehensible just a half-century before.
Average Americans commercially benefited from the emergence of big business, but
they did not all benefit in the same way. The managerial class and new corporate elite
received the greatest benefits; as a result, American corporate leaders gained
unprecedented power and influence. The ways in which a number of corporations used
their influence caused a great deal of alarm. No form of business caused more concern
than America’s first really large business enterprise—the railroads. A number of
politicians and writers voiced their concerns about the negative influence of the railroad.
Perhaps no one was more successful in defining the cruelty of the omnipresent railroad
than Frank Norris. His novel The Octopus (1901) defined the struggle between a
ruthless, all-powerful, malevolent railroad and traditional American life. According to
Norris's portrayal, the Octopus, which was a metaphor for the Southern Pacific Railroad,
not only destroyed the economic well-being of the typical American community, it
would also eventually destroy the moral fiber of the nation if left unchecked. Norris was
only one of a generation of authors and journalists, known as muckrakers, who attacked
the emerging political and economic power and control of corporations.
As progressive reformers, muckraking journalists and politicians helped to usher
in a political movement to limit the power of the corporation. The public reception
of Upton Sinclair's The Jungle is an example of this development. While Sinclair's book
was a thinly veiled call for a socialist society, it was not received as one. Americans
responded to Sinclair's novel by calling for corporate regulation. It led to the passage of
the Pure Food and Drug Act of 1906. Like the adoption of the Food and Drug Act, the
Progressive movement called for new regulations to minimize the negative aspects
of business without challenging its supremacy. The Sherman Antitrust Act and
the Clayton Antitrust Act were other attempts that symbolized the Progressive mission.
Under trust-busting efforts such as the Northern Securities case (1904), Progressive
Presidents Roosevelt and Taft sought to control "bad" trusts, while assisting the
development of "good" trusts. In the end, the laws only united the already feeble labor
movement of the era.
Regardless of how Americans perceived the rise of business, corporations and
corporate power were expanding greatly by the turn of the 20th century. Businesses
grew not only in size and in scope, but also became more diverse and powerful. Modern
corporations changed the way in which people worked, shopped, and lived. The growth
of the American economy allowed for increases in discretionary income and challenged
the ways in which people had lived for generations. Business, more than any other force,
revolutionized American society.
References/Further Information
Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American
Businesses (Cambridge, Mass.: Belknap Press of Harvard University Press, 1977); Glen
Porter, The Rise of Big Business, 1860–1920, 2d ed. (New York: Thomas Y. Crowell,
1992); Oliver Zunz, Making America Corporate, 1870–1920 (Chicago: University of
Chicago Press, 1990).
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