The rise of Big Business and corporations were financed and organized on a such massive scale that they were able to influence social and political policies in the United States. Opponents of Big Business and large corporations in the late 1800's argued that they had too much power in government and used their influence to extract favorable legislation. The Rise of Big Business and corporations led to social unrest including riots and strikes and the rise of labor Unions. For addition facts refer to the article on the Labor Unions History.
The Rise of Big Business and Corporations in America: The Industrial Revolution
The Rise of Big Business and the establishment of corporations emerged during the period of intense economic and industrial growth during the US Industrial Revolution. New inventions, innovations and technology provided the entrepreneurs of the era with the opportunity to create the massive organizations so bringing about the rise of Big Business and Corporations.
The Rise of Big Business and Corporations for kids: The U.S. Economy
The economy in the late 1800's was dominated by the Big business and corporations that operated in the oil and petrol business, the steel industry, the railroads, textiles and food production that operated vast complexes of factories, warehouses, offices, and distribution facilities and employed the majority of the labor force in the United States.
The Rise of Big Business and Corporations: The Robber Barons and Captains of Industry
The Rise of Big Business and corporations was driven by men of vision who took risks developing new inventions whose determination earned them vast amounts of money, fame and success. These men who built the new industries all made a significant contribution to the economy of the United States by expanding markets and increasing trade. These entrepreneurs also used new methods, inventions and technology to increase productivity and create new jobs. The Rise of Big Business and corporations saw varying business practices and ethics which led to wealthy industrialists being referred to either as Robber Barons or as Captains of Industry.
The Rise of Big Business and Corporations: Charters replaced by Corporation Laws
The Rise of Big Business and corporations in the United States really began in the mid 1800's. Before this time business entrepreneurs had to persuade a state legislature to issue them with a charter. Charters (licenses to exist) were granted for a limited time and could be revoked. This changed in the 1830s when states began passing broad incorporation laws that allowed companies to become corporations and issue stock without charters from the state legislature.
The Rise of Big Business in America for kids: The Role of Corporations
The Rise of Big Business would not have been possible without the corporation. What is a corporation?
A corporation is an organization formed with state governmental approval that is owned by many people but treated by law as though it were a single person that has its own powers, duties, and liabilities
A corporation conducts business, pays taxes and makes contracts, and can sue and be sued
A corporation can issue shares of stock to raise large amounts of money with which to start a business or increase its capital
Shares of ownership called stock
The people who own corporations are called stockholders
Issuing stock allows a corporation to spread the financial risk
The Rise of Big Business and Corporations for kids: Economies of Scale
The Rise of Big Business was made possible by establishing corporations that used economies of scale. What are economies of scale?
Economies of Scale were made possible by using the money raised from the sale of stock
Big Business and corporations could use this money to invest in the business to increase their efficiency and profitability
Big Business and corporations were therefore able to invest in new inventions and technology.
They had the money to buy many new machines and raw materials at highly competitive prices
They had the money to employ a vast labor force to increase productivity
They were also able to negotiate rebates from the railroads, reducing their operating and shipping costs even further
These practices allowed Big Business and corporations to achieve what are called Economies of Scale
The Rise of Big Business and Corporations: Small Businesses were eliminated
The Rise of Big Business saw the corporations dominating all of the important, major industries. They were able to make goods more cheaply and quickly and cut prices by using using large manufacturing facilities. They began to make enormous profits, which attracted even more investors who bought shares of stock that provided Big Business and corporations to make even more investments. Existing businesses just could not compete and were forced out of business - meaning more customers, limited competition and the opportunity to increase profits even further.
The Rise of Big Business and Corporations: Consolidation of Industry
Big Business and corporations became powerful and started to fix prices. The organized 'Pools' by which they maintained prices within an industry at an agreed level. However, agreements were broken and one 'Pool' member cut prices to steal customers from the competition within the Pool. The Pool system therefore did not last long but it had resulted in reducing some large industries being run by just a few extremely wealthy Big Businesses and corporations.
The Rise of Big Business and Corporations for kids: The Monopolies
The Rise of Big Business and corporations continued with the emergence of monopolies. Monopolies were achieved when a single corporation bought out all of the competition and achieved control over an entire market. A monopoly could basically set whatever prices they wanted. The could increase prices at will and exert power over their labor force by cutting wages or increasing hours.
The Rise of Big Business and Corporations for kids: The Trusts
The rise of monopolies held by Big Business and corporations were addressed by passing new laws to make it illegal for one company to own stock in other companies without specific permission from the State Legislature. Big Business and corporations then formed 'Trusts' which enabled them to merge businesses without violating the laws against owning other companies which enabled them to continue the practice of regulating the supply and price of commodities. The establishment of the Trusts were another way to monopolize an industry or big business.
The Rise of Big Business and Corporations: Laws to curb Monopolies
New laws were passed in response to public demand that the monopolies be regulated. The 1887 Interstate Commerce Act was passed by Congress to curb the activities of the railroads. The 1890 Sherman Antitrust Act was passed by Congress to protect trade and commerce from unfair business practices that limited competition, or controlled prices. The Sherman Antitrust Act ostensibly clamped down on monopolies, but in reality turned out to be pretty ineffective until the 1904 Northern Securities Case.
The Rise of Big Business and Corporations for kids: Holding Companies
The Rise of Big Business and corporations was allowed to continue and exacerbated in 1889 when the state of New Jersey passed a new incorporation law. This law allowed companies to create a new organization called a 'Holding Company'. A Holding Company owned the stock of companies but did not produce anything themselves. The establishment of a Holding Company allowed for all of its companies to be merged into one massive organization. By the beginning of the 1900's the United States had over 300 holding companies. Ordinary Americans started to clamor for reforms during the Progressive Movement and Progressive Reforms were made at city, state and federal levels.
The Rise of Big Business and Corporations in America
The Rise of Big Business and corporations therefore continued into the 20th century. the major sectors of the nation's economy were dominated by a small number of massive corporations. Big Business and Corporations had control over the railroads, banking, steel, oil refining, meat packing and manufacturing. The number of millionaires in America exceeded 4000. The Rise of Big Business had brought positive benefits to the economy of the nation and helped to improve the lifestyles of many Americans but their power also led to the abuse of workers and the corruption of the political system. For additional facts and information refer to Industrialization in America.
The Regulation of Big Business and Corporations in America
The Department of Commerce and Labor was established by President Theodore Roosevelt during the Progressive Era to reduce tensions between labor and management. In 1904 the Supreme Court had ruled in the Northern Securities vs US legal case that the company violated the Sherman Antitrust Law. After the federal prosecution, the Northern Securities company was dissolved, and other companies followed suit - it was a victory for the opponents of Social Darwinism. The Department of Commerce and Labor included a division called the Bureau of Corporations, which had the authority to investigate and regulate corporations. This enabled the government to have control over their activities without having to sacrifice economic efficiency by breaking up the trusts and holding companies.