The following major dynamic forces are visible in the American business economy since 1815,westward expansion appears to have provided the primary impetus (except possibly in New England) to business innovation in the years from 1815-1850,the building of the railroads appears to have been a major factor from the 1850's to the late 1870's,the growth of the national and urban market from the 1880's until a little after 1900,the coming of electricity and the internal combustion engine from the early 1900's to the 1920's,and finally the growth of a systematic and institutionalized research and development since the 1920's.
Corporate - Before the 1870's the typical manufacturing company was either a single owner or a partnership in legal form. Corporations which issued stock to a multitude of ownerswere largely confined to railroads and canals. But the corporation with its limited liability and its consequent attractiveness to large amounts of capital soon became the typical form of big business.Oligopolistic - Greek for few sellersmeans that the goods in a particular industry are produced by such a small number of firms that true competition does not prevail. Prices can be and are determined by the actions of a few firms rather than being set by competition among many producers or supply & demand.The result is to weaken if not to end the competition among many firms. Integrated This is the economists word for the bringing together of several companies under a single firms control. Integration can assume two forms (both of which could be used by the same corporation) Vertical integration exists where a producer (example: of automobiles owns not only the plant for manufacturing the actual cars but also the plants that manufacture the glass or tires. Complete vertical integration would mean that it own rubber plantations, coal fields, ore mines, steel mines the intermediate manufacturing processes, and the factories in which the cars are finally assembled). In short the completely vertically integrated firm owns or controls all of the materials and processes that go into the manufacture of its product from the bottom to the top. In horizontal integration a corporation controls many otherwise competing firms in the same industry spreading its control across the field hence horizontalintegration. Bureaucratic All big business simply because they employ large numbers of workers and control many producing units that are spread across a large national market require a large staff to keep records, audit accounts, sell goods, administer the business, and gather information for the making of decisions. The individual owner or a a few partners of the small firm are now replaced by a myriad of accountants, secretaries, salesmen, and minor and major executives, all of whom are dependent upon one another.
By the beginning of the twentieth century many more companies were making producersgoods to be used in industry rather than on the farm or by the common consumer. Most of the major industries had become dominated by a few large enterprises. These great industrial corporations no longer purchased and sold through agents, but had their own nationwide buying and marketing organizations. Many in the extractive industries had come to control their raw materials. In other words the business economy had become industrial. Major industries were dominated by a few firms that had become great vertically integrated, centralized enterprises. A significant sector of American industry had become bureaucratic, in the sense that business decisions were made within large Hierarchical Structures. Externally, oligopoly was prevalent, the decision-makers being as much concerned with the actions of the few other large firms in the industry as with over all changes in markets, sources of supplies and technological improvements.
These basic changes only came about after the railroads had created a national market. The railroad network, in turn, had grown swiftly primarily because of near desperate requirements for efficient transportation created by the movement of population westward after 1815.Except for the transportation between Boston and Washington the construction of the American railroads was needed to move crops, to bring farmers supplies, and to open new territory to commercial agriculture. This new nationwide market created by the construction of the railroad network became an increasingly urban one. From 1850 on if not before urban areas were growing more rapidly than rural ones. In four decades from 1840-1880 urban or city population rose from 11%-28% of the Whole US. In the two decades from 1880-1900 it grew from 28%-40%. Was this new urban & national market the reason for the rise of the Industrial Corporation?
The industries first to be dominated by great business enterprises were those making consumer goods, the majority of which were processed from products grown on the farms and sold in the urban markets. Consolidations and centralization in the consumers goods industries were well under way by 1893.the unit that appeared was one which integrated within a single business organization the major economic processes: production or purchasing of raw materials, manufacturing, distribution, and finance.
Changes in the consumer goods industries
Such vertically integrated organizations come in two different ways. Where the product tended to be somewhat new in kind and especially fitted for the urban market. Its makers created their businesses by first building large marketing and the purchasing organizations. This technique to have been true of the manufactures of distributors of fresh meat (animal flesh), cigarettes, high grade flour, bananas, harvesters, sewing machines, and typewriters. Where the products were established staple items, horizontal combination tended to precede vertical integration. In the sugar, salt, leather, whiskey, glucose, starch, biscuit, kerosene, fertilizer, and rubber industries a large number of Small manufacturing first combined into large business units and then created their marketing and buying organizations. For a number of reasons the makers of the newer types of products found the older outlets less satisfactory and felt more of a need for direct marketing than did the manufactures of long established goods.
Creation of a marketing organization
First let us consider the experience of companies that grew large through the creation of a nation-wide marketing organizations. Gustavus F. Swift a Easterner came relatively late to the Chicago meat packing Industry.Swift thought of using a refrigerated railroad car to supply eastern cities with meat from large cattle herds on the western great plains. In 1878 after his first experimental shipment of refrigerated meat He partnered with his brother Edwin to market fresh western beef in eastern cites. During the 1880's swift struggled hard to carry out his plan of a nationwide distributing and marketing organization built around a network of branch houses. Each house had its own storage and marketing organization. In marketing the product Swift had to break down the prejudices against eating meat killed a thousand miles away and many weeks earlier. He also had to combat local butchers and the concerted efforts of the national butchers association to prevent the sale of his meat in urban areas. Soon the "full line" of swift products appeared.Lamb, mutton, pork, and some time later poultry, eggs and dairy products. The growing distributing organization soon demanded an increase in supply. So between 1888-1892 meatpacking establishments Were set up in Kansas City, Omaha, and St. Louis and after the depression of the 1890's three more in St.Joshep, St.Paul, and Fort Worth. At the same time the company systemized the buying of its cattle and other products at the stockyards. In the 1890's Swift began to make profitable use of animal by-products. Before the end of the 1890's swift had created a large vertically integrated organization.the major departments - marketing, processing, purchasing, and accounting were all tightly controlled from the central office in Chicago. To compete effectively, Armour, Morris, Cudahy, & Schwarzschild & Sulzberger had to build up similar integrated organizations. By the middle of the 1890's the meatpacking industry with the rapid growth of these vertically integrated firms had become oligopolistic (the big five) had the major share of the market.
Changes in the producers good industries
Bureaucracy and oligopoly came to the producers goods industries somewhat later than to those making products for the mass market. Until the depression of the 1890's most of the combinations and consolidations had been in the consumer good industries. After that, the major changes came in those industries selling to other businesses and industrialists. The reason for a time difference seems to be that the city took a little longer to become a major market for producers goods. Through out the 1880's railroad construction and operation continued to take the larger share of the output of steel, copper, power machinery, explosives, and other heavy industries. Then in the 1890's as railroad construction declined rapidly growing American cities became the primary market.the demand for urban lighting, communication, heat, power, transportation, water, sewerage and other services directly and indirectly took over the growing quantities of electric lighting equipment, telephones, copper wire, newsprint, street cars, coal, iron, steel, copper, and lead piping, structures and fixtures: while the constantly expanding urban construction created new calls on the power machinery and explosives as well as the metals industries.
After 1897 the changes differed from the earlier ones not only in the type of industries in which changes occurred but the way industry was promoted and financed. Combinations and vertical integration in the consumers good industries before 1897 was engineered and financed by the manufactures themselves, so the stock control remained in the hands of the industrialists. After 1897,however outside funds and often outside promoters, who were usually Wall Street financiers played an increasing role in industrial combination and consolidation. The change reflected a new attitude of investor and financier who controlled capital toward the value of industrial securities. Before the depression of 1890's investment and speculation had been overwhelmingly in railroad stocks and bonds. The institutionalizing of the American security market in Wall Street had come in fact as a response to the needs for financing the first large railroad boom in the 1850's.
The middle of the first decade of the new century might be said to mark the end of an era. By 1903 the great merger movement was almost over and by then the metals industries and those processing agricultural products had developed patterns of internal organization and external competition which were to remain. From 1903 on the new generators of power and new technologies appear to have become the dominant stimuli to innovation in American industry. Changes in organizational methods and marketing techniques were largely responses to technological advances. This seems less true of the changes during the 20-25 Years before 1903. In that period, the basic innovations were more in the creation of new forms of organization and new ways of marketing. The modern corporation, carrying on the major industrial processes, namely, purchasing, and often production of materials and parts, manufacturing, marketing, and finance all within the same organizational Hierarchical Structure had its beginnings in that period.
Such organizations hardly existed outside of the railroads before the 1880's.By 1900 they had become the basic business unit in American industry. One question remains to be reviewed. Why did the vertically integrated corporation when it did, and the way it did? The creation by nearly all the large firms of nationwide selling and distributing organizations indicates the importance of the national market. It was necessary that the market be an increasingly urban one. The city took the largest share of the goods manufactured by the processors of agricultural products. The city with its demand for construction materials, lighting, heating and many other facilities, provided the major market for the metals and other producersgoods industries after railroad construction slowed. Without the rapidly growing urban market there would have been little need and little opportunity for the coming of big business in America.
The major innovation in the American economy between the 1880's and the beginning of the twentieth century was the creation of large corporations in American Industry. This innovation was a response to the growth of a national and increasingly urban city centered market that was created by the building of a national railroad network. More data, more precise and explicit questions and other types and ranges of questions will modify the generalizations suggested here.
