The Rise of Big Business

 
The late nineteenth century saw the rise of "big business" in important areas of economic activity.  ("Big" is never defined precisely, but the quantitative term is popularly used to connote something important.)  Big business firms were institutions that used management to control economic activity.  Big business firms broke themselves into different functions, or "departments," and used managers to coordinate the work of departments, and "middle managers" to coordinate work among departments.
Railroads were the first "big businesses" in the United States.  After railroad companies began to operate on tracks that stretched for fifty and more miles, their owners soon realized that they had to divide responsibilities among different managers, with coordination of the various functions of the company--from soliciting business, to operating trains, to maintaining facilities, to financing everything.   By the 1850s railroad executives were perfecting systems of managerial control over their ever more complex firms.
After the railroads pioneered the formation of "big business," big businesses appeared  in manufacturing and distribution.

Big city department stores were a form of "big business."  They combined many different retail operations in one organization, and placed them together in one building.  By 1912 department stores were principal features of the downtown districts of every city.

Still other big businesses, mail order firms such as Sears, Roebuck, were by 1912 serving rural areas and small towns.

Thus when Americans shopped in 1912, they were likely to encounter a "big business."  In their stores, moreover, they were likely to find products manufactured by "big businesses."

The "big business" form of organization spread rapidly in manufacturing industries after about 1870.

In some lines of manufacturing, there were advantages to have a single organization control raw materials, transportation, fabrication, and distribution.  When he sold his steel company in 1901, for example, Andrew Carnegie was the most efficient--and the wealthiest--steel maker in the world.  Carnegie steel had control over sources of coal, coke, and iron ore.  Carnegie steel exercised control over ships and railroads that brought raw materials to its mills in the Pittsburgh district.  Carnegie insisted on his mill remaining the most advanced of their day.  Not only did Carnegie Steel manufacture steel, the company also produced finished products like railroad rails and bridge girders.  All of these operations were in a single managerial organization.  Managers controlled the flow of materials.  Carnegie Steel was so efficient that it could undercut all of its competitors and still make large profits.

Meatpacking was another industry that witnessed the rise and perfection of "big business" forms.  After 1870, several Chicago meatpackers built huge, complex organizations for purchasing animals, butchering them, and distributing meat to markets all across the nation.  Their companies used all of the byproducts of the animals they slaughtered.  Skins went into leather goods, hoofs into glue, bones into fertilizer, and fat into soap. One wag commented that the only part of the hog the Chicago packers did not use and sell was the squeal!

rockepic.JPG (5471 bytes)By the end of the nineteenth century, Standard Oil, led by John D. Rockefeller, dominated the refining and distribution of petroleum products in the United States, and extended its reach well beyond the nation's borders.
When an entrepreneur like Carnegie was successful in building an efficient organization to control manufacturing processes, he drove competitors out of business.  A steel maker either had to compete by mimicking Carnegie's managerial techniques, or go into a niche, or specialized, market that the big steel companies did not enter.  In the case of meatpacking, by 1900 thousands of local butchers found themselves squeezed, because they were less efficient than the Chicago packers.  Small shopkeepers sometimes faced ruin from large department store competitors.  These businesses following older, more traditional practices sometimes fueled popular sentiment to "bust" the trusts.