BIG BUSINESS: THE MODERN CORPORATION

Big Business

In the early 1910s the United States remained relatively isolated and in the midst of a recession. The majority of Americans still lived in rural areas, and many worked for themselves or in small enterprises. The world of big business, revolving around trusts and holding companies, seemed far removed from the average citizen, but large conglomerates controlled railroads, banks, insurance companies, steel, meatpacking, and oil refining. Despite the federal government's antitrust laws and attempts at regulating large corporations, the government played a relatively small role in the economy.

New Ties

The rise of big business and the triumph of industrial civilization changed the country economically and socially. The United States used its vast resources and technical expertise to become a dominant power in this age. Officials in both business and government realized that to advance their related interests, the ties between corporations and government had to be strengthened and institutionalized. Without great economic power the United States would falter, and this power was increasingly concentrated in the hands of large corporations. In 1913 the country was the leading debtor in the world, but by 1917 it had become the largest creditor. The partnership between large corporations and the federal government served an instrumental role in the turn-around. Big business became representative of American initiative, determination, and expertise, and the nation would flaunt its power later in the decade.

Social Change

The rise of big business and triumph of industrialization led to massive social change in the United States. Corporations spearheaded a new social and economic order. The modern company soon became the dominant element in urban and suburban civilization. The entire society was influenced by the corporate way of doing things. A new managerial class grew by emphasizing efficiency and systematic approaches to business. The new class of corporate managers helped create and then served to strengthen the modern corporation. Big business became a domestic institution in American life and affected politics, reshaped labor, and showed the importance of technology and science.

Government Responds to

Fear, Politicians struck a sensitive chord in the general public by criticizing the railroads, giant manufacturers, and influential bankers. Woodrow Wilson, in fact, won the 1912 presidential election running as an opponent of big business. The public feared that the new economic order would destroy America's status as the land of opportunity and individual initiative. The revolution in business worried people. The middle-class dream of running one's own business dwindled as small enterprises were bought up or run out of business by large combinations. The ruthless use of economic power by men such as John D. Rockefeller disturbed people. Progressive legislators countered by outlawing the unscrupulous activities but could not keep up with the plethora of new practices. The government was forced to create regulatory agencies with broad powers to oversee and discipline the competitive behavior of big business. The Federal Trade Commission was established in 1914 to investigate, enforce, and publicize business activity. A new role for government as a watchdog of the private sector developed. The combined efforts of agencies, the Justice Department, and the courts were supposed to prevent the worst misuses of economic power.

Battle for Control

The emphasis on efficiency and production in the 1910s transformed the relationship between labor and management. The factory system changed the nature of work itself by increasing reliance on machines and the assembly line, thus decreasing the ability of factory workers to set their own pace of work. The ensuing conflicts led to many of the strikes and labor violence that punctuated the decade. The changing nature of work in the industrial age brought stresses that bubbled over into heated battles between workers and manufacturers. Systematic management initiatives increased the power of the shop foreman, who often acted like a feudal lord reigning over his minions.

Taylorism

Corporate executives in the 1910s adopted the scientific management principles of Philadelphia engineer Frederick W. Taylor. Taylor offered a method for extracting the maximum efficiency from each worker in a scientific, clinical, and objective manner. Since the only incentive workers responded to was money, Taylor argued, managers should determine a standard day's output from a first-rate worker and then set up pay incentives to reward workers for meeting those standards. The tests to determine the pay scale involved stopwatches and time-and-motion studies that excluded any type of subjectivity on the part of the evaluators. Restructuring the work environment and reducing conflict, Taylor reasoned, would improve efficiency, and by evaluating proficiency on a scientific basis, the worker would be happier in his work. The combination of "Taylorism" with "Fordism" (scientific management and the new assembly system) was perfected at Ford Motor Company's Highland Park plant in Michigan. In the eyes of many observers, Taylorism plus Fordism equaled Americanism. Taylorism, however, completely removed all responsibility and knowledge from the worker, leaving his only goal as greater production.

Psychological Effects

Taylor was not concerned with the psychological impact scientific management had on workers. In fact, he did not care what the employee did after he left the plant, as long as he showed up the next day ready to work. Taylor added, "It is absolutely necessary for every man in our organization to become one of a train of gear wheels." The employers were left to experiment with ways of making life better for workers on and off the job. Companies provided education opportunities, recreation areas, sports leagues, and facilities for employees. Many companies hired welfare secretaries with backgrounds in social work to give direction to such activities and to help workers cope with the autonomous nature of their lives in the factories. Modest pension and profit-sharing plans were also initiated to increase the feeling of shared interest between the corporation and employees. H. J. Heinz, Filene's department store, and the National Cash Register Company led the way in providing these services. Once again, Ford provides the best example of the attempt at making the worker's life more tolerable while also increasing productivity with his famous five-dollar day.

New Opportunities

The rise of the modern corporation created millions of new jobs. Middle-level managers, supervisors, clerks, and operatives were needed to regulate the new economic system. Many new avenues were opened for women, and they responded by seeking clerical and professional employment more aggressively. Many people were employed in the new bureaucratic agencies the federal government established to regulate business practices. High tech science-based companies such as General Electric, American Telephone and Telegraph, DuPont, and Eastman Kodak formed research and development (R&D) departments that forged strong ties with the military, engineering companies, and universities. The first true R&D department in the United States was at General Electric and was headed by Willis R. Whitney, a professor of chemistry at the Massachusetts Institute of Technology. Thus, what began as the rise of big business led to economic expansion in a vast array of industries,

The New America

Corporations arose and triumphed because they were the most effective instrument yet devised to organize and coordinate productive economic activities in a nation where material progress seemed to be the sole purpose of life. World War I formalized many of the voluntary and regulatory ties between the manufacturers and the federal government. After the 1910s the United States could not return to simpler times abroad or at home despite Wilson's rhetoric of competition among small producers. Wilson's successors as president found themselves at the head of an administrative state with expanded responsibilities and powers for regulating economic growth and activity. While the rhetoric of antitrust remained powerful, the large corporation was in reality a permanent fixture on the economic landscape.

THE CRIME OF THE CENTURY

On 1 October 1910 the LOS Angeles Times building exploded under mysterious circumstances. The blast was felt throughout the area. One survivor said, "Frames and timbers flew in all directions. The force of the thing was indescribable." Employees of the Times tried to escape the flames, and some jumped from windows without safety nets below. A few hours later, nothing remained but smoldering debris. Twenty people died in the explosion. Harrison Gray Otis, the antiunion publisher of the Times, blamed organized labor and dubbed it "The Crime of the Century." Organized labor responded by blaming Otis, asking, "Are his own hands clean?" AFL president Samuel Gompers disavowed union participation in the tragedy, arguing that urban terrorism would actually hurt labor's cause. Famous detective William J. Burns was hired to investigate the blast. He played a hunch and was led to the International Association of Bridge and Structural Iron Workers (BSIW), located in Indianapolis, Indiana. Burns suspected that the union's secretary, John J. McNamara, had directed the attack. The detective set up a trap in a Detroit hotel on 12 April 1912 and arrested McNamara, his brother, James, and another accomplice named Ortie McManigal. In McNamara's suitcase Burns found guns and six lock mechanisms similar to those used in Los Angeles. On 12 July both brothers pleaded not guilty and set off a chaotic atmosphere in the court-room. Clarence Darrow, one of America's most famous lawyers, represented the McNamara brothers, although reluctantly, because he felt the prosecution's case was solid. After the first month the attorneys had selected only eight jurors and showed no signs of hurrying the process. On 1 December 1912 the defendants dramatically reversed their pleas. James pleaded guilty to the Los Angeles explosion, while John answered to a lesser charge in a separate bombing. Darrow explained the decision: "It was our only chance…It was in an effort to save J. B. McNamara's life that we took the action." Judge Bordwell, reacting to the public's outrage, sentenced James McNamara to life imprisonment and John to fifteen years of hard labor. The McNamara case led to heavy financial losses and declines in membership for all Los Angeles unions. The public backlash hurt the AFL, and Samuel Gompers received criticism for supporting the brothers. Not only had the McNamaras blown up a building and taken lives, they also destroyed the labor movement in Los Angeles.

Source:

Graham Adams Jr., Age of Industria/Violence, 1910-15 (New York: Columbia University Press, 1966).

Sources:

Glen Porter, The Rise of Big Business, 1860-1920 (Arlington Heights, 111.: Harlan Davidson, 1992);

Robert Sobel, The Age of Giant Corporations: A Microeconomic History of American Business, 1914-1992 (Westport, Conn,: Praeger, 1993).

BUSINESS, BIG

BUSINESS, BIG. When used in the context of American economic development, the term "big business" refers to the concentration of industrial and financial power that began in the second half of the nineteenth century and continued through the end of the twentieth. The concentration of economic power began with the transformation of the United States in the nineteenth century from an agrarian, handicraft economy to an industrial, factory economy. By 1900, the United States had become the largest industrial nation in the world. This growth was due to factors including a pro-business political climate; a burst of inventions such as the telephone, the electric light, and the automobile; the availability of vast natural resources; a growing population; and improved production methods, including the division of production into discrete steps, each performed by a separate worker.

This economic growth in part depended on, and in part created, aggregations of wealth among a few individuals and the companies and banks they controlled. Andrew Carnegie, a steel magnate, became one of the world's richest men. J. P. Morgan gained extraordinary wealth in banking and finance, as did John D. Rockefeller in oil, James B. Duke in tobacco, and Cornelius Vanderbilt in steamships, railroads, banking, and manufacturing. Because the government did little to regulate business during the nineteenth century, these and other "robber barons" were able to gain monopoly or near-monopoly power in their respective industries. This was accomplished through several means, including mergers with competing businesses and the formation of trusts, where a group of managers controlled rival companies without formal ownership of the businesses. This concentration of economic power in a few giant corporations made it possible to take advantage of the efficiencies and stability that come with large-scale production, but it also gave corporations the ability to manipulate prices and government policy.

Big business thrived also because of the absence of any meaningful counterweight to its influence. Unions were very weak. Many states restricted union activity, companies routinely terminated union members, and federal or state troops often helped companies break strikes. Courts were also very supportive of corporate power. In 1886, the Supreme Court held that corporations were "persons" for the purposes of constitutional protections, such as equal protection. In 1905, in Lochner v. New York, the Court struck down a New York state law limiting the number of work hours for bakers, saying that such laws were contrary to the freedom of contract implicit in the Constitution. Employers thereafter used Lochner to strike down minimum-wage laws.

Meanwhile, states competed among themselves to be the place where companies chose to incorporate, because of the large fees thus generated. Earlier, states routinely placed restrictions on the size, life span, and activities of corporations, as well as their ability to hold stock in other companies. In 1889, New Jersey adopted a statute that released corporations from such regulation, and so many businesses rushed to incorporate in New Jersey that the entire expenses of the state were eventually paid out of incorporation fees. Other states, seeking to stem the flow of businesses to New Jersey, were forced to remove many of their own restraints on corporations. This came to be known as "the race to the bottom."

Public outcry against the power of corporations led the federal government to adopt the Sherman Antitrust Act in 1890, which outlawed any contract, combination, or conspiracy in restraint of trade and prohibited market monopolies. The act had little meaningful effect. Other than bringing about the breakup of a few large conglomerates, such as Rockefeller's Standard Oil Company, the act did little to alter the balance of economic power. Instead, courts often applied the act against unions, saying that strikes and other labor organizing efforts interfered with commerce.

The Great Depression, which began in 1929, began to have some effect on the power of big business. After business could not pull the nation out of depression, many people lost faith in business executives and began to look to the government and the labor movement for help. The Supreme Court overturned Lochner, empowering the government to enact economic regulation to limit the power of business, protect the rights of unions to organize, and secure minimum wages and reasonable hours for workers.

The framework of governmental regulation and trade union representation provided some measure of balance to the economic power of business during the middle of the twentieth century. The efforts to regulate business and the market gained energy again in the 1960s and 1970s, when the federal government passed a host of regulatory initiatives to assist workers and to control the power of big business. These initiatives included the Occupational Health and Safety Act, anti-discrimination initiatives, increases in the minimum wage, and a host of environ-mental laws including the Clean Air Act and the Clean Water Act. Throughout the post–New Deal period until the early 1970s, average weekly wages (in real terms) rose, and income inequality fell.

During the last two decades of the twentieth century, business interests regained much of the influence they had lost during the middle of the century. Beginning with the strongly pro-business Reagan and Bush administrations, and continued by the Clinton administration, the federal government took a less strict attitude toward controlling monopolies and limiting the power of businesses. Bolstered further by a strong stock market, particularly in the 1990s, businesses merged at an unprecedented rate. The total dollar volume of mergers increased throughout the 1990s, setting new records in each year from 1994 to 1999 (see Mergers and Acquisitions). Many companies became globalized, diversifying their manufacturing and sales internationally. Spurred by major technological advances, technology, computer, software, and media conglomerates became some of the most powerful companies in the United States. By late 1999, the size and economic power of some companies rivaled that of nations. The total value of the stock of International Business Machines (IBM) was roughly equal to the gross domestic product (GDP) of Colombia, Microsoft's capitalization was equal to the GDP of Spain, and American Express's capitalization equaled the GDP of New Zealand.

Meanwhile, wages for working people stagnated, and inequality between the rich and poor became worse than at anytime since the 1940s. Compensation for corporate chief executive officers rose almost 600 percent during the 1990s, but average weekly wages for the working class were lower than in the early 1970s. In 1998, the CEO of the software giant Microsoft, William H. Gates 3d, had personal wealth of $50 billion, more than the combined net worth of the poorest 40 percent of the U.S. population. Union membership declined sharply, and stood at historically low levels. Some analysts argued that the power of business at the end of the twentieth century rivaled that at the end of the nineteenth.

BIBLIOGRAPHY

Beatty, Jack. Colossus: How the Corporation Changed America. New York: Broadway Books, 2001.

Derber, Charles. Corporation Nation: How Corporations Are Taking Over Our Lives and What We Can Do About It. New York: St. Martin's Press, 1998.

Prechel, Harland. Big Business and the State: Historical Transitions and Corporate Transformation, 1880s–1990s. Albany: State University of New York Press, 2000.

Zinn, Howard. A People's History of the United States. New York: Harper and Row, 1980, pp. 247–289.

KentGreenfield

See alsoCorporations ; Labor .

big busi·ness • n. large-scale or important financial or commercial activity: the children's toy market is big business now.