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The Rise of Big Business

The Rise of Big Business

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The New Scale of Business. There were large factories in the United States before 1880businesses that were heavily capitalized, employing several thousand

workers each. But over the next two decades an altogether new type of business, a new scale of doing business, swept over the American landscape. Once conditions were in placeincluding a nationally integrated railroad infrastructure, new technologies of mass production, and increasingly concentrated, urbanized marketseconomic transformation happened with astonishing speed, over a dozen years or so, running from the late 1880s through the 1890s. In this short span, in a series of industries, new businesses were organized and old businesses reorganized to create enterprises that encompassed huge manufacturing plants spread over several geographic locations, coupled with nationalized systems of distribution and marketing. Big business thus joined mass production to mass distribution and in the process fostered mass consumption.

Mass Production. The industrial key to the rise of big business was the emergence of automated technologies of manufacturing, which appeared in dozens of industries in the 1870s and 1880s. Match production was one. After the Civil War, match-making machinery began replacing hand-production methods, and in the wake of this development the industry rapidly Consolidated; by the early 1870s, four firms using various new machines pumped out 80 percent of the nations total supply of matches. Then, in 1881, the four companies combined, merging the best attributes of their various machines, to form the Diamond Match Company. Within a decade, after additional modest improvements, the new giants output had increased to the point that it could fill two million matchboxes a day, and do so with only seventy-five workers. Before the introduction of automated methods, this rate of production would have taken five hundred workers. The company also automated in-house manufacturing of boxes to package the matches. Diamond gradually Consolidated its production in one giant plant at Barberville, Ohio. And as it grew it expanded vertically as well, putting together a national organization to coordinate the selling of its matches to wholesalers and eventually acquiring its own sawmills to ensure a steady supply of the raw materials. Thus the advent of mass production drove the industry toward monopoly and vertical integration.

Trend toward Monopoly. The story of automated production and corporate consolidation repeated itself in many other industries during this period. The tobacco industry, for example, underwent much of the same transformation in response to the invention of cigarette-making machinery by James Bonsack in 1882. At the time a skilled worker could roll by hand approximately 3,000 cigarettes a day. After a few years of tinkering, one of Bonsacks machines was churning out 120,000 cigarettes daily. North Carolina tobacco manufacturer James Buchanan Duke moved quickly to take advantage of this new technology, installing two Bonsack machines in 1884 and, once the machines had proven themselves, contracting with Bonsack the following year to lease his machinery to make ali the cigarettes he produced. In this arrangement Duke secured a low lease rate from Bonsack, improving his competitive edge. Other major cigarette producers were forced to match Dukes moves to compete. Then in January 1890 the big players decided to merge and form the American Tobacco Company. The company dominated cigarette production, as well as plug tobacco and snuff.

Marketing the Cigarette. The deployment of machinery enabling the mass production of cigarettes and subsequent rise of Duke and the American Tobacco Company played a major role in making cigarettes a widespread commodity. Before 1880 most Americans who consumed tobacco did so in the form of cigars, pipes, chewing tobacco, or snuff. Once producers developed the capacity to produce in mass quantities, they had to build up a base of consumers. Among his competitors, Duke proved especially assiduous on this front, designing packaging (Duke designed the familiar slide-and-shell box to protect cigarettes from being crushed during shipping) and creating brand names that he promoted in national advertising campaigns via cards, circulars, and handbills. In 1889, with sales of $4.5 million and profits near $400,000, Duke poured $800,000 into advertising costs, plastering his name on billboards, storefront Windows, and the sides of barns across the country. These tactics pushed the cigarette market from 409 million in 1880 to 2.2 billion by the middle of the decade. Americans in large numbers learned to smoke cigarettes, first in urban markets (Duke moved to New York to coordinate his national growth) and gradually in the countryside as well.

Emergence of Brand Packaging. Flour milling illustrated a parallel trend in big business. Because flour was produced and consumed so widely, it resisted effective monopolization. And yet the industry underwent profound transformation that, in other respects, duplicated the rise of companies such as Diamond Matches and American Tobacco. In the early 1890s leading millers in Minneapolis and elsewhere weighed plans for merger, but the suggestion failed to attract support from ali of the leading companies. Their efforts at monopoly blocked, two major millers combined to form the Pillsbury-Washburn Flour Company, which created in-firm organizations to handle the purchasing of unmilled wheat from farms throughout the West as well as the marketing of milled product. The company became the largest miller in the nation, operating a chain of grain elevators across the nations wheat-growing regions. Unable to swallow up competitors altogether, Pillsbury-Washburn began packaging and advertising its wheat products as brandsGold Medal Flour and Pillsbury Flourin an effort to stay ahead of the competition and keep its product flowing smoothly into markets.

Breakfast Cereal. The same kinds of market imperatives drove the growth of another giant in the grain and cereal industry, Quaker Oats. This company had its roots in 1882, when oatmeal producer Henry P. Crowell built a new mill that highly automated the grading, cleaning, hulling, cutting, and packaging of oatmeal in a continuous process that amounted to a prototypical version of the modern assembly line. Like Duke, though, Crowell found he had to create a market to consume his product: Americans thought of oats as animal feed, rather than table fare. So in a campaign that paralleled Dukes, Crowell promoted his brand, Quaker Oats, using box top premiums and prizes, as well as rounding up testimonial and scientific endorsements encouraging the consumption of oat-based breakfast cereal. Meanwhile Crowell joined with several other major producers in 1888 to form the American Cereal Company, which would become Quaker Oats in 1901.

So men such as Crowell transformed the American breakfast table, creating a new association for the very word cereal.

Modern Consumer Economy. The arrival of big business had a broad and far-reaching impact on the American economy and on American society. These companies created new types of products, new ways to make money, and new kinds of workplaces. Perhaps most fundamentally, they transformed how Americans bought goodsthey created new kinds of marketplaces and, so, new kinds of customers. These businesses depended on high volumes of production and steady rates of sale in order to operate at maximum efficiency. In their effort to craft national marketplaces for their product, they packaged their products in new ways that would be recognizable in an impersonal marketplace extending across the country and overseas. They advertised their products under brand names, and in the process they created new habits of consumption. Before 1880 few Americans smoked cigarettes or ate oats for breakfast cereal; other examples abound. George Eastman in 1887 invented a small, inexpensive hand-held camera that amateurs could use, and when he began mass-producing and marketing it the next year, families discovered that they could take their own pictures and portraits. Asa Candler bought a soft-drink formula from pharmacist John S. Pemberton in 1891 and patented Coca-Cola. William Wrigley Jr. first distributed chewing gum as a gimmick to promote his companys baking powder and soap; in 1899 he introduced a new flavor, spearmint, and pushed it with his customary vigor. (Tell em quick and tell em often, was Wrigleys dictum.) Also by this time H. J. Heinz and Company had devised new canned foods; the Borden Milk Company condensed milk; and the Campbell Preserve Company condensed soup. By 1900 businesses had learned to stock and sell in a new consumer-oriented mass market in order to survive.

Source

Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: Harvard University Press, 1977).

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