The Rise of Big Business in America after Civil War Harvard Case Solution & Analysis

The Rise of Big Business in America after Civil War

The era between the World War 1 and civil war specifies the roots of economy, development and culture of American business. The country witnessed the development of infrastructures of communications and transportation. This scenario helped in creating a free market on immense proportions and allowing businesses to take advantage of economies of scales, on the basis of their productivity, cost and distribution. The birth of big businesses gave rise to market giants like U.S Steel, American tobacco, Standard oil, Sears, etc. the conditions that helped in the growth of these titans were supported by the changes in the national economy. Development of commercial banking and law also occurredduring this era, and as the authors maintain, business and government were not opponents, but associates in creating mass consumer markets, regulatory frameworks and process innovations, to provisional economic growth (Whitten.).

There were three factors as explained and highlighted by many that gave rise to the growth of business in America. The first reason was the transformation or shifting fromhydro to coal-powered factories that gave manufacturers the advantage of locating their factories close to the suppliers and markets. The use of technologies allowed the companies to produce high quantities, thus saving the cost with improved quality. The second factor was the improvement in the transportation systems that allowed companies to sell and distribute products regionally as well as nationally. The third factor was the development of financial institutions that helped in providing investment capital for starting and expanding business. The things did not work as planned and resulted in many companies going bankrupt, thus giving rise to mergers and in the start of the 19th century, many small firms merged to form large corporations (Korten.).

As a response to recurring business crises, declining profits and strong competition, businessmen in an attempt to create financial stability formed pools. These were agreements among competitors to agree on certain price levels,division markets, and fix production quotas. However, pools were too weak to solve the problem of competition and hardly survived an economic contraction because of their voluntary agreements. A substitute to the pools was trusts. In trusts, owners of competing firms allocated their stock to a single board of trustees. The trustees made marketing policies and fixed the prices for all the companies. The adverse effect created by trusts was, restraining trade and violating corporate agreements of the rival firms, and were banned by the Sherman Antitrust Act in 1890. A company that was legal and had the power to purchase other companies came into existence, replacing the trusts known as a holding company (Martin).

The new large corporations with lots of strengths, compared to small local businesses, dominated the American Economy until the 1860s. According to Jeremy Attack, the need for manufactured goods provided manufacturers with a more sovereign presence. Factories built in the early 19th century were normally small, local monopolies that did not interest much competition because of the backwardness of transportation. These businesses were not openly competing with each other and were employing skill craft workers for manufacturing products.

Their dependence on skilled workers and laborers stopped companies from competing and producing goods in large quantities and restricted them to remain market-oriented. Local businesses of the middle nineteenth century were very sensitive in terms of competition and changes in customer’s preferences due to their small customer base. Another reason for limited production was the small inventory base,locally owned business suffered financial and investment issues that put barriers and restricted them in production.

The business owners took loans from a local bank to start a company and then normally functioned on profits without credits. These businesses were isolated, and profits mostly spent in local communities.

The railroad and communication systems made it more likely for the companies to take advantage of selling products widely, but faced the issue of shipment cost. A solution was proposed to achieve economies of scale through mass production. This theory led companies to minimizing the inputs and maximizing the outputs and survival for companies was supported through the reduction in the fixed cost. Big corporations, unlike small businesses, had the reach to the new technologies for mass production and also to the market expansions. Cost effectiveness and market orientation helped large organizations grow regionally as well as nationally. The large size of the business was the source of attraction for financial institutions that allow big corporations to get financing easily. Corporations also used economic powers to gain tax reliefs and subsidies..................

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