big business

Large corporations in the United States having assets totaling billions of dollars. Today big business in the United States is experiencing intense international competition.

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.

—Kent Greenfield

Large corporations, as opposed to small individually or family-owned businesses.

For other uses of the name Big Business, see Big Business (disambiguation).

This article relies largely or entirely upon a single source. Please help improve this article by introducing appropriate citations of additional sources. (March 2007)

Big Business is a term used to describe large corporations, in either an individual or collective sense. The term first came into use in a symbolic sense subsequent to the American Civil War, particularly after 1880, in connection with the combination movement that began in American business at that time. Organizations that fall into the category of "big business" include ExxonMobil, Wal-Mart, Google, Microsoft, General Motors, and Citigroup.

Contents 1 History, The Great Merger Movement 2 History, Post World Wars 2.1 Computers 2.2 Electronics 2.3 Energy 3 Criticism of big business 3.1 Influence over government 3.2 Human rights and working conditions 4 Benefits of big business 5 See also 6 References

History, The Great Merger Movement

From 1895-1905, the United States industry underwent major reorganization that had long term impacts on the structure of businesses. Small firms consolidated into giants with a large market share (see Mergers and acquisitions). These mergers involved mass producers of homogeneous goods that exploited efficiencies of volume production. They were generally capital-intensive with high fixed costs; when demand fell, output would remain steady and prices would fall instead. In theory, these mergers were economically viable in the long run because the largest firm would take the supply decisions of independents as given and set the quasi-monopoly price above the competitive price. In practice, companies faced the challenge of deterring new entrants that would threaten the market share of the dominant firm. One solution to the problem of new entrants to the market was setting a “limit price” at which the dominant firm would make a profit, and the small independent firms would break even. The problem with this however was that the dominant firms would face higher costs than competitors. Other solutions to the new entrant problem included short-term price wars and the creation of entry barriers. Moreover, some companies chose to differentiate their products in order to reduce the price elasticity of demand. They produced high standard products preventing themselves from the "price war" with their competitors. By that, companies could build up their brand and choose the selling price more easily. Furthermore, with such differentiated products, producers would earn profits from high margins, rather than large volumes, which could protect them against short term price wars. In this way, when demand for a product falls due to the effects of the formation of short term cartels, such firms could simply reduce ouptut while maintaining their prices. Since profits for such firms were made on the margin, a decrease in demand would not drastically affect their livelihood. This movement and consolidation formed the foundation for what was later coined as "big business."

Long-run factors which led to the rise of big business include technological change, which increased the efficient size of plants from non-mechanized factories with very few workers to large, modern industries, and reductions in transportation costs, which made it easier to produce goods in one location and ship to markets around the country. However, the immediate factor which led to the Great Merger Movement, according to Naomi Lamoreaux, was a result of large investments in new capital stocks, financed through bond issues. The bond issuances led to high fixed costs for companies, who had to make the interest payments on the bonds regardless of the number of units produced. When the Panic of 1893 ensued, called the Great Depression at the time, the demand for purchasing bonds declined dramatically. However, companies still needed to finance the bond payments. Therefore, every company wanted to increase their output to increase the quantity sold in order to finance their bond payments, known as “running full.” This led to falling prices, and less revenue for every unit sold. As a consequence of this, companies desired to collude because of the incentive for horizontal integration, in which every supplier in a particular industry combined under one roof, with one manager making supply decisions.^[1]

History, Post World Wars

The relatively stable period of rebuilding after World War II led to new technologies (some of which were spin-offs from the war years) and new businesses.

Computers

The new technology of computers spread worldwide in the post war years. Businesses built around computer technology include: IBM, Microsoft (Bill Gates), and Intel (Gordon E. Moore and Robert Noyce).

Electronics

Miniaturization and integrated circuits, together with an expansion of radio and television technologies, provided fertile ground for business development. Electronics businesses include JVC, Sony (Masaru Ibuka and Akio Morita), and Texas Instruments (Cecil H. Green, J. Erik Jonsson, Eugene McDermott, and Patrick E. Haggerty).

Energy

Nuclear power add to fossil fuel as the main sources of energy.

Criticism of big business

The social consequences of the concentration of economic power in the hands of those persons controlling "Big Business" has been a constant concern both of economists and of politicians since the end of the 19th century. Various attempts have been made to investigate the effects of "bigness" upon labor, consumers and investors, as well as upon prices and competition. "Big Business" has been accused of a wide variety of misdeeds that range from the exploitation of the working class to the corruption of politicians and the fomenting of war.

Influence over government

Corporate concentration can lead to influence over government in areas such as tax policy, trade policy, environmental policy, foreign policy, and labour policy through lobbying. In 2005 the majority of Americans believed that big business had "too much power in Washington". ^[2]

Human rights and working conditions

German industry collaborated with their Nazi government during the Third Reich, thus exploiting the working class in the interest of productivity and efficiency. ^[3]

Hitler's order offered German capitalists, badly hit by the great recession, the prospects of huge profits. German workers did, admittedly, enjoy full employment, but, as William Schirer has said, this was at the cost of being reduced to serfdom and poverty wages. It was not long before these conditions became the lot of the whole of occupied Europe.

Benefits of big business

It has been generally admitted that much of the technological progress since 1850 has been dependent on and fostered by the growth in size and the increase in financial strength of individual business units.

During the rise of big business in the late nineteenth century, long run factors contributing to the consolidation of businesses included technological changes and reductions in transportation costs. Cheaper transport costs made it feasible to produce in one location and then ship the product to market, instead of producing where the market was located. Technological changes made plant sizes more efficient in regards to capital-intensive assembly lines.

The rise of railroads contributed to decreased transportation costs during the 1800s. To expand, the railroad companies required large pools of capital to finance infrastructure development and daily operations. However, the government did not have the budget to provide financing due to the depression in the 1830s and 1840s. As a result, the railroad firms turned to private investors and investment banks to raise the necessary capital.

See also

• Big Oil
• Big government
• Big labor
• Zaibatsu
• Small business

References

This article is originally based on material from Dictionary of American History by James Truslow Adams, New York: Charles Scribner's Sons, 1940

1. ^ Naomi Lamoreaux, The Great Merger Movement in American Business, 1895-1904, Cambridge University Press 
2. ^ Timothy P. Carney (2006-07-21), Big Business and Big Government, http://www.cato.org/research/articles/cpr28n4-1.html 
3. ^ Frederic F Clairmont (January 1998), "Volkswagen's history of forced labour", Le Monde, http://mondediplo.com/1998/01/11volkswag 

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)