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Chapter 14 Section 2 The Rise of Big Business Section 2. The Rise of Big Business Section 3. Workers Organize Note: There is no reading check quiz on this material, but it is on the Unit on this material, but it is on the Unit Test (Nov. 20) An Era of An Era of “laissez laissez‐faire faire capitalism” p Defining key terms: Capitalism Laissez faire Laissez‐faire Capitalism‐‐An economic system b d based on a free market, open f k competition, and profit motive. In a p , p capitalist economic system most productive assets are held by private productive assets are held by private owners, and most decisions about production and distribution are made by the market rather than made by the market rather than government command. Laissez‐faire‐‐An economic theory that is strongly opposed theory that is strongly opposed to any government intervention in business affairs beyond the minimum necessary for a free minimum necessary for a free‐ enterprise system to operate. p y p Put it in your own words Put it in your own words • Explain Explain how a laissez how a laissez‐faire faire capitalist system capitalist system would work. Alternatives What are some other economic systems? What are some other economic systems? • Regulated capitalism: this is still capitalism, but with more government regulations (e g but with more government regulations (e.g. Child labor laws, minimum wage, environmental protection etc ) environmental protection etc.) Alternatives • Socialism: Socialism: In a socialist economy, some or all In a socialist economy some or all of the means of production are owned and operated by the government and run for the operated by the government and run for the benefit of the people. Alternatives • Communism: Communism: In a communist economy, the In a communist economy the government owns and controls all the means of production Government officials make of production. Government officials make economic decisions for the people. All communist nations have been dictatorships communist nations have been dictatorships. Back to laissez‐faire Back to laissez faire capitalism… capitalism… • This This was the system that the US had in the was the system that the US had in the 1800s. • What are some advantages and disadvantages What are some advantages and disadvantages of this system? Businesses Try to Take Advantage of the System h • What What actions would businesses take to actions would businesses take to maximize their own profits? Remember, the government will generally not step in to government will generally not step in to interfere. In the late 1800s, Businesses… In the late 1800s, Businesses… • Formed corporations to pool their money and p p y limit their risk • Paid workers as little as possible with no benefits and little regard to workplace safety and little regard to workplace safety • Used child labor • Paid little to no attention to pollution Paid little to no attention to pollution • Formed monopolies & trusts to drive competitors out of business • Offered a huge array of affordable and useful products to consumers Child Labor Child Labor Social Darwinism Social Darwinism • Americans understood that there were inequalities under e ca s u de s ood a e e e e equa es u de capitalism. But many thinkers believed that inequalities were part of a natural order. To explain why some people prospered while others did not, economists and business d hil h did i db i leaders embraced the philosophy of social Darwinism. Social Darwinists believed that natural Social Darwinists believed that natural selection also applied to society. Stronger people, businesses, and nations would prosper. Weaker ones would fail. Social Darwinists believed that what they called “survival of the fittest” strengthened society as a whole They opposed any interference with the process whole. They opposed any interference with the process. The Rise of Big Business The Rise of Big Business • In In the late 1800s, businesses did many things the late 1800s businesses did many things to try to earn more profits and to get ahead of their competition their competition. How did businesses get bigger? How did businesses get bigger? 1. The Rise of Corporations 1. The Rise of Corporations • Proprietorships Proprietorships and partnerships and partnerships At the end At the end of the Civil War, most businesses were small. Some were run by individual owners—an Some were run by individual owners an arrangement called a proprietorship. Other companies were owned by two or more companies were owned by two or more people in a partnership. In both proprietorships and partnerships the owners proprietorships and partnerships, the owners of the company were personally responsible for all debts and obligations of the business for all debts and obligations of the business. • Corporations The massive industries of the The massive industries of the late 1800s needed more expert management. These industries began organizing as These industries began organizing as corporations. A corporation is a business with the legal status of an individual It is owned by the legal status of an individual. It is owned by stockholders—people who buy shares of the company or stock The major business company, or stock. The major business decisions of a corporation are made by a board of directors The board in turn hires board of directors. The board in turn hires corporate officers to run the day‐to‐day operations. operations 2. Trusts 2. Trusts • To To gain dominance, some competing gain dominance some competing companies formed trusts. The companies agreed to merge and turn over their separate agreed to merge and turn over their separate stocks to a board of trustees. The trustees then ran the group of companies as if it were a then ran the group of companies as if it were a single corporation, and all the participants split the profits split the profits. 3. Monopolies 3. Monopolies • When When a trust or corporation gained complete a trust or corporation gained complete control over an industry, it held a monopoly. That meant it had no competition from other That meant it had no competition from other firms. It could raise prices on its products or lower quality much more freely than it lower quality much more freely than it otherwise might. 4. Horizontal & Vertical Integration Example: Rockefeller’ss Standard Oil Example: Rockefeller Standard Oil • John D. Rockefeller entered the oil business in 1863 and proved himself to be a superb business leader. His d hi lf t b bb i l d Hi company, Standard Oil, started as a refinery. To increase p profits, though, Rockefeller engaged in vertical , g , g g integration—acquiring companies that supplied his business. Rockefeller bought barrel factories, oil fields, oil‐storage facilities, pipelines, and railroad cars. This il t f iliti i li d il d Thi allowed him to keep his costs low and profits high. To expand his business, Rockefeller also practiced To expand his business, Rockefeller also practiced horizontal integration. This meant taking over other companies producing the same product. Rockefeller b bought as many refineries as he could. By 1879 Standard h fi i h ld 8 9S d d Oil refined 90 percent of all U.S. oil. 5. Mass Marketing 5. Mass Marketing • • • • Advertising Brand names and logos Department Stores S Mail Order Catalogues Tycoons • Some Americans came to view the business tycoons of the late 1800s as “robber of the late 1800s as robber barons. barons ” Critics have Critics have argued that these entrepreneurs profited unfairly by squeezing out competitors and using other tough q g p g g tactics. Their huge mansions and luxurious lifestyles seemed like ill‐gotten rewards. • Other people, though, saw these men as “captains of industry.” Admirers credited these tycoons with using their business skills to make the American i th i b i kill t k th A i economy more productive. That in turn made the American economy stronger Tycoons also won praise American economy stronger. Tycoons also won praise for their generous contributions to charity. Andrew Carnegie Andrew Carnegie • Andrew Carnegie g lived a true rags‐to‐riches story. Born in g y Scotland to parents that hit hard economic times when he was about 9, Carnegie immigrated to the United States when he was 12 He advanced quickly in his early jobs and began he was 12. He advanced quickly in his early jobs and began investing in the iron, oil, railroad, and telegraph industries. He soon founded his own company and rose to the top of the steel business. Carnegie held down costs by using vertical integration, buying supplies in bulk, and producing items in g q y y g large quantities. By the end of the century the Carnegie Steel Company dominated the U.S. steel industry. In 1901 Carnegie sold the company to banker J. P. Morgan for $480 million. After retiring Carnegie began to devote his time to After retiring, Carnegie began to devote his time to philanthropy, or charity. Carnegie gave away some $350 million over his lifetime, mostly to support education. Some Call for Change Some Call for Change • Some Some Americans felt that big business had too Americans felt that big business had too much power and that it hurt workers and small businesses Who or what could these small businesses. Who or what could these people turn to for help? 2 main sources of help 2 main sources of help • Government • Labor Unions Both of these sources had the potential to help workers and small businesses, but big business had a lot of power and they would not give it up easily. The Government The Government • In the late 1800s the government maintained a hands‐off e a e 800s e go e e a a ed a a ds o attitude toward business. Most politicians, like business leaders, insisted that regulating business would harm the economy. Nonetheless, as corporations expanded, the N h l i d d h government grew uneasy about the power of these giants. In 1890 Congress passed the Sherman Antitrust giants. In 1890 Congress passed the Sherman Antitrust Act. This act made it illegal to form trusts that interfered with free trade. It also prohibited monopolies and activities that hindered competition in the marketplace. At first the government did not prosecute many companies under this act many companies under this act. The Rise of Labor Unions The Rise of Labor Unions Labor Unions Labor Unions • A A labor union is an organized group of workers labor union is an organized group of workers that use collective bargaining to try to improve their situation That is they improve their situation. That is, they negotiate as a group with the employers rather than as an individual Unions use the rather than as an individual. Unions use the treat of a strike to enhance their power. Barriers to Union Success Barriers to Union Success • 1 1. Workers were easy to replace ( Workers were easy to replace (“scabs” scabs were hired to replace striking workers). • 2. Employers fired union organizers 2 Employers fired union organizers • 3. The government sided with business owners • 4. The public often didn’t trust unions • 5. Unions were difficult to organize. What did unions want? How did they try to get it? How did they try to get it? Why did business owners oppose Wh did b i them? What advantages did the opponents of What advantages did the opponents of unions have?