Growth of Big Business
Jan 18, 2016
Growth of Big Business
Big BusinessA very large profitable enterprise
Possibly exploitative or socially harmful
How do they differ?
Who could be seen as a “big businessmen” in today’s world? Maybe they are a robber baron or a captain of industry? Explain what makes them so large.
Forbes 2011Rank Name Worth Age Source Countr
y
1 Carlos Slim Helu & family $74 B 71 telecom Mexico
2 Bill Gates $56 B 55 Microsoft USA
3 Warren Buffett $50 B 81 Berkshire Hathaway USA
4 Bernard Arnault $41 B 62 LVMH France
5 Larry Ellison $39.5 B 67 Oracle USA
6 Lakshmi Mittal $31.1 B 61 Steel India
7 Amancio Ortega $31 B 75 Zara Spain
8 Eike Batista $30 B 54 mining, oil Brazil
9 Mukesh Ambani $27 B 54 petrochemicals, oil & gas India
10 Christy Walton & family $26.5 B 56 Walmart USA
Why did Big business grow?
Availability of work force
National markets created by transportation
Access to raw materials and energy
Lower-cost production
Inventions
Advertising
Financial resources
The Rise of Big BusinessFocus Questions
• How did business structures change?
• Who were the leading industrial tycoons, and what did they achieve?
A Favorable Climate for Business
Free markets
With capitalism, competition determines prices and wages, and most industries are run by private businesses.
In the 1800s, business leaders believed in laissez-faire capitalism with no government intervention.
They believed government regulation would destroy self-reliance, reduce profits, and harm the economy.
The American ideal was one of self-reliant individualism. A strong work ethic made one successful, and entrepreneurs, businessmen, who risked their money and talents in new ventures.
Social Darwinism
Charles Darwin believed that
members of a species compete for survival in a natural selection process. Many thinkers believed that inequalities
were part of the natural order. Applied to society, stronger people,
businesses, and nations would prosper, and weaker ones would fail in a “survival of the fittest.”
New Market structuresMaking “Big money” was appealing but start up
costs were high allowing only a few to compete
Oligopoly- market structure dominated only by a few large, profitable firms
Can you think of one today?
Monopoly- market structure where one company has complete control of a product or service
Can you think of one today?
Good or bad?Why can a business like a monopoly be good for
society?
Why can a business like a monopoly be bad for society?
Business Structure Changes
Trust: a set of companies managed by a small group known as trustees, who can prevent companies in the trust from competing with each other
Corporation: A company recognized by law to exist independently from its owners, with the ability to own property, borrow money, sue or be sued
Andrew Carnegie$75 Billion
Andrew Carnegie Scotland (1848)
In 1861, at the age of 26, he started up the Freedom Iron Company, and used the new Bessemer process for making steel
He formed all of his companies into the Carnegie Steel Company in 1899, which controlled raw materials, manufacturing, storage, and distribution for steel. Vertical Integration
John D. Rockefeller$192 Billion
Born in 1839
His working life started as a bookkeeper
He established one of the first oil refineries
1870—With partners, forms a business trust: Standard Oil
At its peak, controls 90% of all oil companies Horizontal Integration
• Horizontal - Bringing together of many firms in the same industry
• Vertical – bringing together many businesses to make up the phases of production
Corporate Monopolies
Horizontal and Vertical Integration
Textbook, page 241
Big Business and the Government
Leave Business Alone
Laissez-faire
Social Darwinism
Limit Business
Sherman Anti-Trust Act Preserving free competition
and not restraining trade
Avoid monopolies
1911--Splits Rockefeller’s Standard Oil into 34 companies
(A U.S. Court of Appeals found in 2001 that Microsoft violated the Sherman Act antitrust law.)
Simulation Business A
3 volunteers (owner)
Business B5 volunteers (shareholders)
Step 1 (August):Business A, set the price for t-shirts
Step 2 (September): Business B opens up a store across
the street, set the price for t-shirts at store B
Class: Which store will you shop at?
SimulationStep 3 (October):
Business A, respond to the t-shirt price of Business B
Class: Which store will you shop at?
Step 4 (November): Business B, respond to the t-shirt price of Business A
Class: Which store will you shop at?
Step 5 (December)Repeat process
Class: Which store will you shop at?
Business Person A
You own a successful t-shirt shop on Castro Street. You are just one shop but you’ve managed to stay in business because you are the only t-shirt shop on Castro Street. Recently, a t-shirt shop opened up across the street and it’s part of the national chain, Shirt Me Up, that has stores all over the nation. You are worried about losing some of your customers to them but you are willing to cut prices and offer sales if it will keep you in business.
Basics – t-shirts cost $6 to manufacture and you currently sell them for $12.
You need to make at least a $2 profit on each t-shirt in order cover the cost of your rent and pay your employees.
If you lose money for more than a month then you will not be able to pay for your rent.
Task: Respond to the sales ideas from Person B in competitive ways in order to stay open.
Business Person B
You are a local manager for the national t-shirt company, Shirt Me Up, that has stores all over the nation. You are currently managing the new store that just opened up on Castro Street. There is a t-shirt shop already on Castro Street, but you are pretty confident you can drive them out of business since you can draw on money from the national office.
Basics – t-shirts cost $6 to manufacture and your competitor currently sells them for $12. They need to make at least $2 profit on each t-shirt to cover the cost of rent and employees. This is true for you also, but you can lose money for several months in a row because your national office will cover your costs.
Task: Start the competition by telling the shoppers in your group that you are willing to offer t-shirts for $10 and ask if they will shop at your store instead. No matter what your competitor does, respond by offering your t-shirts for less money. It doesn’t matter if you lose money, because eventually they’ll go bankrupt and then you won’t have to compete with them anymore. When they go out of business, raise your prices to $20 a t-shirt.
What would Rockefeller say…
Monopolies are good because we can produce goods at a lower cost to consumers!
Now everyone can have cheap oil and gas.
What would the Populists (poor farmers) say?
Monopolies are bad because they control the whole industry and there is no competition over prices.
We have to pay high prices to ship our wheat on the trains!
And these companies pay low wages to their workers!
Exit ticketWas Big business good or bad for society?
Provide an example in your explanation.