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.