The Rise of Big Business

By Roy Fu

The Rise of the Modern Enterprise in the US

The rise of the railroad and telegraphTransportation and CommunicationDistributionManufacturingTop-level managers replacing owners in

making important decisions

Transportation and Communication

Railroads become the first big businessManagerial hierarchies appearCooperation among managerial hierarchies30 large railway companies owned and

operated more than 2/3 of all rail in USNew Utility companies managed like rail

companiesWestern Union and AT&T dominant

Distribution

1840: old-style marketing and distributionThe Beginning of The End for wholesalersThe Rise of the new mass retailers“Stock-turning”Family control in the distribution sector

Production

Revolution in production slower than in distribution

Importance of new availability of coalMetalworking and managementRevolution in production slower than in

distribution

The Integrated Industrial Enterprise (IIE)

Rise of IIE’s in 1880’sNew integrated industrial firmsVertical integrationOligopolies

Vertical integration

Livesay and Porter: Increase in vertical integration between 1899-1948

Laffer: Hard to say, but perhaps a decline in vertical integration between 1948-1965

Rise and (perhaps) fall in vertical integrationBackward integration: defensive strategyForward integration: offensive strategy

Oligopolies

Bain and Galbraith: Oligopoly is the dominant market form in modern economies

Wilcox: No they’re not!Stonebraker: I agree with Clair (Wilcox)

Growth through Mergers

A different route to growthSherman Antitrust Act 1890 & New Jersey

general-incorporation law 1889Success of mergersSuccess and failure of mergers evident by 1917By 1917, Over 86% of 278 enterprises with

assets of at least $20m had integrated production with distribution

The Continued Growth of Managerial Enterprise (part I)

Growing importance of managersEvolution of management techniquesReplacement of founding family members

by top-level managersInvention of the multidivisional structure

The Multidivisional Structure

The Basic hierarchical firm structure of the modern business enterprise (from Chandler)

The multidivisional structure: manufacturing (from Chandler)

The Continued Growth of Managerial Enterprise (part II)

Professionalization of managers Some Figures: 1947: the largest industrial enterprises measured by assets accounted for

30% of the value added in manufacturing and 47.2% of all corporate manufacturing assets.

1963: when most of the firms had diversified as well as integrated, they were responsible for 41% of the value added and 53.6% of assets.

By 1968, their share of assets had risen to 60.9%. The 200 largest industrial firms accounted for more than half of the direct

US investment in Europe. Chandler concludes that “in the central sectors of the US economy,

managerial enterprise had become the dominant business institution and managerial capitalism had triumphed.”

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