2.8.11 - History 261-01 Post War Industrialization...

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History 261-01 2/8/11 Post War Industrialization Railroads: Consolidation Process of competition between railroads was chaotic Cutthroat business practices: (ended when the strong buy out the weak) - Incentives : to attract businesses, although the cost the railroads money, but it is necessary to succeed in competition, can lead to financial wars over ownership - Price manipulation: most effective tactic, managers gave lower rates for bulk freight, long hauls, or return routes. - Rebates: recouped losses on the backs of small shippers mostly farmers, secret kickback to a preferred customer, drop prices below postage rates of competitors. - Pools: traffic was pooled and profits distributed evenly, designed to remove incentive for cutting rates, (unsuccessful because didn’t have force of the law- this means that there was no one to make companies adhere to that) *Consolidation completed by 1900 – 6 groups that own about 80% of railroads- strongest survived- there were standard rail gauges, schedules were very regular Steel - Growth was given in part by railroads Carnegie : - Influenced by railroad industry: At 1859, age 24- appointed head of the railroads western division: invested in sleeper cars, locomotive factory, iron factory, from this job he learned about finance techniques - Adopted Bessemer process - Hired good managers and made them compete: had them compete for bonuses - Took advantage of boom and bust cycle: made money from money, bought and built when prices for material were low(during depressions) - Ruthless about efficiency: had no problems with laying people off, got rid of old equipment, he always adapted with the new technologies - Vertical integration: buying out the companies that produce goods for you to produce, you don’t own just the big corporation but all the companies that supply it. Carnegie can produce everything - Horizontal integration: merging of companies that are in the same business( railroads buying other railroads) Carnegie reduces cutthroat competition *expresses logic of new industrial age - Federal Government gave him a leg up: the government wanted and all steel navy to project naval power Oil: Rockefelle r: worked as bookkeeper- knows finance - Used combination rather than direct buy out: alliances, cooperation, voluntary - Cutthroat competition meant Rockefeller twisted arms: Bribery, Spying, Railroad rebates, Phony companies, Price slashing - Would take losses to eliminate a competitor; he had enough resources to be able to sustain losses for a while. He would purposely take a loss to drive them out of business or force them into an agreement- he never buys them out. - Horizontal Integration: By 1880, Standard Oil headed an alliance that controlled 90% of refining capacity
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- Vertical integration: he moves into drilling and retail as well How does he achieve this?
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