american_business_history - 09:38:00 Primary Question Why...

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12/01/2010 09:38:00 Primary Question: Why no big business before 1850? Limitations included: o Travel costs and other impediments to transportation: Geography/Seasonality o Lack of technological advances: limit to how much could be produced through the manufacturing process o Labor Supply o Geographical constraints: dealt with through the use of canals (Freeze in winter months) o Lack of basic accounting procedures o Capital Constraint: very circumscribed trading in that period that included inefficient lending, lack of a banking system, credit is of personal nature, no investment banks, no venture capital funds, bonds exist for larger firms but there is no secondary market of manufacturing shares and therefore no one who is not included in the market would be interested in purchasing shares of ownership. o Personal bonds: Capital marketed tended to be from people who were related to you in some way and therefore included a social and familial element as an underlying factor in partnerships. Partnerships and family run businesses created a problem of sucession which resulted in difficulties in sustaining a company. o Managerial issues: lack of knowledge and experience o Constraints on larger output to market: there was no incentive to grow due to overproduction o Ideology: Democracy as opposed to Europe’s monarchy and centralized form of power. (Note the love-hate relationship with Europe due to idealistic differences contrasted with the fact that they provided the majority of capital to the United States) Turning Point: Construction of the Railroad: Enabled you to expand market and establish social, trading, and communication networks The emergence of railroads let to the development of accounting services The incorporation of new technology had spill over effects. Simply, the ability for American citizens to travel more frequently led to them having dreams and gave them a better idea of their own capacity to expand. The advent of new transportation mechanisms that caused the nation to “shrink”, allowed Creative Destruction: A process initiated by entrepreneurs that involved the sweeping out of old products, old enterprises, and old organizational forms by new ones and came to be the hallmark of the American Business system. Innovation that obliterates old and suddenly useless operations and creates new forms of organizational structure
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Preconditions for Big Business: Improved access to transportation and the existence of a comprehensive transportation network allowed for more specialized networks, and a large domestic market. o As long as the transportation system remained incomplete, the costs or marketing goods in distant areas remained too high to encourage entry into those regions. Along those lines, railroads ended the protection of many regional industries.
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american_business_history - 09:38:00 Primary Question Why...

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