Big Business
is a term used to describe large corporations, in either an individual or collective sense. The term first came into use in a symbolic sense subsequent to the American Civil War, particularly after 1880, in connection with the combination movement that began in American business at that time.
Organizations that fall into the category of "big business" include ExxonMobil, Wal-Mart, Google, Microsoft, General Motors, and Citigroup.
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History, The Great Merger Movement
From 1895-1905, the United States industry underwent major reorganization that had long term impacts on the structure of businesses. Small firms consolidated into giants with a large market share (see
Mergers and acquisitions). These mergers involved mass producers of homogeneous goods that exploited efficiencies of volume production. They were generally capital-intensive with high fixed costs; when demand fell, output would remain steady and prices would fall instead. In theory, these mergers were economically viable in the long run because the largest firm would take the supply decisions of independents as given and set the quasi-monopoly price above the competitive price. In practice, companies faced the challenge of deterring new entrants that would threaten the market share of the dominant firm. One solution to the problem of new entrants to the market was setting a “limit price” at which the dominant firm would make a profit, and the small independent firms would break even. The problem with this however was that the dominant firms would face higher costs than competitors. Other solutions to the new entrant problem included short-term price wars and the creation of entry barriers. Moreover, some companies chose to differentiate their products in order to reduce the
price elasticity of demand. They produced high standard products preventing themselves from the "price war" with their competitors. By that, companies could build up their brand and choose the selling price more easily. Furthermore, with such differentiated products, producers would earn profits from high margins, rather than large volumes, which could protect them against short term price wars. In this way, when demand for a product falls due to the effects of the formation of short term cartels, such firms could simply reduce ouptut while maintaining their prices. Since profits for such firms were made on the margin, a decrease in demand would not drastically affect their livelihood. This movement and consolidation formed the foundation for what was later coined as "big business."
Long-run factors which led to the rise of big business include technological change, which increased the efficient size of plants from non-mechanized factories with very few workers to large, modern industries, and reductions in transportation costs, which made it easier to produce goods in one location and ship to markets around the country. However, the immediate factor which led to the Great Merger Movement, according to Naomi Lamoreaux, was a result of large investments in new capital stocks, financed through bond issues. The bond issuances led to high fixed costs for companies, who had to make the interest payments on the bonds regardless of the number of units produced. When the
Panic of 1893 ensued, called the Great Depression at the time, the demand for purchasing bonds declined dramatically. However, companies still needed to finance the bond payments. Therefore, every company wanted to increase their output to increase the quantity sold in order to finance their bond payments, known as “running full.” This led to falling prices, and less revenue for every unit sold. As a consequence of this, companies desired to collude because of the incentive for horizontal integration, in which every supplier in a particular industry combined under one roof, with one manager making supply decisions.
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History, Post World Wars
The relatively stable period of rebuilding after
World War II led to new technologies (some of which were spin-offs from the war years) and new businesses.
Computers
The new technology of
computers spread worldwide in the post war years. Businesses built around computer technology include:
IBM,
Microsoft (
Bill Gates), and
Intel (
Gordon E. Moore and
Robert Noyce).
Electronics
Miniaturization and
integrated circuits, together with an expansion of
radio and
television technologies, provided fertile ground for business development. Electronics businesses include
JVC,
Sony (
Masaru Ibuka and
Akio Morita), and
Texas Instruments (
Cecil H. Green,
J. Erik Jonsson,
Eugene McDermott, and
Patrick E. Haggerty).
Energy
Nuclear power add to
fossil fuel as the main sources of energy.
Criticism of big business
The social consequences of the concentration of economic power in the hands of those persons controlling "Big Business" has been a constant concern both of
economists and of
politicians since the end of the 19th century. Various attempts have been made to investigate the effects of "bigness" upon labor, consumers and investors, as well as upon prices and
competition. "Big Business" has been accused of a wide variety of misdeeds that range from the
exploitation of the
working class to the
corruption of politicians and the fomenting of
war.
Influence over government
Corporate concentration can lead to influence over government in areas such as tax policy, trade policy, environmental policy, foreign policy, and labour policy through
lobbying. In 2005 the majority of Americans believed that big business had "too much power in Washington".
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Human rights and working conditions
German industry collaborated with their
Nazi government during the
Third Reich, thus exploiting the
working class in the interest of productivity and efficiency.
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Hitler's order offered German capitalists, badly hit by the great recession, the prospects of huge profits. German workers did, admittedly, enjoy full employment, but, as William Schirer has said, this was at the cost of being reduced to serfdom and poverty wages. It was not long before these conditions became the lot of the whole of occupied Europe.
Benefits of big business
It has been generally admitted that much of the technological progress since 1850 has been dependent on and fostered by the growth in size and the increase in financial strength of individual business units.
During the rise of big business in the late nineteenth century, long run factors contributing to the consolidation of businesses included technological changes and reductions in transportation costs. Cheaper transport costs made it feasible to produce in one location and then ship the product to market, instead of producing where the market was located. Technological changes made plant sizes more efficient in regards to capital-intensive assembly lines.
The rise of railroads contributed to decreased
transportation costs during the 1800s. To expand, the railroad companies required large pools of capital to finance infrastructure development and daily operations. However, the
government did not have the budget to provide financing due to the depression in the 1830s and 1840s. As a result, the railroad firms turned to private
investors and investment banks to raise the necessary
capital.
See also
- Big Oil
- Big government
- Big labor
- Zaibatsu
- Small business
References
- The Great Merger Movement in American Business, 1895-1904
- Title Unavailable
- Volkswagen's history of forced labour