Question for Discussion: How
did the rise of Big
Business and the growth of a national market
affect American society and culture in the late
Reading: Gerster, pp. 38-44, 72-85; Carnegie
Gospel of Wealth" (web)
Wealth and Power in the
Industrial Capitalism: Monopoly
vs. Free Enterprise
Corporate Power and the
Subversion of Democracy
Corporate Welfare and the
Subversion of Free Enterprise
American Workers and Growing
The Global Economy and the
1. Moving from a nation of
small local and regional companies to national corporations?
2. The Debate between Henry George
and Andrew Carnegie
3. Does the growth of national
and concentration of wealth threaten
4. Should the People of Denver pay
of the 300 million cost of building a new stadium
for the Broncos in Denver?
5. Global Corporations and the Subversion
of American Democracy
6. Campaign Finance
7. The Growth of the Global Economy
and the threat to
American democratic control over the American economy
1. Why is Henry George concerned about the
growing concentration of wealth in America in the late 1800s?
2. Why, according to George, does concentration
of wealth threaten American democracy and our democratic institutions?
3. According to George, how do the wealthy
really acquire their great wealth?
4. How would George reform American society
and economy in order to reduce and limit the power of great wealth?
5. Does George believe that wealth should
be the final, real measure of a person's social status and worth
in American society?
6. According to Andrew Carnegie, how is great
wealth created: How do the rich become rich?
7. What role does profit play, according to
Carnegie, in American society?
8. Why does Carnegie believe that the "race
for the accumulation of wealth" is good for America?
9. What does Carnegie believe is the role
of people with great wealth in American society?
10. What does Carnegie mean when he argues
that those with great wealth should be "trustees for the people"?
11. Whose argument do you think is more persuasive:
George's or Carnegie's?
12. Does the concentration of wealth in American
society inevitably threaten American democracy and democratic institutions?
13. Are the benefits created by the concentration
of wealth greater than the threat such wealth poses to American
14. Would you rather have a more democratic
society or a society that allowed and encouraged great concentrations
of wealth? Do we really have to make a choice between preserving
our democratic institutions and protecting the right of large corporations
and the wealthy to amass great wealth?
In order to understand how the rise
of Big Business, the rise of large, national corporations, affected
American society, we need to briefly compare America in the 1870s
with America in the 1920s. America in the 1870s was a nation of
small farmers and small businessmen who sold their goods and products
to a local and regional market. Americans believed that owning land
and owning one's own business gave them freedom. Not being dependent
on others' for a job or one's livelihood made American free. In
addition, in the 1870s Americans believed that our society and economy
was based on free enterprise, free and open competition between
small farmers and businessmen in a free market. In such an economy,
Americans were guaranteed higher quality goods and products at lower
costs. Few Americans in the 1870s could really imagine how quickly
their economy and way of life would change by the 1920s.
In the 1920s, America was a nation
of large, national corporations, which dominated a national market.
The majority of Americans now lived in cities. Instead of owning
their own small farms and small businesses, Americans were increasingly
employed by large corporations. Instead of buying goods and products
from people and companies they knew, and could trust and depend
on, Americans were forced to buy goods from large, powerful, dominant
corporations, which dominated their industries. In many industries,
four or five national corporations dominated the production and
sale of goods. Instead of free enterprise and free and open competition
in a free market. These dominant national corporations formed trusts
or cooperated with each other to ensure higher prices and lower
quality goods. This cooperation between giant corporations allowed
them to divide up the market for their goods and no longer compete
with each other to produce higher quality goods at lower prices.
By the 1920s, because these corporate oligopolies--several companies
dominate and control an industry--were so powerful they attempted
to use their money and influence to shape and control state and
federal governments. As a result, many American since the early
1900s have questioned whether we are, in fact, a democracy when
such large, powerful corporations and interests can exert more power
and control than most Americans.
How then was the American economy transformed
from a nation of small farmers and businessmen to a nation of powerful,
dominant corporations who threatened to undermine free enterprise
and the free market and American's democratic control over their
government and society? Why didn't Americans choose to remain a
nation of small producers, serving local and regional markets? The
answer lies in the same forces that are now transforming the American
national economy into a global economy in which giant global corporations
are threatening to undermine national companies and national governments'
control over their own economies.
But let's start with America in the
1870s. In order to understand the rapid growth of the national economy
we need to look at a specific industry, let's say shoe companies,
for example. In 1870, there were small shoe companies that produced
shoes for the New England, upper Midwest, the South, and the Western
markets. These companies weren't directly competing with each other.
They were still making shoes using skill craftsmen to make and finish
the shoes. As a result of their dependence on skilled craftsmen
and their dependence on local and regional customers, these shoe
companies did not produce a large volume of shoes. They produced
as much shoes as their customers needed and demanded. Given the
success of these regional shoe companies, why did some of them decide
to try to expand their market from their region to other regions
in the 1870s and 1880s?
In the 1870s and 1880s, the railroads
linked the country together. Instead of only being able to ship
goods to a local and regional market, railroads now made it possible
for shoe companies to ship and sell their goods outside their traditional
regional markets. Even though the railroad now made it possible
for these shoe companies to sell their shoes to other regional markets,
they would have to find a way of paying for shipping their shoes
and still be able to sell their shoes at or below the costs of shoes
charged by their other regional competitors. How would these companies
manage to still compete with their regional competition in price
and quality for shoes and pay for shipping and transportation?
The larger question we must now ask
is this: Why would these regional shoe companies want to go through
the bother of expanding their market and competing with other regional
shoe companies? They would have to produce more shoes and find a
way of paying for the additional costs of shipping their shoes?
Why didn't they simply refuse to take the risk and continue to make
and market their shoes for their regional customers? The answer
lies in the promise of increased profits and control over the market
for shoes. Those businessmen who took the risks believed that they
could make a lot of money by expanding their market for shoes.
Having decided to take the risk, what
would the New England shoe company have to do to expand its market
for shoes to include the Midwest and Southern regional markets for
shoes? The first thing the company would have to do is to greatly
expand its production of shoes? Should they hire more skilled craftsmen?
No, because skilled craftsmen were very expensive, and the New England
shoe company couldn't compete and pay such high salaries. Instead,
the company buys builds new factors, buys new machinery, and hire
unskilled workers to mass-produce shoes on the assembly line. As
you might guess, in order to expand their markets for shoes, the
New England company depended not only on the railroad but on the
new steam engines that now could power and run assembly lines for
production of shoes. But in order to build these new factories,
buy new machines, and hire large number of workers to run the assembly
line, the New England shoe company needs a good deal of money. Where
is the company going to get the money and capital to invest in these
new factories and machinery?
In the 1870s and 1880s, American companies
begin to aggressively take their once privately-owned companies
public and sell stock, or shares in their company, to investors.
In this case, the New England shoe company is going to sell thousands
of shares of stock to investors and borrow thousands of dollars
from banks. But selling stock and borrowing money from banks is
risky. The New England shoe company now not only has to pay the
interest on the money it borrowed, it must guarantee profits for
its stockholders who invested in the company expecting a good rate
of return on their investment. In order to pay off its debts and
make a profit, the New England shoe company is going to have to
rapidly expand its market for shoes, trying to sell shoes to customers
in the Midwest and the South who have traditionally bought shoes
from regional companies. In order to attract new customers, the
New England shoe company is going to have to try to sell its shoes
for less than its competitors, offer higher quality shoes, and spend
thousands of dollars advertising its shoes to new regional customers
who have never bought shoes from them before.
There is, however, another problem
facing the New England shoe company: What will it do if its competitor,
let's say, the Midwestern shoe company, builds new factories, invests
in new machinery, and expands its production of shoes? Can the New
England shoe company expand its market for shoes in the face of
stiff competition from other expanding regional shoe companies?
It is at this point that the New England shoe company must pause
and rethink its strategy. For the most part, its new investment
in factories and machines have allowed it to expand and out compete
other, smaller, more regional competitors who haven't tried to expand
their operations. As a result, the New England shoe company is now
faced with three or four other expanding, national shoe companies,
all eagerly trying to expand their market for shoes in order to
pay off their debts and increase their profits in order to keep
their investors happy. What should the company do? Should it borrow
even more money, buy even more advanced equipment, and produce even
more shoes, trying to drive its competition out of business? It
is at this point that the New England shoe company must reassess
the increased costs of competition. What happens its competitors
decide to do likewise and invest in even more advanced equipment?
This ruinous competition between expanding, increasingly national
shoe companies could make it difficult for any of the competing
companies to profit and pay off their debts.
It is at this point that the New England
shoe company decides to try to make a deal with the remaining three
or four large, national shoe companies. It will go to them and try
to convince them that further competition could ruin them all. Instead
of this ruinous competition, the remaining four or five companies
should get together and make a deal; they will agree to divide up
the national market for shoes, selling shoes at a higher price and
at average quality, and not try to further encroach on each others'
markets. In the late 1800s and early 1900s, American companies in
the oil, the meat, grain, tobacco industries did just this. They
formed "trusts" and agreed to limit their competition
with each other. As a result, we get the rise of the oligopolies
that have dominated American industry and business ever since. Because
they don't compete on the basis of price or quality of goods, these
companies compete with each other by using advertising to establish
brand name loyalty. And, of course, their power and size as well
as their advertising dominance prevents other regional or start-up
companies from challenging these companies domination of an industry.
By the 1890s, many Americans worried
about the increasing power of these trusts and dominant companies
to control the American economy. They worried that free enterprise
and the free market were increasingly things of the past. But in
response to their critics, Corporate giants such as John Rockefeller
argued that the trusts were more efficient, and could produce more
goods at a cheaper price than smaller, more competitive companies
could. Rockefeller claimed that the giant corporation would pass
on its ability to produce goods more cheaply and efficiently to
the consumer in terms of lower prices. But is this true?
Let's look at an example of an American
industry dominated by an oligopoly. After World War II, the American
auto industry was increasingly dominated by four companies: General
Motors, Ford, Chrysler, and American Motors. By the 1960s and 1970s,
the big three or big four collectively set prices for cars and together
set quality standards. By the 1970s, facing increasing costs for
energy and materials to manufacture cars, the American auto industry
began to make high priced cars of very little quality, using advertising
to try to sell these cars to the American consumer. It worked for
a while, American were forced to buy low quality, high-priced cars.
But then something happened. By the mid-1970s the Japanese and German
auto companies began to flood the American market with lower priced,
higher quality cars. These foreign companies began to directly challenge
the oligopoly created by the American auto companies.
At first, the American auto companies
tried to use advertising and patriotism--telling their customers
to buy American, but this didn't seem to work. Because the American
companies didn't rise up and compete with these foreign competitors,
one of them, Chrysler, nearly went bankrupt. However, the government
bailed out Chrysler by lending it billions of dollars, fearing the
political consequences of losing hundreds of thousands of American
jobs. By the early 1980s, the American auto industry was pressuring
the federal government to restrict the importation of Japanese and
German cars into the United States. Owing to their political and
economic power, the American government put strict limits on imported
cars. But by the late 1980s and 1990s, Japanese and German car companies
had discovered away around this maneuver by the American companies
to try to maintain control of the American automobile market. Japanese
and German companies began to build manufacturing plants in the
United States and started producing hundreds of thousands of cars
in the United States. This development finally forced the American
auto industry to once again compete freely on the basis of price
and quality. They could no longer use their combined power to dominate
the American auto market and undermine free enterprise and free
competition. As a result, Americans now could buy less expensive,
higher quality cars.
But the story doesn't end here. Just
as the growth of a national market caused many smaller, regional
companies to fail and go out of business, costing workers thousands
of jobs, the growth of a global economy is threatening to undermine
many national companies, who don't have the money or power to compete
with global corporations. The movement of Japanese and German auto
companies to the United States is a larger example of the new threat
caused by globalization and increased global competition. The larger
problem facing America is this: If larger, national corporations
threatened free enterprise and the democratic control of the economy
and society, how will giant global corporations threaten American
democratic control of their economy, society, and culture? Is globalization
the inevitable result of the same competitive forces that caused
the growth of national markets and industries dominated by national
oligopolies? Americans have been debating whether large national
and global companies are a benefit or a threat to our society and
economy throughout the twentieth century.