Chapter 18 The Rise of Industrial America 1865

Chapter 18 The Rise of Industrial America 1865 -1900

Introduction • 1. ) What brought about prodigious industrial growth and the rise of giant corporations in the period of 1865 -1900? • 2. ) How did some business leaders, such as Andrew Carnegie and John D. Rockefeller, overwhelm competitors and dominate their industries?

Introduction (cont. ) • 3. ) How and why did southern industrialization patterns differ from northern ones? • 4. ) How did workers respond to the changes resulting form rapid industrialization and the growth of big business? • 5. ) In the labor-management clashes of the period, why did management almost always win?

The Rise of Corporate America • The Character of Industrial Change – Rapid industrial expansion was made possible by: • using America’s vast coal deposits for cheap energy • Adopting new technology – Enabled manufacturers to cut production costs • Employ low-paid unskilled and semiskilled workers • Ruthless competition among businesses – Lowered commodity prices – Ruined weaker companies – Left fewer huge corporations in control of each industry

The Character of Industrial Change (cont. ) • The unrelenting competition also drove business to brutally exploit labor and heedlessly pollute the environment • Though prices fell: – interest rates remained high – credit tight – because of the failure of the money supply to keep up with the expansion of the economy

Railroad Innovations • By 1900, the United States had more rail miles tying the country together than did all of Europe • Building this extensive railroad system opened a vast internal market to American industry • The railroad companies also led the way in developing accounting, financial, and managerial practices that made large-scale corporate enterprise possible – Sale of stocks and bonds to raise needed capital

Railroad Innovations (cont. ) • Railroad management innovations became the model for other businesses trying to sell products in a national market

Consolidating the Railroad Industry • A group of innovative and unscrupulous railroad entrepreneurs bought out their smaller competitors one by one – Collis P. Huntington • Central Pacific Railroad – Jay Gould • Financier, developer, speculator – James J. Hill • Great Northern Railway

Consolidating the Railroad Industry (cont. ) • By the 1890’s, they had established great trunk lines that controlled most of the track • These integrated lines carried goods all over the country efficiently – Standardized equipment and track gauge

Consolidating the Railroad Industry (cont. ) • However, the railroad companies abused their powers – Bribed politicians • Free passes and other favors – Gave rebates and kickbacks to big shippers – Overcharged small businesses and farmers

Consolidating the Railroad Industry (cont. ) • Small shippers demanded legislation to curb the unfair practices • In the 1870’s, many Midwestern states outlawed rate discrimination – These laws were ruled unconstitutional when the Supreme Court said states could not regulate interstate commerce

Consolidating the Railroad Industry (cont. ) • Interstate Commerce Act – Passed Congress in 1887 – Forbade pools, rebated, and other monopolistic practices – Established the Interstate Commerce Commission (ICC) • Investigate complaints and unreasonable rates – Interstate Commerce Act short summary

Consolidating the Railroad Industry (cont. ) • The Interstate Commerce Act was ineffective for several reasons: – Federal courts decisions almost always sided with the railroads – ICC’s lack of power to set railroad rates – Presidents appointing pro-railroad commissioners

Consolidating the Railroad Industry (cont. ) • In the early 20 th century, under the guidance of investment bankers railroad consolidation proceeded still further – J. P. Morgan • By 1906, 7 giant corporations controlled 2/3’s of all the track

Applying the Lessons of the Railroads to Steel • Andrew Carnegie’s career illustrates the close connection between railroad expansion and the growth of heavy industry

Applying the Lessons of the Railroads to Steel (cont. ) • Carnegie’s best customers were the railroad companies • From his early experiences working in the railroad industry, he learned the organizational, accounting, and managerial innovations that he later applied to his steel business

Applying the Lessons of the Railroads to Steel (cont. ) • He also copied the railroad practice of consolidating small enterprises into fewer and fewer huge companies • Carnegie integrated his business both vertically and horizontally

Applying the Lessons of the Railroads to Steel (cont. ) • U. S. Steel – 1901 – Carnegie Steel and J. P. Morgan’s Federal Steel combined – The world’s first corporation capitalized over $1 billion – Contained 200 member companies

The Trust: Creating New Forms of Corporate Organization • By 1900, the consolidation process that had placed the railroad and steel businesses in the hands of a few corporate giants had also taken place in oil, sugar, meatpacking, and many other industries

The Trust: Creating New Forms of Corporate Organization (cont. ) • Standard Oil Company – John D. Rockefeller – Oil-refining – Adopted the latest technology – Made deals with the railroads to get special shipping discounts – Engaged in deception and aggression to ruin competitors – Created the 1 st trust and later holding company to extinguish all competition in oil refining

The Trust: Creating New Forms of Corporate Organization (cont. ) • The growth of trusts, oligopolies, and monopolies in one industry after another led to public pressure for govt. intervention • In 1890, Congress passed the Sherman Anti-Trust Act – Outlawed all contracts and combinations that were in restraint of trade in interstate commerce – Sherman Anti-Trust Act

The Trust: Creating New Forms of Corporate Organization (cont. ) • The Sherman Anti-Trust Act was ineffective in stopping the growth of trusts: – Vaguely worded – Presidents rarely brought suits against companies under it – Supreme Court in the E. C. Knight case (1895) interpreted the meaning of interstate commerce so narrowly as to prevent the law’s use against manufacturing corporations • PBS summary • E. C. Knight case short summary – Large-scale consolidations in industry accelerated after the E. C. Knight case

Stimulating Economic Growth • The Triumph of Technology – The invention and patenting of new machines in the period 1860 -1900 also brought about the growth of huge corporations • Alexander Graham Bell’s invention of the telephone in 1876 gave rise to Bell Telephone • By 1900 had installed some 800, 000 phones

The Triumph of Technology (cont. ) • Thomas Edison – Menlo Park – Perfected the light bulb (Edison Electric) – Invented the phonograph, microphone, motionpicture camera and over thousands of other items • Bell and Edison proved that new inventions could be the foundation of profitable big business

Specialized Production • Manufactures of specialized products also greatly expanded their output between 1865 and 1900 – Locomotives – Furniture – Women’s clothing • Not necessarily done in huge factories though

Advertising and Marketing • Aggressive advertising and marketing were effective in expanding sales and beating out competitors in the late 19 th century – Procter and Gamble – American Tobacco – Eastman-Kodak

Advertising and Marketing (cont. )

Economic Growth: Cost and Benefits • By 1900 the chaos of thousands of small companies competing for the national market had been replaced by an economy dominated by a small number of enormous corporations offering a dazzling array of new products • The price of these accomplishments was the crushing of thousands of small-and medium-sized business, the exploitation of millions of workers, and the fouling of the environment

The New South • The South industrialized more slowly than the North – Until 1900 lagged far behind North • Reasons why: – The destruction of the South’s credit system by the Civil War • Shortage of capital – Federal govt. policies that hurt the South economically • High protective tariffs – South’s poor educational facilities • High rate of illiteracy

The New South Creed and Southern Industrialization • In the 1870’s, southern newspaper editors, planters, and businessmen began to preach the “New South Creed” – The region must industrialize • Eager to attract northern capital: – southern states offered tax exemptions for new businesses that would locate there – Held industrial fairs – Leased convicts from state prisons as cheap labor – Practically gave away land, forests, and mineral rights to northern corporations

The New South Creed and Southern Industrialization (cont. ) • Iron and steel production expanded dramatically – Birmingham and Chattanooga • The iron and steel mills hired many unskilled African Americans

The Southern Mill Economy • Unlike the iron and steel industry, where factories were usually in or near urban areas, southern textile mills opened in the countryside – Towns and villages were created around the mills • Most of the textile mills were located in the Piedmont region of VA, the Carolinas, GA, and AL

The Southern Mill Economy (cont. ) • The southern mills combined northern technical expertise with southern rural paternalism • They recruited workers from the poor white farm population • Hired many women and children, and even whole families • The owners paid the laborers 30 -50% less than New England mills

The Southern Mill Economy (cont. ) • The textile companies dominated life in the mill towns they started • They provided their employees with housing, stores, schools, and churches

The Southern Mill Economy (cont. ) • The mills underpaid their workers and overcharged for rent and supplies – the employees often fell into debt to companies • Just as sharecroppers were indebted to their landlords and creditor-merchants

Southern Industrial Lag • Despite impressive advances, southern industrialization occurred on a small scale and at a slower pace then in the North • The southern economy remained essentially in a colonial status • Industry was owned largely by northern firms – Example=U. S. Steel controlled the foundries in Birmingham

Factories and the Work Force • From Workshop to Factory – The number of industrial workers in the United States climbed from 885, 000 to 3. 2 million by 1900 – The trend toward large-scale, increasingly mechanized production accelerated – the nature of work changed markedly • Fewer artisans • Remaining skilled workers had less control over their work and derived less satisfaction from it

From Workshop to Factory (cont. ) • Factories hired more low-skilled, low-paid women and children • Jobs became simple, machine-paced, repetitive, and boring

The Hardships of Industrial Labor • Already by the 1880’s, almost 1/3 of the labor force in steel and railroad industries were unskilled workers • Common laborers drifted from city to city and from industry to industry – Worked for wages that were 1/3 of those paid to skilled artisans • In the expanding factories and on railroads, workers were exposed to a variety of industrially induced diseases – Black lung (exposure to coal dust) – Brown lung (inhaling cotton dust)

The Hardships of Industrial Labor (cont. ) • They also had appallingly accidents • Employers rarely paid compensation to injured workers and opposed passage of state health and safety codes

Immigrant Labor • More and more, immigrants filled the least skilled, lowest-paid, dirtiest, and most dangerous jobs in the expanding mines, factories, and railroads • Impoverished French Canadians crossed the border to work in the New England textile mills • Chinese constructed railroads and mined ore in the West • If immigrant workers stayed healthy, they often lived better than they had in their homelands

Immigrant Labor (cont. ) • Most of the immigrants worked very hard • Most did not adjust easily to the fast pace and monotony of factory work or to the rigid discipline management tried to impose on them

Women and Work in Industrial America • Since women could be paid even less than men and could do unskilled industrial jobs just as well, management hired more and more women • Married, working-class women and their children often spent hours finishing garments, rolling cigars, and performing other labor for manufacturers in their tenement apartments

Women and Work in Industrial America (cont. ) • Young, single women readily took jobs in factories because they preferred them to domestic service • Almost the only alternative for uneducated females • Immigrant parents regularly sent their daughters into the mills and factories to supplement inadequate family incomes • By 1900, women made up 17% of the labor force

Women and Work in Industrial America (cont. ) • In the late 19 th and early 20 th centuries, women also began to obtain clerical positions – Office work paid better and offered more prestige than factory jobs • But women clerical workers had almost no chance of moving up to managerial positions • Despite the increase in female wage earners, women’s work outside the home was viewed as temporary • A women’s career was that of housewife and mother

Hard Work and the Gospel of Success • Newspapers and magazines preached the gospel that, for male workers, America was the land of opportunity and hard work led to success • The papers were filled with rags-to-riches stories • Poor immigrant boys who rose to become heads of major corporations (Andrew Carnegie) • In fact, Carnegie was the exception

Hard Work and the Gospel of Success (cont. ) • 95% of executives of big corporations came from middle-and upper-class families • There was some opportunity for skilled workers to move into ownership and management of small businesses

Hard Work and the Gospel of Success (cont. ) • For unskilled immigrant workers there was less mobility • At best they moved from unskilled to semiskilled or skilled industrial jobs – They remained in the working class

Hard Work and the Gospel of Success (cont. ) • A huge gulf existed between the rich and poor • By 1890, America’s richest families (top 10%) owned 73% of the country’s wealth • At the other extreme, better than 50% of all industrial laborers earned incomes that placed them below the poverty line

Labor Unions and Industrial Conflict • Organizing the Workers – In response to the unfavorable changes that rapid industrialization was forcing on them, workers turned to labor unions – National Labor Union • • 1866 Formed by William H. Sylvis Several trades Declined in membership in 1870’s

Organizing the Workers (cont. ) • • Knights of Labor Terrence V. Powderly 1870’s Advance social and economic reforms: – – – Equal pay for men and women Abolition of child labor Inclusion of black workers in unions A graduated income tax Cooperative ownership of factories, mines, and other businesses

Organizing the Workers (cont. ) • Despite their egalitarian ideals, the Knights and other labor groups favored immigration restriction • Labor opposition to the Chinese, whom they accused of working so cheaply that they undercut native-born workers, was especially strong • The federal govt. responded to anti-Chinese sentiment by passing the Chinese Exclusion Act in 1882 – Chinese Exclusion Act of 1882

Organizing the Workers (cont. ) • When the Knights won a series of strikes in the 1880’s, workers rushed to join, swelling its membership to 700, 000 • In the late 1880’s, the Knights suffered setbacks: – It lost several big strikes – Its craft unions broke away to form the American Federation of Labor (AFL) – Its membership declined

Organizing the Workers (cont. ) • AFL • Led by Samuel Gompers • Did not attempt to organize unskilled workers • Dropped the far-reaching social-reform goals of the National Labor Union and the Knights

Organizing the Workers (cont. ) • AFL concentrated on winning short-term improvements in wages and hours for its skilled members • The AFL grew, but by 1900 less than 5% of America’s workers belonged to any union • The development of unions was seriously impeded by: – splits in the labor force between skilled artisans and common laborers – religious and ethnic divisions – differences among labor leaders concerning goals and tactics

Strikes and Labor Violence • Between 1881 and 1905 almost 37, 000 strikes took place • Nearly 7 million workers • Violence erupted as strikers attacked employers’ property and the scab laborers

Strikes and Labor Violence (cont. ) • Some of the biggest and most violent confrontations were: – The railroad strikes of 1877 – The eight-hour strikes of 1886 • 8 hour strike – The Haymarket Square bombing (for which 4 anarchists were unjustly convicted and executed) • Chicago History – The Homestead steel strike • PBS Homestead Strike – The Pullman strike • Chicago History

Strikes and Labor Violence (cont. ) • To combat labor unrest, employers forced workers to sign yellow-dog contracts and hired their own private police forces • Because of the violence, the public regarded strikers as dangerous radicals • The federal govt. intervened repeatedly on the side of management – Used the army to quell disturbances – Used injunctions to order union members back to work

Strikes and Labor Violence (cont. ) • When injunctions were disobeyed, union officers like Eugene Debs (the leader of the Pullman strike) were thrown in jail • As a result of employer, public, and govt. hostility, strikes almost always failed and unions languished

Social Thinkers Probe for Alternatives • The growing extremes of poverty and wealth and the violent clashes between labor and management troubled middle-class Americans • A number of social commentators tried to explain these developments and put forward their own solutions

Social Thinkers Probe for Alternatives (cont. ) • Social Darwinists – Believed that labor’s misery was an inevitable product of the constant struggle for survival that weeded out all but the fittest – They opposed any govt. interference with the workings of these natural laws – Andrew Carnegie – William Graham Sumner

Social Thinkers Probe for Alternatives (cont. ) • Others attributed the social problems to a humanmade economic system that placed private property and unrestricted profit seeking above all else • They called for govt. regulation, tax reform and a cooperative commonwealth • Lester F. Ward • Henry George • Edward Bellamy

Social Thinkers Probe for Alternatives (cont. ) • Tiny socialist and anarchist groups preached that only the overthrow of the capitalist and the govt. that protected them would make possible a just and humane society

Conclusion • Industrialization had brought great benefits to America: – International power status – Lower-cost goods – More jobs – A tremendous array of new consumer products

Conclusion (cont. ) • But the price had been high: – Shoddy business practices – Polluted factory sites – Urban slums – Poverty for the workers

Conclusion (cont. ) • Exploited laborers periodically vented their rage and frustrations in violent outbursts and strikes • Middle-class Americans were ambivalent about the new industrial order – They wanted to keep the benefits but somehow alleviate the accompanying social evils