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American Business and Society

By Steven L. Rosen

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Contents

I. THE INDUSTRIAL REVOLUTION IN AMERICA

II. THE OIL INDUSTRY

III. THE AUTOMOBILE INDUSTRY

IV. THE TOBACCO INDUSTRY

V. THE HEALTH CARE INDUSTRY

VI. BUSINESS ETHICS/ CORPORATE SOCIAL

RESPONSBIILTY :

VII. THE ECONOMIC CRISIS OF 2007-2010

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I. The Industrial Revolution in America (late 19th century)

The 19th century people could travel to America where they were able

to get jobs in the expanding U.S. economy, especially in factories, or working

in the railroad industry or later the oil industry. America was open, and there

was a flood of immigrants from all over the world.

Immigration (1870’s into the Early 20th

Century )

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The Modern Industrial Corporation and Monopoly Capitalism

The railroad industry was the key to economic growth in the 19th century.

The modern corporation began in the late 19th century with the industrial

revolution. Before the Civil War, most businesses in America were small,

independently owned enterprises. Transportation and telecommunication technology

was still in its beginning stages.

All this changed, however, after the Civil War. In a short time, the country was

covered with railroad lines and telegraph cables, and this growth of better

transportation and communication technologies helped the industrial revolution in

America. Other important technologies, for example, electricity and the internal

combustion engine, were also developing in this period. The result was that America

had the fastest economic growth in the world in this period.

Because railroads could quickly distribute more goods to more people, there

were reductions in price. This is what is called “economies of scale” in economics---

the bigger your company is, the more you can sell, and the more you sell, the more

you can reduce the price. Lower prices will mean even more people will buy your

product, resulting in even more economic growth.

This is what happened during the industrial revolution—economies of scale.

Manufacturing (factory production) increased very rapidly during the late 19th

century, with high production outputs. A number of companies in this period grew so

fast and big they easily took over and controlled certain markets (e.g., food, steel,

railroads, and oil).

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The limited liability company (有限責任株式会社) This means that the

corporation was not responsible for bad things they do—the owners are

protected from liability. For example, the owners are not legally

responsible for the debts of the company.

Major corporations sold stock which helped them raise a lot of money to

grow.

The 19th century was also the time of the rise of “Big Business.”

Companies would merge together to form a monopoly. (独占)

This was the real beginning of monopoly capitalism—the domination of a few big

companies which can keep smaller competitors out of particular markets.

II. The Oil Industry

California Oil fields (1920’s)

The petroleum industry started in America in 1859 when oil was discovered

under the ground in Pennsylvania. Since then it has developed into one of the

world’s richest industries providing electricity, fuel and chemicals (“petrochemicals”/

石油製品) for the modern world. We can even say that the modern economy

developed because of oil and other fossil fuels (like coal/石炭). Crude oil, also known

as petroleum(ペトローリアム), is the world’s most actively traded commodity/商品.

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John D. Rockefeller (Standard Oil)

The early oil industry was chaotic/混迷状態 and dangerous, with the price oil

rising and falling. Then John D. Rockefeller built his first oil refinery (製油所) in

1863 and took control of the oil market; he became one of the richest men in the

world. In 1870 he started the Standard Oil Co. which became the leader of the

petroleum industry in the late 19th century. In fact, it became a powerful monopoly;

by 1880 Standard Oil controlled about 90% of the market.

In 1901, one of the most important discoveries of oil occurred in Texas. This

discovery ended the monopoly of Standard Oil, as many new, smaller companies

appeared in Texas and nearby states. In 1912 the Dutch Shell Group moved into

California and became very successful there.

The growth of the automobile industry and airplane industry from the 1920’s

really helped the growth of the oil industry, but soon the supply exceeded the

demand for oil. (需要供給)

After World War II ended (1945), oil replaced coal as the main source of

energy in America. However, there was not enough domestic (国内) oil to meet the

energy demands of Americans. From the 1950’s on, the demand for oil was great, not

only for fuel (燃料); many America products were made from oil (petrochemicals),

such as plastics or disinfectants(消毒剤) and fertilizers (化学肥料).

The Modern World and Oil

OPEC (オペック/Organization of Petroleum Exporting Countries) started in

1960 to regulate the price of oil. They set the price of oil on the world market

through production quotas・割り当て (so it’s a kind of cartel).

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The United States also gets oil from Alaska and Texas, Canada and Mexico,

but heavily depends on Middle-East Oil. America consumes about 1/4 of the world’s

oil. This also means that the U.S. produces about 25% of the world’s carbon emissions

炭素放出量.

Actually, high oil prices are good—for the environment. …but bad for people’s

wallets….bad for the economy.

Much of the world’s oil passes through the

Strait of Hormuz on ships. If there is war or political instability in the Middle-East, this will disrupt

the supply of oil to the world.

When the price of gas goes up, people start to conserve and think about buying

ecofriendly cars. This is happening now in America.

Will the world’s oil run out some day? Yes, of course. But before this, perhaps the

environment will be destroyed (by global warming).

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III. The Automobile Industry

IV.

Henry Ford and his Model-T (1921)

In the early part of the 20th century, the automobile industry transformed

American business and society.

Ford Motor Company was incorporated in 1903. The new company produced

only a few cars a day at the Ford factory in Detroit.

To meet the growing demand for his cars, Henry Ford opened a larger factory

in 1910. Here, Henry Ford combined high quality manufacturing, standardized and

interchangeable parts, a division of labor, and, in 1913, a continuous moving

assembly line. Workers remained in place, adding one component to each automobile

as it moved past them on the line. The introduction of the moving assembly line

revolutionized automobile production by reducing assembly time per vehicle, thus

lowering costs. Ford's production of Model T’s made his company the largest

automobile manufacturer in the world.

The automobile industry became one of the most important industries in

America at this time. Ford’s assembly line production and economies of scale made

the automobile cheap enough for ordinary people to buy.

By 1914 his huge factory in Michigan was able to produce one car in 1.5 hours,

producing 1,000 cars a day. His company became the richest company in the world.

The success of Ford's automobiles were based on their low prices, which kept falling,

and the durability (耐久性)of his car's design.

While Ford was perfecting his Model T, William C. Durant established the

General Motors Corporation (GM) in 1908.

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General Motors Chairman Alfred P. Sloan, Jr., decided to follow a different

strategy. He used the new science marketing (market research) and offered different

lines of cars at different prices. Fancy expensive cars were marketed for rich people

and middle level autos for middle class people and simple cars for poorer people.

These concepts helped GM challenge the dominance of Ford and GM became #1.

Automobiles transformed American society and business

The automobile almost immediately transformed the petroleum industry.

Employment increased due to automobile factories keeping up with

demand. The amount of wages was doubled in factories.

Industries which were dependent on the automobile saw employment

almost triple.

Road construction changed dramatically because of automobiles.

America was covered with highways after the 1950’s.

The automobile helped the development of the tourist industry.

Small-town hotels and motels developed for traveling salesmen.

The growing number of automobile tourists increased the amount of

business in stores.

Service stations, garages, and repair shops were two of the industries that

benefited from the increased amount of travel.

Negative effects

The railroad industry declined

Automobiles soon produced problems of congestion and parking,

especially in big cities.

Pollution – the U.S. uses about half of the world’s petroleum…..

Most ozone pollution is caused by motor vehicles.

Automobiles exhaust gases cause cancer. Diesel causes lung diseases.

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The Automobile Industry Today

There are three big automakers in America- Ford, GM and Chrysler. About 20% of

the U.S. manufacturing sector is related to the automobile industry.

After the oil crisis of 1973, smaller, fuel efficient Japanese imports increased

their market share. In 1980 it was about 26%; now many foreign car companies have

factories in America, so that a foreign car is often not really foreign—a Honda or BMW

might be made in America!

The Future: Electric Cars

The EV1 electric car, killed by….who? 誰が電気自動車を殺した

か?

1. Electricity is cheaper than gas and we can get it from renewable resources like

solar and wind power.

2. Electric cars pollute less.

3. Electric cars need less maintenance.

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4. By using electric power, we depend less on foreign country for oil.

5. Electric cars can utilize the existing power grid—no special new technology is

needed.

The auto industry has always fought against new safety regulations and new

standards for exhaust emissions (排気がズ) and fuel efficiency (燃費基準)…. And in

the film we can see that they also fought against the electric car. Why?

V. Big Tobacco

Tobacco is one of America’s oldest and most profitable industries, going back

to the early 17th century in Virginia.

It provides about 50,000 manufacturing jobs and 136,000 farming jobs, and

another 400,000 jobs indirectly.

There are 5 or 6 major American cigarette companies. The biggest is Phillip

Morris with about 45% market share. (They make Marlboro, the world’s best-selling

brand). Other famous tobacco companies are- R.J. Reynolds, Brown and Williamson,

and the Ligget Group.

Domestic sales alone total about $45 billion a year. Recently tobacco use in

America has been declining so the companies are targeting developing countries much

more.

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Legal Action against Tobacco Companies:

Tobacco companies have long been among the richest and most powerful

companies in America. They are a powerful political lobby (圧力団体) so it’s difficult

to pass laws which might restrict them or control tobacco sales. For many years they

could get the best lawyers and win every case in the courts against them for damages

caused by their product.

Then, in 1994, there was a big turning point in cases against the tobacco industry. A

woman whose husband died of lung cancer sued (訴える)and was successful. In the

same year, the State of Mississippi was the first state to sue and win a case against a

tobacco company for medical health care costs.

Soon other state governments started suing the big tobacco companies for

money to cover their medical costs.

Then, on November 23, 1998, the tobacco industry got together and agreed to

pay $206 billion to 46 state governments for medical costs related to tobacco.

The reason that companies have been losing legal cases against them is

because for many years they lied about their product. They hid the dangers of smoking

for many years, showing false research data.

Dr. Jeffrey Wigand was a research scientist Brown and Williamson Tobacco

company, and when he left the company and told the public what he knew (in 1994),

people were shocked. The government finally took action, too, as well as court cases.

Thanks to Dr. Wigand (see the film, The Insider) we can see how these rich

corporations lied about their product and people were harmed. Under product liability

law (生産物責任), if you sell a product but lie about its harmful effects, you have to

pay money.

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VI. The Health Care Industry Health Care Industry:

profits over people The United States spends more on health care than any other

country in the world. Most of these costs are related to the high cost of

pharmaceuticals. Since Mr. Obama became president, a new health

insurance system was started which tries to solves many of the serious

problems with the health care system in America. It is slowly having

some good effects.

① About 47,000,000 people had no health insurance before “Obamacare.”

② Private Health insurance is very expensive for people to buy

③ Private Health insurance for workers in a company is very expensive for

businesses.

④ Health insurance companies are private and often money is more

important that helping sick people. They sometimes deny payment to sick

people and even let people die.

⑤ The pharmaceutical industry is very rich and politically powerful. They

market many unnecessary and even dangerous drugs at inflated prices.

Michael Moore’s suggestion: give every American free health care for life. [see film,

Sicko]

Obama plan:

Strictly regulated private health insurance companies.

Free medical insurance for people who can’t afford it.

Support for companies providing health insurance for their workers.

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VI. Business Ethics/Corporate Crime: The Case of Enron

In the late 1990’s Enron was rated one of America’s most innovative companies.

It started out as a small natural gas company and grew very quickly into an energy

giant, supplying the electrical power for the state of California. It became known as

one of America’s most innovative companies, with a variety of unusual investments

all over the world. “Enron didn’t just dominate markets—it invented them.”

Accounting Fraud (会計の詐欺)

No one knew that the company was lying about its profits, and that it was

setting up phony off-shore companies to hide the fact that they were losing money.

In 2001, Oct. many were not so worried when Enron reported a 600 million

dollar loss in profits. In June of 2001, the government found out about their greedy

manipulation of energy markets and put a stop to this with strict price controls on

California’s energy markets.

Soon Enron found itself losing money. The company which was thought to be

one of the best in America, was actually built on lies—false accounting, phony

companies—and within 4 months the company went bankrupt— one of the worst

bankruptcy cases in American history (unit 2007 Lehman Bros.)

In a few weeks’ time, $60 billion of investor equity was lost. Employees and

investors and many other people became very angry when they found out that the top

executives knew that the company was in financial danger and sold off their stock

before it went down….. …but wouldn’t allow its employees to sell their stock when it

started going down!

More than most companies, Enron had powerful friends in the highest levels

of government. Enron had used its power to influence powerful friends like President

George Bush and Vice-President Dick Cheney to give them freedom in the energy

markets. With deregulation, they made secret plans to create energy shortages in

California to drive up the price of electricity.

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Employees lost their pensions, and many at the top of the company went to

prison. The American public was so angry about this case, that new strict laws for

accounting were put into place. Now all M.B.A. programs offer courses in business

ethics. There is no a lot more attention to business ethics and CSR (corporate social

responsibility).

VII. The Economic Crisis, 2007-2010

After 2001, housing prices in America kept going up, so buying a house

seemed like a good investment. Many people bought houses, even people who

didn’t have much money; banks were happy to lend them money for a mortgage

because the houses were always going up in value.

However, when housing prices started to drop in 2006, many people

started defaulting on their loans. When the housing market collapsed in 2007,

banks started losing money, stock holders who had mortgage backed securities

lost money, and new housing construction slowed down.

Many big investment banks had risked a lot of money on mortgage

backed securities and other types of very risky investments.

*Another problem was the capital to debt ratio of these banks was very

poor. If a bank has lots of capital and assets, it’s not a problem to take a lot of

risk. However, these banks were taking on lots of risk with little capital

reserves in case of a rainy day. When the rainy day came, they had only couldn’t

pay their creditors.

The result was that big banks went into the red. 赤字 Some went

bankrupt. Banks are the basis for a capitalist economy, so when they go under,

the whole economy sinks.

Then credit becomes frozen- banks stop lending money; there will be

little investment. The result of that will be high unemployment and recession.

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This financial credit crisis spread all over the world. Why?

We still are feeling the effects of it (slow GDP growth, lots of public and private debt,

high unemployment).

*A deeper question we need to ask is this: are there some fundamental problems with

modern corporate capitalism and finance capitalism which we need to fix?