Up to the 1850s the American economic system still included elements of financial and family capitalism. At the time of the Firsts World War, Chandler (1990; 48) admits family ownership was still common among the large industrial corporations which had evolved over the previous generation. Extreme examples are Ford , which was almost wholly family controlled after 1907 (Nevins and Hill in Schmitz, 1995; 19) and the and the constellation of business interests held by the Mellon family of Pittsburg, including Gulf Petroleum (90% owned) and Aluminum Company of America (80% owned) (Berle and Means in Schmitz, 1995; 19).
“It was the development of new technologies and the opening up of new markets, which resulted in economies of scale and scope and in reduced transaction costs, that made the large multiunit industrial enterprise come when it did, where it did, and in the way it id” (Chandler, 1990; 18). American home market had geographical advantage as well as had a population (97. 2 mil in 1913) twice of that in Britain (45. 7 mil). American GDP per capita increased by 140 %. The volume of market activities reached the level when “the visible hand of management” replaced “the invisible hand of market forces”.
The small family owned firms were replaced by the large enterprises where the salaried managers played a major role. The salaried managers were responsible for long-term decisions, allocation of resources throughout the organization as well as for routine procedures. The owners still had the veto power, but they very rarely influenced on managerial decisions because they didn’t have experience, time or even the motivation. Modern enterprise operated in different locations and carried on different types of economic activities.
By First World War, the majority of American firms had adopted new forms of business organizations and most of the leading industrial companies were vertically integrated. This brought managerial capitalism to the American economy. The situation in Britain was completely different. As late as World War II, British “owners managed and managers owned” (Chandler, 1977; 9). The founder’s family dominated management by recruiting a few salaried managers or by forming federations of small-family-managed firms. Family groups still played a major role in British businesses.
In general terms, Hannah suggests that 55% of the largest British firms had family board members in 1919, rising to 70% in 1930 (in Schmitz, 1995; 19). Chandler has termed British businesses as “personal capitalism”. Traditional enterprises were normally short-lived. British firms recruited smaller managerial hierarchies and this prolonged backwardness and industrial decline. The salaried managers were more interested in firm’s stability and growth and they became more skilled and professional; while family owners and family managers were more interested in distribution of dividends.
Britain didn’t invest enough in marketing, manufacturing and management in the capital intensive industries of the Second Industrial Revolution. As a result of family dominated firms and low levels of vertical integration, Britain lost foreign market as well as home market. Foreign “first movers” took over world markets and the American and Germans firms dominated especially in production of machinery, automobiles, sewing machinery and household appliances. There were noticed other differences in the rise and spread of big businesses. The United Kingdom had less big firms than the United States.
The leading British firms were smaller than their American counterparts. The largest American U. S. Steel was 16 times bigger than the largest British company – Imperial Tobacco (Payne in Schmitz, 1995; 23). British big businesses were smaller in terms of size because the American market and economy is larger and firms tend to be larger. British firms tended to specialize in consumer god industries like food, tobacco, textiles (44% to 20% of American firms in 1930); while American firms were located in heavy industries (63% to 40% of British firms in 1930) (Payne in Schmitz, 1995; 23).
British and American multinational enterprise expansion was prominent between the 1860s and 19390s. Franko identifies 60 subsidiaries established from Britain before 1914; compared with 122 American examples (in Schmitz, 1995; 38). The geographical spread of British MNE was wider and a greater volume of foreign direct investment was represented than in America before the Second World War. While American MNE expanded into Canada and Latin America, mainly. In the case of Britain, where firms in traditional industry like textiles and metal working dominated, it was easier for these firms to expand without outside funding.
They accumulate capital over a period of time easily. In contrast, in economies where firms drew rapidly and engaged in new development and expensive merger activity, external funding often became necessary. American financial markets were less developed, so that business power concentrated in the hand of Carnegie and Rockefeller. The role of government on the development of bug businesses is quiet important as in America somehow in Britain. Direct state ownership of industry was rare in Britain and America before 1939. To secure naval fuel suppliers or strategically vital products, the British government influenced the growth of these firms.
Basically, the state in Britain didn’t play significant role in the business environment. Chandler argued that American protectionism favoured industries that remained competitive just as much as those which became concentrated 1977; 374) In contrast, protectionism played minor role in British corporate growth during the 130s (in Schmitz, 1995; 53). There is a contrast between two antitrust policies in the United States and the treatment of cartels in Britain. British law broadly supported the legality of cartels and trade associations from 1880s (Keller in Schmitz, 1995; 49).
In America, The Sherman Antitrust Act of 1890 promoted the growth of big businesses by banning of cartels in favour of large firms. Reasons for the differences There was wide range of factors that influenced the rise and spread of big businesses in America and Britain: from the market-cum technological to socio-cultural. The Unites States became the “seed bed for managerial capitalism” because of the size and the nature of its market. American market was growing very fast and it was the largest in the world in the second part of nineteenth century.
By 1920, the nation’s national income and its population were 3 times of the size of Britain’s. Because the British domestic market was smaller and was growing slower than the American, so its industrialists were less initiative. The newness of the American market explained the initiative of American industrialists. This market adopted al new technologies as the railroad, the telegraph, foundry and then it encouraged Americans to pioneer in the machinery. In contrast, as Chandler noticed Britain was the only nation to industrialize before the coming of modern transportation and communication (1977; 499).
Britain had already invested in technologies which became outdated in the end of the century. I think cultural and social differences have played a major role in the development of business. Legal differences based on cultural values were of particular significance. In Britain holding companied remained federations of family firms. The Sherman Act by prohibiting small family firms accelerated the growth of big business in the United States. From around the later nineteenth century British society was determined by “anti-business culture”.
A “traditionalist” educational system and aristocratic values of family limited opportunities for corporate growth. In contrast, American society was characterized by ethic intermixing, geographical mobility and ability to accept new fast changes. As population was growing fast, society was not so conservative and didn’t have so established values and disciplines as in Europe. Modern business enterprise was the response to the rapid pace of technological innovation an increasing consumer demand in the United States during the second half of the nineteenth century.