A History of American Economic Growth in the 20th Century

The Rise of the American Corporation in the U.S. Economy

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Technician using digital tablet in server room. Getty Images/Erik Isakson/Blend Images

The Rise of the Corporation in 20th Century America

As the American economy matured in the 20th century, the freewheeling business mogul lost luster as an American ideal. The crucial change came with the emergence of the corporation, which appeared first in the railroad industry. Other industries soon followed. Business barons were being replaced by "technocrats," high-salaried managers who became the heads of corporations.

By the start of the 20th century, the era of the industrialist and the robber baron was coming to a close. It was not so much that these influential and wealthy entrepreneurs (who generally personally owned majority and controlling stakes in their industry) disappeared, but rather that they were replaced with corporations. The rise of the corporation triggered, in turn, the rise of an organized labor movement that served as a countervailing force to the power and influence of business.

The Changing Face of the Early American Corporation

The largest early 20th-century corporations were much larger and more complicated than the commercial enterprises that came before. To maintain profitability in a changing economic climate, American companies in industries as diverse as oil refining to whiskey distilling began to emerge in the late 19th century. These new corporations, or trusts, were exploiting a strategy known as horizontal combination, which granted those corporations the ability to limit production in order to raise prices and maintain profitability.

But these corporations regularly ran into legal trouble as violations of the Sherman Antitrust Act.

Some companies took another route, employing a strategy of vertical integration. Instead of maintaining prices through control of the production supply as in horizontal strategies, vertical strategies relied on obtaining control in all aspects of the supply chain required to produce their product, which gave these corporations more control over their costs.

With more control over costs came more stable and protected profitability for the corporation.

With the development of these more complicated corporations came the need for new management strategies. Though the highly centralized management of previous eras did not entirely disappear, these new organizations gave rise to more decentralized decision-making through divisions. While still overseen by central leadership, divisional corporate executives would eventually be given more responsibility for business decisions and leadership in their own piece of the corporation. By the 1950s, this multi-divisional organizational structure became the growing norm for large corporations, which generally moved corporations away from reliance on high-profile executives and solidified the fall of the business barons of the past.   

The Technological Revolution of the 1980s and 1990s

The technological revolution of the 1980s and 1990s, however, brought a new entrepreneurial culture that echoed the age of tycoons. For instance, Bill Gates, the head of Microsoft, built an immense fortune developing and selling computer software. Gates carved out an empire so profitable that by the late 1990s, his company was taken into court and accused of intimidating rivals and creating a monopoly by the U.S. Justice Department's antitrust division.

But Gates also established a charitable foundation that quickly became the largest of its kind. Most American business leaders of today do not lead the high-profile life of Gates. They differ greatly from the tycoons of the past. While they direct the fate of corporations, they also serve on boards of charities and schools. They are concerned about the state of the national economy and America's relationship with other nations, and they are likely to fly to Washington to confer with government officials. While they undoubtedly influence the government, they do not control it -- as some tycoons in the Gilded Age believed they did.