The Rise of Big Businesses : RAILROAD Industry

This post is regarding the exponential value the railroad industry played in the development of the American economy and most importantly, American business practices and ideologies:

The Rise of Big Businesses starts off by describing the emergence of ‘managerial revolution’ after 1841 which resulted from a train clash incident earlier in Massachusetts. This led to the development of “big businesses” which has remained prevalent today.

The railroad industry in 1850s grew each year by 5000 miles. This organized structure of growth was unfathomable to achieve before. Clearly, such feat couldn’t have been possible without some help from other industries. In the mid 19th century, telegraph played a critical role in the railroad industry. Both did benefit symbiotically. The telegraph was crucial in serving managers schedule train schedules and other events. This growing need led to the incremental placement of telephone poles and wires to meet the need for constant communication. Railroads aside, “telegraph quickly spread beyond railroad executives, as businessmen across the United States used it to control their own far-flung business empires and to communicate with businessmen in other firms” (Blackford, 155).  This led to major strides in the telecommunications industry with the advent of the telephone in 1876 whose impact in the modern era can’t be translated into words. Like the railroad industry, the telephone industry gained some valuable companies like the Bell Company, founded by Gardiner Greene Hubbard which had 8.3 million telephones in use 44 years after its inception!

The railroad industry also faced a lot of managerial problems due to the unprecedented growth and expansion of the industry.  Some metrics involve employment, regions served, and capital investments. Moreover,  their operations were far more intricate than other businesses. The author compares the railroads with canal traffic. Canal traffic, unlike railroad traffic is much slower; each boat is individually owned where the unification of multiple boats in not necessary. Moreover, unlike canals, railroad businesses have to account for the vast number of passengers and their trust to keep using the service. Some other problems include the very blueprint of the schematic that ran the structure. Financing railroad with compelling demands from states and counties was a huge problem to solve for managers in the said industry.

All of these problems indicated that businessmen needed a better solution to organize railroads effectively. Some practices include instituting bureaucratic management practices. This led to structuring an organization into a hierarchy and clearly defining rules and practices of the industry.  Moreover, they also employed new accounting methods to analyze the work of their companies. There were three such accounting methods being practices:

  1.  Instead of a black and white profit and loss system, businesses moved to a system of operating ratio where where they would relate their earnings to the volume of their businesses per interval of time.
  2. An approach known as Systematic capital accounting was developed where railroad managers would take into account for deprecation of their products when charging the repair and replacement of parts.
  3. Cost accounting approach was developed where two types of costs were to be created, namely, fixed cost and variable costs. Typically, fixed costs were higher than variable costs. This approach was used in pinpointing in their companies operations “and as an aid in setting profitable railroad rates” (Blackford, 160).

The railroad industry contributed a lot to the development of other industries such as the telecommunications industry or the steel industry. With an ever growing size, it provided economic development for the nation through jobs and formation of other entrepreneurial innovations. It also created new opportunities for businessmen to expand their existing businesses to new heights.  In conclusion, the railroad industry played the role of invisible hand in making startups and other huge industries grow and prove the prospects of an organized business structure. It also proves that the role of business and the lives of people are very much related as the steam engines played a heavy social and political role in the late 19th century through movies and culture. So, all in all, does technology impact society and culture or does society and the need for ease create and impact technology?


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Blackford, “The Emergence of Big Business”