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20 May, 08:06

Why did industries in the late 1800s set up business organizations such as trust and holding companies?

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  1. 20 May, 12:05
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    At the turn of the 19th and 20th centuries, the development of the American economy was based on intensive concentration and centralization of production and capital, monopolization of the economy, and the strengthening of the role of banks and financial capital. In the late 90s of the 19th century, monopolistic associations became the basis of the country's economic life. Monopolies in the USA existed primarily in the form of trusts. Controlling investment in the most important and profitable sectors of the economy, trusts crowded out competitors, conquered and subjugated the domestic market.

    The first monopolistic association was the у Rockefeller's Standard Oil (1870), which in 1879 controlled 90% of the country's oil refining industry, and in 1900, 84% of its domestic oil trade and 90% of its exports. In 1901, as a result of the mergers of several large companies, United States Steel - the Steel Trust - was formed, which controlled more than 60% of the country's steel production. In the automotive industry, three companies - Ford, Chrysler, General Motors controlled 80% of the industry. Powerful monopolies operated in the electrical, sugar, tobacco, and other industries.

    Monopolies inflated prices for products, ruining small industrialists, and all this restored the public opinion of the country against them. Under pressure from public opinion in 1890, the Sherman "antitrust" law was passed. After Sherman's law, a new form of monopoly, holding companies, gained increased distribution.

    Holding-type enterprises first appeared in the USA at the end of the 19th century as a kind of financial-type company created to hold controlling stakes in other companies in order to control and manage their activities. The legal basis for the creation of holdings was created in 1889, when in New Jersey, one of the most free states for entrepreneurship, it was allowed to create holding companies.

    In the USA, the reason for the emergence of holding companies was the need to circumvent the rules of antitrust law (Sherman Law). Holdings here were created for the sole purpose of obtaining shares in other companies.

    Holding companies developed in the late 19th and early 20th centuries, with participants who previously functioned as cartels. Subsequently, in many holdings, there was a centralization of management and the production system. The famous American scientist Chandler notes that those holdings that were not centralized and did not integrate later either disbanded, or they were threatened with bankruptcy.
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