GBH 2

18 flashcards · Other · by Daniel F.

rise of Western Europe (A. Frank)
before 19th century manufacturing was done in india, china pre-modern world centre: Chinese middle kingdom american silver extracted by the spanish was ticket to enter advanced asian markets Rise of the west leading up to the Industrial revolution by import substitution Rise of manufacturing in Europe (British textiles) were to replace imports of Indian and Chinese textiles
European mercantilism
fiscal-military state rise of the nation state rise of absolutism military revoluitoin Mercantilism: max exports min imports Wealth accumulation became objective of the fiscal-military state Mercantilist doctrine with fixed resources wealth of nations determined by access to resources Objective - national monopoly of trade by exclusion
Reasons for overseas exploration and trade
15th century land route to Asia was controlled by the Ottoman Empire. Countries at the Atlantic coast must trade via intermediaries they compete with
Portugal established link with indian ocean though waters
1500 portugal established direct links with the Indian Ocean (Vasco da Gama) monopoly on imports of Asian spices, Indian and Chinese textiles. huge markups, trade in Asian goods is very lucrative. Portuguese king retains a direct control over the trade. Portuguese crown leases permissions to transport goods and trade in Portuguese ports (charters) Portugal has a first-mover advantage (no competition) has a strongly centralized state that is initially able and willing to control the trade direct…
charter companies
incorporated association of investors or shareholders with exclusive rights granted by a royal charter (or similar instrument of government) for the purpose of trade, exploration, and/or colonization 17th and 18th century European governments granted monopoly rights to sell colonial goods in those countries acted as semi-governments overseas by serving justice and waging war extension of the state oversees
problems and solutions of intercontinental sea trade
Problems Capital intensive (ships are expensive) Labour intensive (you need to man the ships for a two-year journey) Long-term investment Risky (changing prices, pirates, weather, sickness, ships sinking)t Principle-agent problem (no way to supervise ship captains) High-risk but also high-reward Solutions State support (Portugal) Cartel (cooperation rather than competition) Monopoly/oligopoly Monopsony
VOC
Established in 1602. Dissolved in 1799 government founded Consolidation of several rival Dutch trading companies Monopoly to sell spices in the Netherlands Monopsony (sole buyer) of purchase of spices in Indonesia (secured by war). Over a million sailors throughout its existence richest firm that ever existed
VOC as a Precursor of modern business
Horizontal integration Merger of competing trading companies Vertical integration Integration of the supply and retail chain under one company (purchase of goods in Asia, transportation, storage, retail) Conglomerate Ownership of units from different industries (shipbuilding, storage, finances, retail, processing) Trans-national corporation Decentralized managerial structure in offices in the Netherlands and Asia (Batavia) Joint stock company worlds' first publicly issued stock limited liabilit…
second industrial revolution
UK -> US macro-inventions (steam, cotton, iron) slowed down after 1825 increased in 1870-1913 in new sectors (steel, chemicals, electricity, transport, food processing)
technology of the second industrial revolution
Electricity - general purpose chemicals fertilizers dyles explosives matrials - plastic pharmaceuticals - aspirin Telegraph railway steamship
Consequence of decrease in transportation/information
decrease in arbitrage
First big business: railways
railways, telegraph, telephone railways lower costs of distribution specialized investment banks helped with financing them separation of ownership and management independent territorial divisions managed by general managers Blueprint for modern business administration. Hierarchy of professional managers. ongoing recruitment, fixed wages, and hierarchical paths
big business
Ideal (Chandlerian) firm type: Economies of scale and/or scope Vertically and/or horizontally integrated But also a group of firms (eg cartels) Steel (eg. Krupp, 1816) Electricity (eg. General Electric, 1892) Chemicals (eg. Bayer, 1863) Cars (eg. General Motors, 1908) Food processing (eg. Coca-Cola, 1886) Petrol (eg. Standard Oil, 1870)
Economies of scale in big business
Firms increase in size when average costs decrease Mechanization allows for lowering of the average costs Big business does not emerge where craft matters, e.g. furniture Mass production and economies of scale: Continuous production Food processing Chemicals Metallurgy (iron, steel) Assembly line (e.g. Ford) Capital intense (huge fixed costs) Huge production Huge cuts in average costs
Economies of scope big business
The same inputs and tools used to manufacture different products in the same place similar expertise used in: Machinery Electrical engineering Metallurgical products Chemicals
Integration in big business
Vertical integration: Backward integration: incorporation of producers of raw materials and inputs into firm continuous production demands continuous availability of inputs production setbacks are very costly Forward integration: incorporation of retail, distribution, and marketing needed when products are complex or expensive Horizontal integration: Gain market power and curb price competition by merging with competitors. Provide stability to the market Sherman Anti-trust Act 1890
Causes of Big business
capital intensity high fixed costs -> Transport technology big output demands big market railway and the steamship lowered transport costs and caused market integration concentration of production in a few big plants Communication technology firm is not only in one place complexity needs to be coordinated telegraph and telephone make it possible changes in supply vertical integration ensures continuous supply machinery can work as much as possible changes in demand brand becomes the guarantee o…
National variations of big business and second industrial revolution
The United States: Large corps present in all sectors by WWI, founded on stocks, integrating multiple activities Clear distinction btw ownership and control, transitioning from personal to managerial capitalism Exponential pop growth and consumer power fueled dynamic market Small entrepreneurs opposed giant orgs, addressing issue with antitrust acts Germany: Similarities and differences vs. USA, i.e., owner involvement, bank-related decision-making No govt/court interference, free foreign marke…