Corporate Size Impact on the Ownership Structure - Essay Example

US corporations were able to take advantage of the high level of foreign investment, a growing domestic market, as well as improving access to foreign markets. Although foreign investment slowed as a result of the First World War, it had to be a major advantage up to 1913. For instance, 19% of British investments went to the US between 1911 and 1913 (Hobsbawm, 1987 p. 348). Increased profits made it an advantage for American corporations to get bigger in size. It made good sense to concentrate ownership as much as possible (Hobsbawm, 1994 p. 86).

The First World War certainly presented leading American companies with advantages to expand their size, markets, and profits. As a consequence of the conflict British and German companies had not been able to export as many of their products to other countries. The drop in exports from the US's most successful rivals allowed its leading companies the advantage of exporting more goods. Before the US entered the war, its companies took advantage to boost their profits by exporting supplies and munitions to the combatant nations, especially France and Britain. American exports were vital to sustaining the British war effort in particular. American entry into the First World War led to an expansion of industrial output, which contributed to the Allied victory and proved advantageous for the growth of American corporations. Once again events seemed to reinforce the belief that the concentration of ownership would be best (Hobsbawm, 1994 p. 85).

More effective production techniques made a significant contribution to the expansion of the leading American corporations, as a higher volume of products was produced with lower costs. American corporations led the field in the development and use of mass-production techniques, most notably the Ford Motor Company (Brandon, 2000 p. 70). For much of the 1920s the size of the domestic market, the growing affluence of many Americans, as well as the relatively low costs of production seemed very advantageous for the expansion of the leading American companies. Arguably mass production led to a more concentrated pattern of ownership (Hobsbawm, 1994 p. 86). The American public got used to buying consumers goods such as cars, radios, and telephones. Bank loans as well as higher wages financed consumer spending, an advantage during a period of boom, yet a grave disadvantage during a recession (Hobsbawm, 1994 p. 86).

American corporations were also skilled at using adverts to improve their sales and their profits, which had the advantage of fuelling economic growth and in the 1920s a boom (Brendon, 2000 p. 69). During this period they were helped by increased sales of newspapers and placing adverts in those newspapers, and from the 1920s on radio stations (Hobsbawm, 1987 p. 346). The lead US corporations also started the practice of building factories abroad to increase their sales and profits (Hobsbawm, 1994 p. 86). The practice can be regarded as the first step towards the establishment of multi-national corporations (Brendon, 2000 p. 70).

There were disadvantages to the leading American companies expanding between the 1880s and the 1930s, although they only became apparent as a result of the Great Depression. Lulled into a false sense of security during the 1920s America’s leading companies found that expanding too quickly had been a disadvantage. American banks had fuelled the boom of the 1920s by risky lending to domestic and foreign borrowers who spent beyond their means. The sale of goods on credit had bolstered profits yet meant long-term profits were not guaranteed (Hobsbawm, 1994 p. 86). Leading industrial companies and banks were fooled into believing that the boom of the roaring 1920s would never end (Ward, 2003 p. 252). However, the drop in confidence that resulted in the Wall Street Crash proved disastrous for many companies or banks, and even Ford found it difficult to survive. Conversely, the Great Depression dramatically altered patterns of ownership as many thousands of companies from the smallest to some of the biggest went bankrupt (Brendon, 2000 p. 71). Read More