Railroads Lead the Way for Managerial Professionalization and Robber Baron Capitalism
Railroads were the automobile or semiconductor industry of the era. By that I mean they were the nineteenth-century “platform” sector that disrupted nearly every other sector in some way. Jurisdictional economies and, correspondingly, economic development reacted to them in so many ways that railroads deserve a mention. For example, the impact of Western transcontinental railroads on city formation is a well-worn tale, but railroads built cities in the East as well. These were the years when trunk lines, the backbone of our rail system, were installed by Vanderbilt, Hill, J. Edgar Thompson and John W. Garrett. Eastern cities in every state “bought” railroads to run through them: Rochester got three lines to run through its city limits, selling three separate $1 million dollar bonds to close the deals; Buffalo paid $1 million to get an additional line (McKelvey, 1963, pp. 24–5).
Railroad access to Ohio and points west mostly occurred during, and after, the Civil War:
Chicago’s period of vigorous railroad promotion ended in the sixties; St. Louis, after a late start, endeavored in the seventies to recoup lost ground. Toledo and Milwaukee had to take the initiative in building lines as did St. Paul … Cincinnati and Louisville competed to extend lines to Chattanooga and Nashville, then to Atlanta and Birmingham—doing their imitation of Sherman’s March to the Sea. Following in their wake were firms seeking expansion into new markets. (McKelvey, 1963, pp. 24–5)
Because of the 1840s’ gift and loan clauses, post-1850 “railroad economic development” exhibited a decided tendency toward municipal-level railroad-related projects. States either got out or minimized their role, leaving it to the cities and towns. Gone was the corporate charter; instead post-1850 railroad-related ED directly empowered the private railroad corporation itself. Those changes ensured infrastructure would be built, but the fiscal cost to local government was terrible. Typical was Kansas, where:
Cities and counties were not only granted broad authority to tax, spend, and borrow for locally determined purposes but also both to subscribe for stock in and issue bonds to railroad companies and to aid private enterprise. Local self-government became the engine for state development and for the delivery of public services … . Local debt mushroomed, and Kansas led the nation in municipal defaults in the late 1800’s. Seventy-seven localities defaulted between 1870 and 1905, one half of these being in defaults for borrowing on behalf of railroads and private enterprise. (Flentje and Aistrup, 2010, pp. 152–3)
After 1900 Kansas state government corrected for the extremes caused by its decentralization of powers to local governments.
In any case, transportation was yet another sector around which individual cities built their economic base. Being a transportation hub meant that other industries/sectors could locate in the metropolitan area. Buffalo, for instance, became the transshipment capital of the Great Lakes, the nation’s second largest port and a top railroad hub. Its pioneering innovation of grain mills allowed for the storage of midwestern agricultural produce arriving by ship and stored until railroads shipped it to Eastern cities. Chicago, St. Louis, New Orleans and, of course, New York City lived off their port facilities and the transportation nexus connecting to them.
Railroads after 1850 developed into our “first modern business enterprise” (Chandler Jr., 1977, p. 9). Transportation, because of its inherent characteristics, moved quickly through stages and evolved into a Markusen oligarchy.
The evolution of the nation’s first modern business enterprise [railroads]—as well as the first modern managerial class—falls into two distinct chronological periods … The first period extended from the beginning of the railroad boom in the late 1840s to the coming of the economic depression of the 1870s. It was a period of almost continuous growth of the network … The second period of American railroad history, extending from the Depression of the 1870s to the prosperous first years of the new century, was one of competition and consolidation [oligarchy-formation]. (Chandler Jr., 1977, p. 88)
The story of the great “robber barons” is mostly a tale of the Great Railroad Cartels. The first cartel was assembled in 1874 at Saratoga Springs New York by the presidents of three major trunk line railroads. Others followed. Resisting cartels, one can see the rise of the western state Populist Movement and, in later years, a national Progressive Movement. These railroad cartels—epitomized by the Northern Securities (Railroad) Company (Trust) of James J. Hill and Edward Harriman—prompted Teddy Roosevelt to begin his career as “trust-buster” in 1904. Strikes, monopolies and rate-setting have accordingly dominated the history books. Less noticed is that the owners and managers of other industries and sectors suffered from railroad concentration, as did jurisdictions from which they operated. Non-railroad sectors/industries opposed railroad concentration and led the opposition to it—indeed these managers and owners provided the muscle to the Progressive Movement that followed.
Managerial capitalism in sectors other than rail—sectors such as iron, coal, oil gas, steel and durable and non-durable manufacturing; production and distribution of perishable products; and, most importantly, “middle management” (salesmen, accountants/bookkeepers, supervisors, department heads)—danced to their own music. Middle management and professionals became the yeomen of the Progressive Movement, of scientific management, the drivers for structural reforms in American local government; advocates for municipal home rule, civil service, budgeting and planning. Middle managers cast middle-class votes against political machines, moved to the suburbs and resisted central city annexation.
Top managers, on the other hand, formed/led the boards of trade, real estate exchanges and merchant associations. Resisting railroad cartels, they created port authorities. They fought unions. Top managers advocated for the Chicago Exposition and future “City Beautiful,” not to mention the city manager form of government. Top managers provided the inspiration and muscle to launch America’s first jurisdictional economic development organizations and initiatives. And the owners? They became our new “corporate elite”—the members of the Civic Reform Clubs, the pre-1900 chambers of commerce and the post-1910 municipal research bureaus. In these years, three critically important segments of the business community came to life from the primeval soup of the Gilded Age and formed the core of the jurisdictional economic base and policy system: (1) owners, (2) upper management and (3) the middle management/ professions of the new corporations.
In this dynamic atmosphere it was easy to miss the rise of yet another segment of the business community—composed of firms firmly anchored in the jurisdiction (local firms). Headquarter firms, modern corporate retail (catalog/department stores/ franchises/specialty retail), banks, newspapers, hospitals, utilities, universities and the always infamous real estate-based firms also joined the merchant associations and, in later years, the chambers. Almost invisible, the thousands of small business, the moms and pops that ethnic groups formed, provided personal and convenience services, enhancing societal mobility and jurisdictional quality of life. While sharing a private business perspective, local firms were not monolithic in culture, work experiences or policy priorities—and were probably more inward-looking than their capital mobile managerial counterparts. They viewed local politics differently, and political machines represented opportunity in exchange for tolerating a “wee bit of honest graft and seizing opportunities.” In these years, this fourth segment of the business community also flourished.
Ron W. Coan 