More On: Rockefeller
Why John D. Rockefeller is not a bad guy and should be remembered as a hero
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John D. Rockefeller's new ways of doing business made life better for tens of millions of people and gave jobs to hundreds of thousands.
During his life, he was always a controversial figure, but his reputation took a big hit when journalist Ida Tarbell wrote The History of Standard Oil. In that book, she portrayed Rockefeller as a ruthless raider who often used dirty tricks to get rid of anyone who dared to compete with him. In reality, Tarbell's father was a competitor in the oil business who worked against Standard Oil. When he couldn't compete with Standard Oil, he went out of business. Ida Tarbell told a story about honest men who were making a good living until a bad man named Rockefeller came along and took it all away from them. This was not the truth and was not fair.
Development of an Industry
Even though most of Tarbell's book is about how Rockefeller forced businesses to join him or go to war with him, it gives a detailed look at the beginning of the oil industry. Before the 19th century, people didn't know much about oil and thought it was a nuisance because it seemed to bubble up from the ground and get into fresh water. Someone eventually had the idea to take this substance to a lab to study it. There, it was found that it burned easily. The oil industry began when the first drillers went to Western Pennsylvania, where there was a lot of this black stuff.In the early days of the oil industry, it was very easy to get to the black gold, and it was much easier for new businesses to start up than it is today. There was a lot of waste and not enough work getting done. People were getting rich quickly, so they didn't see any reason to change how they ran their businesses. Most of the time, drillers would run out of barrels before they were done pumping, so they would let the extra oil flow away. This hurt the environment and wasted their product. Refiners were experts at turning crude oil into kerosene, a process that kept 60% of the oil's original amount. They threw away the other 40%, calling it waste and hurting the environment again. In the 1860s, this was a new industry, and the demand for oil from the Civil War and the post-war boom made it easy for people to make money in this field. But, just like every other boom, it couldn't last. When it finally failed, only the strongest businessmen were able to keep going.
Vertical Integration
Even though there would be a lot of strong businessmen in this field, only one, John D. Rockefeller, would rule it and be remembered as a titan. Rockefeller's success was due to a lot of things, but one of the most important was that he was the first person to use vertical integration to cut costs in his business. First, he hired plumbers directly instead of subcontracting the work, which cut his costs for the pipes at his refineries. Second, he decided to make his own barrels himself instead of buying them from a third party. This way, he was able to get a product that fit his needs and saved about 60% on the price of the item. By doing these things, he was able to cut costs and depend less on people or businesses outside of his control, which made him more efficient.
Reducing Waste
While other refiners were throwing away the waste from making kerosene, Rockefeller was trying to figure out what could be done with these waste products. He made gasoline, petroleum jelly, and many other things that had never been made before. He would use these new products in his business and sell them to customers at the same time. This raised his income and, more importantly, his profits, since most of the costs were already covered by the process of making kerosene.
Increased Control
In 1872, the Southern Improvement Company was one of the most controversial parts of Rockefeller's life and work. Even though he is probably the most well-known member of this plan today, the Southern Improvement Company was actually thought up by the heads of the major railroad companies. They got together to figure out how to divide up industrial transportation before there were roads or modern cars. Under this plan, Standard Oil and other large companies got rebates and discounts on their shipping, while small companies had to pay rates that were higher than they should have been.This plan would be made public, and once it was known, the government would work to stop it. Even though Rockefeller made money from the plan, he didn't seem to have much faith in the railroad companies. He didn't want the success of his business to depend on their power, so he came up with oil pipelines as a way to ship his goods on his own terms.
Win-Win
The Southern Improvement scandal hurt Rockefeller's reputation a lot, and part of the reason was that he went on to buy 22 of Cleveland's 24 oil refineries in a move called the Cleveland Massacre. This would be the first time Rockefeller did something that he did often when doing business. He'd get together with a rival and show them his books. The competitor would see that Rockefeller was too big and too efficient to compete with. He would be offered the chance to sell his company to Standard Oil and get a job as an executive in the larger company, where he would make more money but no longer be his own boss. If he turned down the deal, he would have to go up against Rockefeller.Men who turned down the deal, like Ida Tarbell's father, often went out of business, while men who took the deal got rich.
The Consumer Won
Rockefeller was bigger than his domestic competitors, and he used his ability to keep a price war going as a business tool. Some business battles got so bad that both sides sold their goods at a loss. The winner was the one who didn't go out of business. The real winners of these fights were the people who bought kerosene because prices went down.Even though we are taught that Standard Oil is a monopoly, we are also taught that monopolies are bad because they can charge more than they should because they don't have to worry about being undersold. When it came to Standard Oil, the opposite was true. Even though they made a lot of money, most of it came from being able to cut costs instead of raising prices. In fact, the price of kerosene dropped from 26 cents per gallon in 1870 to 6 cents per gallon in 1897.
Even though Rockefeller was mean to his competitors, it wasn't his job to help them. He became a leader in his field by working hard, making sure things worked well, and coming up with new ideas.
By doing this, he made life better for tens of millions of people and gave hundreds of thousands of people jobs. Today, we should remember him as a hero, not as a bad guy. He made the world a better and wealthier place than it was before he came.