The Legacy of John D. The Legacy of John D. Rockefeller and Rockefeller and Standard OilStandard Oil

Historical Context:Historical Context: America in 1880 America in 1880

Kerosene oil as the “new light”Kerosene oil as the “new light”The northeast as the key market The northeast as the key market Northwestern PA as Northwestern PA as thethe production source: a black gold production source: a black gold rush rush

The Gilded Age: The Gilded Age: big business + industrialization big business + industrialization = corruption = corruption

The Parts “Our Plan”The Parts “Our Plan”

Basic economics Basic economics

Predator practicesPredator practices

The power of the trustThe power of the trust

Our Plan: Our Plan: Basic EconomicsBasic Economics

Cost focus Cost focus ““A dollar saved is a dollar earned over and over again”A dollar saved is a dollar earned over and over again”

Economies of scaleEconomies of scaleMaking a profit by selling more at a lower price.Making a profit by selling more at a lower price.

Horizontal integrationHorizontal integrationEnlarging the current business. Enlarging the current business. (refining) (refining)

Vertical integrationVertical integrationVenturing into ancillary businesses. Venturing into ancillary businesses. (storage, (storage,

transportation, and marketing and eventually transportation, and marketing and eventually production)production)

Our Plan: Our Plan: Predatory Practices Predatory Practices

Railroad rebates and drawbacksRailroad rebates and drawbacks

Corporate secrecyCorporate secrecy

Corporate espionageCorporate espionage

Predatory pricing: “a good Predatory pricing: “a good sweating”sweating”

Our Plan: Our Plan: The Power of the TrustThe Power of the Trust

What the heck is a “Trust?”What the heck is a “Trust?”A property transference vehicle …. or A property transference vehicle …. or more simply put a way for an old rich more simply put a way for an old rich guy to control his estate after he diesguy to control his estate after he dies

Components of a TrustComponents of a TrustCorpus (show me the $$$$) Corpus (show me the $$$$) Trustee (the business manager of the $Trustee (the business manager of the $

$$) $$) Beneficiary (gets the $$$ but can’t Beneficiary (gets the $$$ but can’t

control the $$$)control the $$$)

““Our Plan”: Our Plan”: The Power of the TrustThe Power of the Trust

Twisting a property concept to control multiple Twisting a property concept to control multiple business against the law of the day business against the law of the day corporations 101 corporations 101 corporations could not be shareholders of other corporations could not be shareholders of other

corporationscorporations out of state corporations could not operate “in state” out of state corporations could not operate “in state”

The Standard Oil TrustThe Standard Oil Trust The shareholders as beneficiariesThe shareholders as beneficiaries The trustee take officially control the business The trustee take officially control the business

Management by “suggestions” from the CommitteeManagement by “suggestions” from the Committee

Achieves a “secret” horizontal monopoly in Achieves a “secret” horizontal monopoly in refining as well as vertical dominance of the oil refining as well as vertical dominance of the oil industryindustry

Standard Dominance Standard Dominance 1880: 90% of US kerosene 1880: 90% of US kerosene

refining capacity refining capacity

1882: 80% of all kerosene sold 1882: 80% of all kerosene sold in the world: in the world: Kerosene as the 4Kerosene as the 4thth largest US largest US exported commodity exported commodity

Standard’s Net Worth:Standard’s Net Worth:

1898: 82 Trusts with worth $1.2 Billon 1898: 82 Trusts with worth $1.2 Billon 1904: 234 Trusts with worth $6 Billon1904: 234 Trusts with worth $6 Billon

Breaking the Grip of “the Breaking the Grip of “the Octopus”Octopus”

1.1. Cultural changes: Cultural changes: new uses of new uses of energyenergy

2.2. Business pressures: Business pressures: new new competitorscompetitors

3.3. The power of the press: The power of the press:

Ida Tarbell and the MuckrakersIda Tarbell and the Muckrakers

4.4. Political changes:Political changes:

The Progressive movement: Teddy The Progressive movement: Teddy Roosevelt and antitrust lawsRoosevelt and antitrust laws

Cultural Changes:Cultural Changes:New uses of oil & energyNew uses of oil & energy

The threat of the incandescent The threat of the incandescent light bulblight bulb

The emergence of the The emergence of the automobileautomobile

• But gas power or electric powered?But gas power or electric powered?

But not all oil is the same…But not all oil is the same…

Business Pressures:Business Pressures:Domestic CompetitiorsDomestic Competitiors

SpindletopSpindletop• The first giant oil strike (75,000 BPD)The first giant oil strike (75,000 BPD)• Shifts US oil center of gravity to East Texas Shifts US oil center of gravity to East Texas

and Oklahomaand Oklahoma

• Damn Yankee of Standard not welcomeDamn Yankee of Standard not welcome

True domestic competition True domestic competition • Gulf Oil: (The Mellons)Gulf Oil: (The Mellons)• Sun Oil: (The Pews)Sun Oil: (The Pews)• Texaco: (Buckskin Joe & Governor Texaco: (Buckskin Joe & Governor

Hogg?)Hogg?)

Business Pressures:Business Pressures:Global CompetitorsGlobal Competitors

Standard’s New Plan: Standard’s New Plan: ““First America then the world.”First America then the world.”

Standard’s Problem: global Standard’s Problem: global competitorscompetitors Baku Oil: The Nobels and the RothchildsBaku Oil: The Nobels and the Rothchilds Far East Oil: Shell and Royal DutchFar East Oil: Shell and Royal Dutch Royal Dutch Shell: A true multinational Royal Dutch Shell: A true multinational

competitorcompetitor

Highlights Standard’s “Achilles Highlights Standard’s “Achilles heel”: production and exploration heel”: production and exploration

* INFORMATION COVERED IN CHAPTER 3 OF THE PRIZE * INFORMATION COVERED IN CHAPTER 3 OF THE PRIZE IF YOU WANT TO LEARN MORE IF YOU WANT TO LEARN MORE

Political Factors: Political Factors: MuckrakersMuckrakers

Trust: The “red hot” political Trust: The “red hot” political event event

The rise of progressivismThe rise of progressivism a response to the Gilded Age & the massive a response to the Gilded Age & the massive

centralization of wealthcentralization of wealth Goals: political reform, consumer protection, Goals: political reform, consumer protection,

social justice and laborer rightssocial justice and laborer rights

The MuckrakersThe Muckrakers Journalists concerned with progressivism Journalists concerned with progressivism Central target: corruption within big Central target: corruption within big

businessbusiness

Political Factors: Political Factors: Muckrakers Muckrakers

Ida TarbellIda TarbellA daughter of the oil regionA daughter of the oil regionA female journalist ahead of her A female journalist ahead of her

timetimeA thorough investigatorA thorough investigator Ida’s Deep Throat: HH RogersIda’s Deep Throat: HH Rogers

Political Factors:Political Factors:Roosevelt as the “Trust Roosevelt as the “Trust

Buster”Buster” Teddy Roosevelt’s Dilemma:Teddy Roosevelt’s Dilemma:

““big business v. competitive individualism”big business v. competitive individualism” Teddy Roosevelt’s political Teddy Roosevelt’s political

expediencyexpediency ““restraint on business over anarchy”restraint on business over anarchy”

Roosevelt’s Resolution: Roosevelt’s Resolution: ““Trust not bad ‘per se’; only when they act Trust not bad ‘per se’; only when they act to restrict competitionto restrict competition

The Legal Ramifications: The Legal Ramifications: The Dragon SlainThe Dragon Slain

1904 Federal Investigation1904 Federal Investigation

1909 Federal Lawsuit1909 Federal Lawsuit

1911: US v. Standard Oil 1911: US v. Standard Oil

The Legal Ramifications: The Legal Ramifications: Impact on Standard OilImpact on Standard Oil

Ordered dissolution within 6 Ordered dissolution within 6 monthsmonths

Standard’s “Children”:Standard’s “Children”:• Standard of NJ Standard of NJ (Esso later Exxon)(Esso later Exxon)

• Standard of NY Standard of NY (Mobil)(Mobil)

• Standard of California Standard of California (Chevron)(Chevron)

• Standard of Indiana Standard of Indiana (Amoco)(Amoco)

Standard’s LegacyStandard’s Legacy

Antitrust lawsAntitrust lawsThe blueprint of the modern oil The blueprint of the modern oil

industryindustryConsumer love /hate Consumer love /hate

relationship with “big oil”relationship with “big oil”

Standard’s Legacy:Standard’s Legacy:Antitrust Law Antitrust Law

Sherman Act, Clayton Act and the Sherman Act, Clayton Act and the Robinson-Patman Act Robinson-Patman Act

Key Legal Concept:Key Legal Concept:A combination, trusts, or business A combination, trusts, or business practice is unconstitutional if it restrict practice is unconstitutional if it restrict trade or seek to monopolize an industry trade or seek to monopolize an industry

Antitrust 101:Antitrust 101:Pre Se violations Pre Se violations (an intentional act)(an intentional act)Rule of Reason violations Rule of Reason violations (the “smell (the “smell

test”)test”)

Standard’s Legacy:Standard’s Legacy:“Big Oil” “Big Oil”

11stst great multinational corporation great multinational corporation Creates the blue print for the Creates the blue print for the

completely integrated oil company completely integrated oil company industry to comeindustry to come

A select club of players A select club of players (that never really (that never really

change)change) Because of scale, offers a crucial Because of scale, offers a crucial

commodity revolution at an commodity revolution at an incredibly low priceincredibly low price

Standard’s Legacy:Standard’s Legacy:Consumers Dependency & Consumers Dependency &

Mistrust Mistrust Public mistrust of oil Public mistrust of oil

companiescompanies

A created dependencyA created dependency