Question by : Why did the railroad become a model for big business?
Answer by ammianus
The railroads needed to operate as efficiently as they could to make a profit – they had cost a lot to build,so investors wanted a return,there was thousands of miles of track and a huge amount of rolling stock to maintain,as well as the cost of wood,water,and coal for fuel.The railroads needed to keep as much track actually with rolling stock on it as possible at any given time,and this needed considerable organization.
Railroad companies therefore hired full time specialists to run different aspects of the railroad business. As the track and rolling stock were spread over vast distances and areas,it wasn’t pragmatic to have one head office in one city controlling everything;local and area officers, managers,and specialists were needed.So,accountants were hired to do the books,lawyers to deal with legal aspects,doctors to take care of those injured in accidents or sick workers (an engine couldn’t run,and thus the company make any profit,if there was no one to drive the trains),middle management to deal with purchase of raw materials for fuel,and so on.Middle and higher managers were hired to run local and regional offices to co-ordinate and organize all this.
All this made the railroads much more efficient,able to identify and implement economies of scale and scope on a wide basis,and thus much more profitable.Soon,other businesses and industries in the US were copying the model, and today Managerial Capitalism – the system outlined above – is that used by most companies around the world.
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