The stench was so bad it could be smelled throughout New Orleans. More important, the offal from butchered animals was contaminating the water supply and sickening residents. To remedy this chaotic situation, the Louisiana legislature in 1869 gave the newly chartered Crescent City Livestock Landing and Slaughterhouse Company an exclusive right to operate a single meatpacking plant. The facility was to be located just south of New Orleans, across the Mississippi and downstream from the main population area. It had the right to operate for a 25‐year period and to charge butchers to use wharves and other facilities.

In response, a group of 400 long‐standing independent butchers sued to stop the monopoly. Arguing that the legislation conferred an “odious and exclusive privilege” to the new company, the butchers claimed that it deprived them of their livelihood. Undercurrents of racism and scars from the Civil War were at play, as many of the (white) butchers felt that the new facility would help newly freed Blacks and northern carpetbaggers at their expense. With more than a bit of irony, the attorney for the butchers used the recently enacted 14th Amendment, intended to protect the freedmen, to claim that their rights were being violated.

In ruling against the butchers in the Slaughterhouse Cases (1873), the U.S. Supreme Court narrowly interpreted the 14th Amendment, specifically the “privileges and immunities” provision. The majority opinion concluded it did not protect the “right to ply one's trade” under that clause and that the local charters could move ahead. Yet this was a narrow 5–4 decision, with influential dissenting opinions.

In particular, Justice Stephen Field argued for an individual's right “to pursue happiness and trade,” a strong endorsement of the right to compete and condemnation of state‐sanctioned monopoly. He also supported an expansive view of the 14th Amendment for economic rights. Field dissented again several years later against the states’ right to regulate grain storage rates. He sought to limit what states could claim as a public interest, in support of the “new entrepreneurialism.”¹

Field's view eventually won out. The Slaughterhouse cases, never overturned, neutered the privileges and immunities clause, but other provisions of the 14th Amendment – equal protection and due process – were ultimately deployed to support economic growth. Not just entrepreneurs but soon large corporations benefitted from fewer government constraints. However, as these corporations gained heft with capital‐intensive industrialization, and as the entrepreneurs who built them morphed into oligopolists, the federal government eventually found ways to rein them in. By the early 20th century, reformers were challenging these new incumbents and recalibrating the government's role in managing competition.²

Upstarts in the New National Market

One outcome of the Civil War was that it validated the Northern economic model as the path for national development. Republican Abraham Lincoln, who had done legal work for railroads before becoming president, pushed to integrate the nation. Free from Southern objections, Congress passed the Homestead Act (1862), which gave free land to settlers and the railroads that connected them to markets, as well as the Morrill Land‐Grant Acts (1862), which promoted technical education and land‐grant universities. It also passed acts to subsidize a transcontinental railroad. The huge western part of the continent was now opening up to entrepreneurs for exploitation and development, from farming and herding to mining and processing.³

The speed and scope of the railroads’ progress were remarkable. Total mileage in the United States grew from 30,000 in 1860 to 190,000 by 1900.⁴ Regional combinations operated most of this track, which yielded operations of immense scale as they finally standardized track gauges. To run them efficiently and safely, the railroads innovated in administration and capital management, and in turn spawned equally capital‐intensive industries from telegraphs to steel to sleeping cars. The cost of transporting goods fell dramatically. The telegraph, which had been growing as a means of communication prior to the war, was critical in speeding the flow of information and improving efficiency.

Success required not just daring and hard work, but also large sums of capital from faraway investors. To encourage this risky investment, the corporate legal form and capital markets expanded and evolved to favor investors.⁵ And it was just in time. Antebellum investments in textile mills and eastern railroads were showing decreasing returns, as their high profits had attracted imitators. So investors shifted westward to capture the new possibilities. From a copper mine in Michigan to a stockyard in Kansas City, and with railroads from Texas to Montana, western areas took off due to eastern capital and advice.⁶

At the same time, in an echo of the antebellum situation, the excess competition in certain areas led to opportunities for those who could pick up the pieces and master the legal, financial, or technical mechanisms. State banks had sprouted up everywhere, and many proved reckless, leaving opportunities in their wake. Western expansion depended on unpredictable rates of settlement and exploitation, while expanding manufacturing and industrial firms had to compete in an open market with little protection; this led to waste but also opportunity. The railroads had already built costly networks of tracks, stations, engines, and cars, and these fixed costs led to aggressive price‐cutting as competing lines vied for incremental revenue. The result was, in the words of railroad regulator Charles Francis Adams, “ruinous competition” and calls for government intervention, mostly to limit the frenzy and protect investor and other interests.⁷ Ultimately, it would be a new class of smart entrepreneurs that succeeded in consolidating and rationalizing the networks.

Even industries that did not directly serve the railroads drew from entrepreneurs who got their start in that ecosystem, from merchandiser Richard Sears (a station master) to inventor Thomas Edison (a telegraph operator). Aggressive upstarts, who understood better than incumbents the possibilities for scale and efficiency, jumped in. As new businesses developed to leverage these technologies, end consumers often enjoyed broader selection, safer products, and lower prices.

Gustavus Swift developed refrigerated cars to ship frozen packaged meat over long distances, saving the trouble of sending live animals across the country. The big railroads, preferring to own all the freight cars, initially refused to transport Swift's cars, but they eventually capitulated as Swift found workarounds using smaller or Canadian roads. Swift also developed lucrative markets in the byproducts of animal slaughter, harvesting “everything but the squeal.” Expanded scale in turn encouraged improvements in production, especially the automated “disassembly line” that later inspired Henry Ford.

Other entrepreneurs, from H.J. Heinz in food processing to James Duke in cigarettes, likewise triumphed with improved efficiencies and consolidation, often brought about by low transportation costs and other innovations. Retailing joined the trend with department store magnates and mail order giants – using fast railroad shipping to expand nationally. Isaac Merritt Singer mass‐produced sewing machines using interchangeable parts, winning customers not just with low prices but also innovations such as installment purchasing and trade‐ins.

Local Incumbents Left in the Dust

Of course, as these new enterprises grew they left behind a trail of incumbents from an earlier era. Most of those were small local or regional businesses that had emerged in the years prior to the Civil War, amid the first surges of westward expansion. Initially the new consolidating enterprises coexisted with many established entities, as these provided access to markets and encouraged settlement and development. But over time the consolidators squeezed out the smaller firms with increasingly efficient operations. The pressure for scale eventually convinced many smaller incumbents to give up their independence, as they found themselves with overcapacity and little ability to differentiate their product.

John D. Rockefeller was more conscious than most upstarts of economies of scale and network power. As he built his empire in oil refining, he understood the railroad shippers’ need for volume and convinced them to give him favorable rates, which in turn provided unique competitive advantage that enabled him to buy out rivals. Those who declined to join forces found themselves crushed by Standard Oil's low prices. The greater the volume of throughput, the lower the cost, and not just in shipping. Rockefeller eventually controlled nearly 90% of U.S. oil refining, while expanding vertically into oil drilling and distribution. But consumers benefitted with lower‐cost fuel. “We are refining oil for the poor man,” Rockefeller said.⁸

Those incumbents sought to create barriers through state courts and legislatures, often winning temporary protections. But the national entrepreneurs, seeking the right to compete, challenged state limitations. A series of cases, combining the dormant commerce clause and Field's argument for economic rights, swept many of those roadblocks aside.

While entrepreneurs played the leading role in national development, the federal and even certain state governments helped with crucial infrastructure. Initially passed to support the war effort, the National Banking Acts of 1863–1866 created a more stable, nationwide banking system that supported the flow of investment west. The newly chartered national banks, despite limits on branches, also expanded lending by disrupting local bank monopolies. The legislation bolstered investors’ confidence in the soundness of money, making them more willing to invest in long‐term western development.⁹ At the same time, even as large national banks developed in New York, Congress refused to create a strong central banking system similar to what European countries established. It was the old Jacksonian concern with entrenching incumbents through centralized finance.

The New York Stock Exchange and other emerging securities markets channeled ever more capital to large‐scale enterprises. Like national banks, these markets had gotten their initial push during the Civil War, as the federal government looked to Jay Cooke and other brokers to sell war bonds. From there the exchanges readily took on railroad and other corporate securities, much of which were bought by European investors. Over time, the railroad consolidators used the exchanges to gain control of adjacent or competing lines, often rationalizing the duplication and fragmentation in the system and creating efficiency through acquisitions and other tactics. In addition, Massachusetts and some other states encouraged private investment in new ventures by relaxing the “prudent man” standard for fiduciaries, enabling them to invest in equities along with the safer bonds. This growth in national financial markets made up for the weakness of the still‐fragmented commercial banking system.

With these opportunities for growth and the benefits of efficiency, corporate law and the general perpetual corporation evolved into something bigger and broader. First it was used to facilitate loose “pools” of allied firms, then it supported the development of combined trusts. When the Sherman Act limited trusts in 1890, Rockefeller chartered his Standard Oil Corporation as a holding company under New Jersey legislation allowing corporate entities to own stock in other firms. Clever bankers, notably J.P. Morgan toward the end of the century, pushed further to consolidate entire industries, rationalizing costs, operations, and pricing along the way. Local incumbents didn't stand a chance.¹⁰

New Rights for Big Business

These countrywide developments eventually forced the federal government to take up a new question: Could entrepreneurs succeed so well that they became entrenched incumbents that stifle competition? Courts had long worked to remove privileges and promote open competition and freedom of contract. But what about firms whose competitive advantage came largely from scale economies rather than chartered monopoly?

The doctrine of “natural monopoly,” and the evident chaos of “ruinous competition,” had initially led justices to allow consolidation. Despite periodic panics and failures from overcapacity, the economy was growing, productivity increasing, and efficiencies proving themselves out. The courts often relied on the commerce clause of the Constitution to push back against state protectionism, such as a law subjecting Singer sales branches to licensing fees. Similarly, the Court forbade state regulators from requiring local meat inspectors for the national Armour meatpacking company. The Court also limited state rate regulation of interstate railroads, a rebuke that set the stage for federal regulation under the Interstate Commerce Commission.¹¹

Most significant was the Supreme Court's extending “personhood” under the 14th Amendment to corporations, the ultimate triumph of Field's argument. In Santa Clara v. Southern Pacific (1886), the Court gave these businesses the same rights of equal protection as natural persons, thereby safeguarding them against arbitrary state action. “Arbitrary” came to mean any rule without a strong consumer rationale – protecting incumbents (or local workers) would not be enough.¹²

With personhood, corporations could avail themselves of the 5th and 14th Amendment protections against being deprived of “life, liberty, or property, without due process of law” at both the state and federal level, rights that became known as “substantive due process.” These rights expanded over the next century and beyond, continuing to the present with controversial cases such as corporate political donations.

While the states were stymied, early federal efforts at regulation were only partially effective – and often helped these new incumbents. The Interstate Commerce Commission (ICC), formed in 1887, established federal regulatory control over large enterprises such as railroads, but did little at first. Most of its efforts centered on rationalizing rates and competition for the benefit of established corporations. Only later did the ICC discourage the sort of discriminatory freight rates that Rockefeller had used to squelch his opponents. Likewise, the Sherman Antitrust Act of 1890 promoted open, fair competition, but set no enforceable policy.¹³

Moreover, a conservative Supreme Court seemed to lag the sentiment of Congress by at least a decade.¹⁴ In one well‐known case, the Court decided that the Sherman Act would not even apply to manufacturing.¹⁵ In another, the Court said the federal government could prohibit egregious restraints on trade, but monopolies per se were not illegal and were perhaps a fact of economic life.¹⁶ Ironically, in supporting these new enterprises the Court sometimes took a limited view of the definition of interstate commerce (they had often used a broad interpretation to curb state actions) or deferred to the states’ chartering authority over corporations as a justification for limiting the intervention of the federal government. As was often be the case in American history, the separation of powers made it difficult for governments to work in lockstep.¹⁷

Carnegie as an Entrepreneur of Scale

Andrew Carnegie was driven. He'd arrived in America in 1848 at the age of 13, the son of a Scottish weaver impoverished by the new mechanized looms. Carnegie's relentless energy and innate intelligence, along with supportive bosses at the Pennsylvania Railroad, eventually landed him shares of stock in that company. In 1865 he quit the railroad and worked full‐time on investments, eventually putting all of his eggs into the single basket of steel manufacturing. Carnegie focused on the innovative new Bessemer process, developed in Britain, and began building these new mills in 1872.

Carnegie improved substantially on the invention by applying rigorous cost‐accounting, vertical integration, and other aggressive managerial techniques. He instinctively understood economies of scale, and he had the discipline to live frugally and plow earnings back into the business – rather than rely on outside investors who might slow his pace.

Those efforts captured the enormous potential savings from the Bessemer process, but unlike the textile mills that took off before the Civil War, steel plants required a great deal of up‐front capital to achieve full efficiency. They also needed to run this expensive equipment as much as possible to cover the cost of capital – which meant a steady, high flow of materials into production. During a period of rapid growth, with mines and transportation links still developing, such a throughput required backward integration either by direct ownership or tight contracts with suppliers. Carnegie took his early profits as a Bessemer pioneer and plowed them back into the enterprise by acquiring his main suppliers, similar to what Rockefeller had done in buying oil leases. Once he had control, he could orchestrate steel production at amazingly low costs. With low prices he gained ever more contracts for steel delivery, and with greater scale came still lower costs.

He summed up the entrepreneurial achievement as follows:

“Two pounds of iron stone mined upon Lake Superior and transported 900 miles to Pittsburgh; one and a half pound of Pennsylvania coal mined and manufactured into coke and transported to Pittsburgh; a small amount of manganese ore mined in Virginia and brought to Pittsburgh – and these four pounds of materials made into one pound of steel, for which the consumer pays one cent.”

With that achievement Carnegie disrupted the incumbent providers of both iron and steel rails. Before the 1870s, iron and steel was a largely regional industry, but Carnegie helped to make it a national one. While the booming economy of the late 19th century supported a number of steel firms, in the troughs of the business cycle only Carnegie's firm kept operating near capacity.

In 1900, Carnegie Steel was not just the most efficient but by far the largest steel company in the world. Its products went into rails, bridges, and the new skyscrapers rising over cities. He also marketed aggressively, sending his products worldwide. And he wasn't finished. At age 65, he was planning to integrate forward into finished steel for the emerging industries of cars and appliances.

Complaining of ruinous competition, Carnegie's rivals enlisted the help of J.P. Morgan & Company, which had just come from rescuing the railroads. He offered Carnegie $480 million to sell out to his massive combination. Unable to resist the chance to finally realize his long‐held ambitions for philanthropy, Carnegie accepted.¹⁸

The result was the United States Steel Company, capitalized in 1901 at $1.4 billion (equal to $41 billion now). The consolidation handled two‐thirds of domestic steel production and formed by far the largest corporation yet. That market share reached 80–90%, varying by category, in 1907, when U.S. Steel acquired its largest remaining rival, the Tennessee Coal and Iron Company. President Theodore Roosevelt made a “gentlemen's agreement” with J.P. Morgan that federal government would not challenge the deal. Carnegie Steel had gone from industry disruptor to the biggest incumbent of the land.

Combining Incumbents

Already by 1900, widespread consolidation in the economy was bringing calls for action. Even as innovations such as the telephone and electricity spread, with rising productivity and falling costs, large firms were using their scale advantages and accumulated assets to both crush smaller rivals and prevent new upstarts from challenging their position. Small producers, farmers, and others continued to raise their voices. Back in 1867, Mark Twain had ridiculed the “upstart princes of shoddy,” whose shallow glitz prompted him to coin the term the “Gilded Age.” But now most people thought they needed reining in.¹⁹ Even the Horatio Alger stories so popular in the era, touting rags to respectability, suggested that luck and pluck rather than pure opportunity might be needed for success.

While elite opinion continued to preach the advantages of scale and efficiency, critics pointed to large companies growing complacent and failing to innovate. For instance, back in the 1870s, Western Union controlled nearly all national communication through its dominance in telegraphs. When Alexander Graham Bell patented telephone communications in 1876, he offered to sell the rights to the telegraph giant. But Western Union, skeptical of the technology, refused him. Bell set up his own company to commercialize the innovation, and it eventually became so strong that it acquired Western Union in 1909.

Developments in economic theory also supported arguments for government intervention, even as most economists maintained a strong belief in the virtues of economies of scale. The doctrine of “marginalism,” describing how firms set prices and created value, suggested that large firms were capturing more of this value at the expense of workers and others. Related concepts such as “utilitarianism” argued that overall social welfare would rise if more of the incremental production went to those who needed it rather than to wealthy people who already had plenty. Some legal critics argued for less formalism and more awareness of social implications, culminating in the “legal realism” of the 1920s and ’30s. These and related concepts supported calls for greater government control and a move away from the basic balance established by the end of the 19th century.²⁰

The new entrepreneurs proved clever in staying ahead, and many copied innovations such as Standard Oil's use of the New Jersey holding company statute to circumvent the regulation of trusts.²¹ When the panic of 1893 led to concerns about overcapacity and price competition, the “great merger movement” in American business began. From 1895 to 1904, more than 1,800 firms consolidated into a much smaller number of companies, with 72 entities (including U.S. Steel) controlling over 40% of their industries and some controlling over 70%.²²

Alongside the growth of these entities – and a significant driver of it – was the development of broad managerial systems. The second half of the 19th century saw the creation of a new type of employee – the professional manager – and an organizational framework for controlling large‐scale enterprise. In the early 20th century, universities helped develop both a capable workforce and techniques of systematic management.²³ Patents were increasingly held by corporate entities, though individual inventors (especially Thomas Edison) continued to operate.²⁴ The economy was transitioning from one based on the self‐employed small producer or farmer, to one with large corporate employers and their labor force at the center.²⁵

Many of the consolidations eventually lost out to new upstarts. Only those that vertically integrated or otherwise used their size to create sustained advantage maintained strong market positions well into the 20th century.²⁶ Nevertheless, what had been a fragmented economic landscape of small‐ and mid‐scale producers supplying local markets became a stark terrain of massive enterprises with national spheres of operation. Local shopkeepers and small producers that did survive found themselves doing business on substantially altered terms.

The Progressive Response

One of the most prominent critics of these large and dominant firms was Louis Brandeis. A native of Kentucky and the son of a small businessman, Brandeis came out of the Southern anti‐monopoly tradition of Jefferson and Jackson and was naturally suspect of the increasing concentration of power by the large corporations. Although the large enterprises created by the trusts were demonstrating managerial efficiency and lower prices, Brandeis believed that these companies were becoming less innovative and less efficient over time. He called them “clumsy dinosaurs” and believed that once these entities controlled a market, they would increase prices, block out new competitors, and deter innovation.²⁷

Brandeis also railed against the concentration of the financial system in the “money trust.” He wrote Other People's Money and How the Bankers Use It (1914) to publicize Congress's Pujo Committee investigation into the power of J.P. Morgan and other bankers. The committee found that they influenced large swaths of the economy through interlocking directorates and financing.

Brandeis's arguments brought with them a decidedly moral tone that ran against corporate property rights. While much of American law up to that point had supported efficiency, he and other Progressives argued for “distributive justice” and “industrial democracy” and a rebalancing of interests toward small businesses and the growing working class. Consumer prices were secondary. While Brandeis thought a small‐business economy would in practice lead to innovation, efficiency, and choice, he proved willing to protect small firms even if that meant consumers paid higher prices.²⁸

He therefore had little interest in disruptive competition by new market entrants. For him and others who championed small businessmen, the rise of the new entrepreneurs into large incumbents had shown the pitfalls of market access and scale, as vertical integration and professional management made it harder for small business incumbents to compete.

While he spoke for many Progressives, others aimed simply to rein in and manage the large corporate entities – not necessarily to foster challengers or even support small producers, but simply to limit their growing power. They believed that government would better rationalize ruinous competition than the bankers had. In conjunction with the rise of “scientific management,” they argued that thoughtful collective government regulation would better manage competition among the various players than the marketplace itself. Both of these strands affected politics, though in practice government regulation (favored by both wings) often ensconced incumbents and deterred new entrants.

Official government policies changed decisively at the turn of century, after the assassination of President McKinley. McKinley had defeated populist William Jennings Bryan in two straight elections, confirmed the country's commitment to the gold standard, and overcame the economic recession in the late 1890s. But the merger movement had put the “trust question” front and center in politics. The three presidents who followed – Theodore Roosevelt, William Howard Taft, and Woodrow Wilson – shared some assumptions about the importance of the private sector in generating wealth and prosperity, but differed on whether, how, and to what extent the government should intervene.

Though a Republican like his predecessor, Roosevelt surprised many observers with his activist approach to regulating large corporations. He was eager to rein in corporate abuse, but he believed that bigness itself was not a corporate crime or sin; in fact, he saw large corporate entities generating wealth domestically and projecting power abroad. Rather than go back to an early era of small‐producer competition, Roosevelt distinguished between “good” and “bad” trusts. The good trusts competed fairly and achieved competitive advantage through scale‐based efficiencies. The bad ones used their monopoly power to squelch competition with unfair tactics.

Roosevelt advocated for a strong federal role and what might be called a “statist” approach to the managing the economy. To sort one from the other and punish accordingly, he persuaded Congress in 1903 to establish a Bureau of Corporations.²⁹ But Congress gave the bureau only an investigatory role, without licensing power, as even some of Roosevelt's supporters saw that as a risk of overreach.³⁰

He also went on the offensive with antitrust prosecution. Bolstered by court decisions giving the federal government more power to intervene, he initiated actions against Rockefeller's Standard Oil, James Duke's American Tobacco, and other giants.³¹

Roosevelt decided against seeking a second full term in 1908 and instead supported William Howard Taft, a traditional conservative. Taft defeated William Jennings Bryan in the general election and then continued T.R.'s action against the big firms, bringing 70 cases under the Sherman Act (more than Roosevelt himself). Taft was in office when the Supreme Court broke up both Standard Oil and American Tobacco. The court established the “Rule of Reason,” which followed Roosevelt's formula in assessing whether a company was a good or a bad trust, but kept decision power in the courts.³² Taft went on to challenge U.S. Steel as well, with an implicit rebuke of Roosevelt for his “gentleman's agreement” on the Tennessee Coal deal. Angered, Roosevelt ran against Taft in 1912, splitting Republican votes and enabling Democrat Woodrow Wilson to become president.

Wilson was more of a Brandeisian Progressive, ready for government to intervene in the economy and skeptical of big business as the answer. Rather than influencing large corporations through government coercion, Wilson preferred to break them up and decentralize them. The Pujo Committee findings helped to motivate him to these reforms.

With his two terms, Wilson had a lasting impact on America's entrepreneurial ecosystem. First, he helped bring about a federal income tax with the 16th Amendment, which increased federal power over wealthy incumbents. Second, he helped create the Federal Reserve System, to prevent a repeat of the Panic of 1907 where the economy depended on a rescue from Morgan and other private bankers – but which still had a regional structure to decentralize decision making. Finally, with the Clayton Antitrust Act, he brought about the Federal Trade Commission, empowered to check price discrimination, dismantle interlocking corporate directorates, and prohibit exclusive dealings or tied purchase arrangements. It also strengthened federal antitrust oversight, though it led to no new corporate breakups. Here again, Congress stopped short of giving the agency licensing or similar positive authority; it could intervene only after finding a problem.³³,³⁴

America's Tradition of Corporate Autonomy

The difference between Roosevelt, Taft, and Wilson is essential to understand. Roosevelt's “New Nationalism” sought to control – and favor – large firms and to use them to help develop the economy. His was a “progressive version of America's tradition of Hamiltonian developmental capitalism.” Taft had more of a hands‐off approach, allowing concentration with the understanding that the courts would use their judgment to avoid unfair competition. Wilson's “New Freedom” opposed large, centralized firms as a matter of principle, favoring small businesses even as it recognized that a return to individual competition and the Jeffersonian ideal was unrealistic.³⁵

From these differences the federal government developed a consensus of sorts: tolerate big business but keep it from actively undercutting the right of small firms to compete. Government would have an active but still secondary role in the economy. This “corporate reconstruction of American capitalism” was a reasonable compromise that largely preserved the entrepreneurial balancing act, though in practice tilted to incumbents. The country would benefit from scale economies, while preserving space for upstarts to challenge the giants as these grew complacent.³⁶

Federal oversight still mattered, even where it left giant companies intact. For instance, the leaders of U.S. Steel made a point of not crushing rivals when these went into new areas, a policy of “live and let live.” When Bethlehem Steel, led by an aggressive former Carnegie executive, invested heavily in structural steel for skyscrapers, U.S. Steel largely ceded that market rather than risk antitrust attention.³⁷

As for the farmers and small businesses resentful of national domination, they experienced these changes in the economy both directly and generationally. Many sons of middle‐class shopkeepers and local entrepreneurs joined big business, but as quasi‐professional managers with a degree of autonomy. As for wage workers, large corporations sought to assuage them and preempt unionization with the variety of benefits known as “welfare capitalism.”³⁸ The country moved toward a “corporate‐administered” marketplace, with an active government but one that deferred to private ordering.³⁹

That last point was essential to maintaining the entrepreneurial balancing act. Over the course of the 19th century and despite government intervention in the Progressive era, American corporations had developed a degree of independence unmatched elsewhere. Both large and small firms operated mostly unconstrained by government in terms of access, scope, and freedom, bolstered by constitutionally protected rights. With a plethora of state and local banks, as well as a robust stock market, aspiring entrepreneurs could choose from a range of capital sources far beyond the experiences of their counterparts in other countries – freeing them from domination by big banks or investors. Even J.P. Morgan & Co. gradually pulled back from the mergers it had organized, and trading on public exchanges soon gave these behemoths broad and dispersed shareholding. As a result, American corporations came into the 20th century more independent, less influenced by third‐party constituencies, arguably more willing to take risks, and, at the same time, more vulnerable and less protected than corporate entities elsewhere in the world. For all of their rhetoric against big business, Progressive reforms from 1901 to 1920 did not fundamentally change this dynamic.

That independence still largely holds true today, and it sets America apart from other countries. Corporate independence has some drawbacks, especially to those who believe companies have gone too far in areas such as free speech, both commercial and political, or that they have acted without regard to non‐shareholder constituencies.⁴⁰ But it also gives companies a freer hand to pursue new strategies and innovations, and fewer means of protection when upstarts challenge them. The independence also means that firms in need of assistance generally find little recourse to the government, which allows firms to fail and forces them to find other private firms or capital to rescue them rather than stepping in.

By comparison, Germany and France developed strong state administrative roles in corporate governance, often leading to political interference or pressure such as the mandate of worker councils. In many cases, trade‐offs or issues that many American firms might deem beyond the scope of companies are addressed within the corporate organization itself. Political factors can spill into the boardroom, especially in Continental Europe. The Anglo‐Saxon model, prevalent in the UK and America, involves a single governing board representing shareholders. By comparison the two‐tiered European‐Asian model features two boards, one for management and the other a supervisory board often influenced by governments and stakeholders.

Corporations elsewhere must also deal with more direct financial oversight by banks. In many countries large banks are the main sources of finance for corporations, and they often have interlocking directorates. In both Germany and Japan, for instance, a handful of large banks have a strong hand in corporate governance, including (in Germany) the ability to vote shares they hold on behalf of others.⁴¹ Moreover, most of the large banks are themselves heavily controlled by the government, a further source of political pressure that can limit innovation that might hurt non‐shareholder constituencies. Bank‐controlled corporations, compared those oriented to investors, are more likely to seek stability (and the return of loans) over risk‐taking. By contrast, even the largest money center banks have little control over corporate America, and the capital markets play a larger role in company financing, so large corporations have more freedom to operate. Coupled with the country's tradition of decentralized finance, it also means that entrepreneurs looking to disrupt established industries are less likely to be boxed out from getting access to capital than in bank‐dominated countries.

Shareholdings in the United States are also more dispersed than elsewhere. One study, for instance, compared the shareholders of Daimler‐Benz, Toyota, and General Motors in 1990s and found that the top five owners constituted 74% of the equity in the case of Daimler and 21% of Toyota. With GM, the top five owners accounted for less than 5%.⁴² While U.S. institutional investors control a large percentage of the shares in American public companies, these funds do not exert control as do concentrated shareholders in other countries.

Similarly, governments hold very little corporate equity in the United States (less than 3%), with most shares held by relatively passive institutional investors such as mutual funds and pensions (72%). In Japan, major shareholding is split between public and institutional investors (23% each) with a large component of interlocking private ownership among the major “zaibutsu” business groups. In China, public‐sector investment represents an extraordinary 38%, while institutional investors are at only 9%. In general, European companies have greater ownership by institutional investors (38%) and private corporations (13%) rather than government. In many other parts of the world, either governments or wealthy families own much of the corporate equity and control those firms.⁴³ (See figures 6.1 and 6.2)

This independence from concentrated ownership has given corporate executives enormous autonomy and power historically. In the early 1930s, future New Dealers Adolph Berle and Gardner Means were using this managerialist power as a justification for increased regulation. In the 1970s, Michael Jensen similarly developed “agency theory,” but to support shareholder activism rather than government intervention. The primacy of shareholders and their ability to challenge boards and management teams continues to the present, ranging from those who seek higher stock prices or a sale of the company to those pursuing goals around environmental, social, and governance issues.⁴⁴

American corporate independence may have also come about simply as a result of the historical evolution of the federal government. In Germany and Japan, industrial policy and the administrative state took an active role beginning in the late 19th century. Both of those countries largely came into being as modern states in the 1860s and 1870s, and the governments quickly came around to developing large national enterprises as a matter of industrial policy. The objective was in part to create “national champions” to compete globally while managing other constituencies such as workers, farmers, and small businesses. As such, political and administrative factors influenced corporate development more directly in these countries than it did in the less centralized and cohesive United States, where the national government began small and most economic development commenced at the state level.⁴⁵

The years between the Civil War and World War I transformed the American economy, with the country becoming fully connected and large independent corporations emerging to take advantage of scale and efficiency. The political, legal, and institutional response wrestled with how far to go in allowing these new firms to compete and what administrative agencies and antitrust legislation would be needed to keep them in check. The process of working through these issues helped America's entrepreneurial balancing act survive both the merger movement and the Progressive era, even if the result was a stronger hand for big business and big government.

Fighting World War I required the mobilization of resources on a previously unknown scale. The largest firms rose to the occasion, with government temporarily intervening in the economy and discouraging competition. This new approach returned on a larger scale with the Great Depression, World War II, and the Cold War. Most of the 20th century saw continued intervention by the federal government in the economy, greatly influencing the dynamics between upstarts and incumbents. While new industries led by entrepreneurs would emerge, the cozy relationship between government and big business would eventually require a recalibration.