Rockefeller and the emergence of America as a global superpower

John D. Rockefeller, founder of the Standard Oil Company and leading philanthropist, is considered one of the most prominent financial titans in the history of the United States of America. His financial career was always about making money: from raising turkeys, selling candy and helping out around the neighborhood as a kid, to becoming the emperor of the oil industry at his early thirties. Indeed, Rockefeller’s financial history is strongly linked to the emergence of America as a global superpower, since petroleum industry was the key factor for developing the world dominant economy that we know today.

Standard Oil Company dock in 1940_Rockefeller_financial titan_patrick dwyer
Image courtesy of born1945 at Flickr.com

Energy sources are the foundation of civilizations. Dominant societies like Egyptians, Romans and Aztecs erected their power based on physical labor as a form of energy (slavery). After the industrial revolution, reserves of coal were the main source of development, for instance, the abundance of the mineral in the British Empire, in contrast to the lack of it and the subsequently decline of the Austrian-Hungarian and Ottoman empires. Oil, as the versatile and high energy source that redesign modern society in the twentieth century, made the United States and Russia the dominant countries since their local reserves where large.     

The role of the Standard Oil Company in the American history of oil

The first oil well in the United States was drilled in 1859. The first pour of hydrocarbon that surged on the ground, was the beginning of the “Energy Revolution”. However, the real development of the petroleum industry was the result of the foundation of the Standard Oil Company by John D. Rockefeller in 1870. At the beginning, the company focused on the distillation of a sub-product for home lighting called kerosene, to finally demonstrate the potential of controlling the total market producing all kinds of transportation fuels in his system of refineries. The success of the Standard Oil was the integration of all its operations: from direct oil extraction in the fields owned by the company to transportation of crude, refining, research and direct sales in local markets. Not only the company grew from its sales, also did it through purchasing competing companies and shutting down those that Rockefeller considered inefficient.

By the end of the nineteenth century Rockefeller power grew immensely, allowing him to basically wipe out all its competitors. The Standard controlled almost 91% of the total production of oil and 85% of the entire sales. Kerosene was the main product, even exporting 55% of it overseas. The Sherman Antitrust Act was approved by the Congress in 1890, and one of the targets of the legislation was the Standard. What Rockefeller did was dissolving the corporation in smaller units, until 1909 when the U.S. Department of justice sued the company under the anti-trust law for monopoly and restricting interstate commerce. In 1911, the Standard Oil Group was declared a monopoly by the Supreme Court and ordered the company to dissolve in 34 independent corporations. The biggest two companies resulting from this division were Exxon and Mobile. Rockefeller retired from any management position and became the richest man in the world because of the amount of shares that he owned in those companies.

Will Rogers and John D. Rockefeller_financial titans_patrick dwyer merrill lynch
Image courtesy of Boston Public Library at Flickr.com

Rockefeller’s keys to success in business

  • Understanding of risk

Rockefeller’s distinctive feature was the way he understood risk. He totally realized that oil speculation was based on making enormous profits from discovering oil deposits. But it was also clear that the possibilities of losing all the money were very high. This was the reason why Rockefeller chose the refining business, since profits were minor but substantially more secure.   

  • Research and Development

Looking for making the refining business more efficient, Rockefeller transformed the process by using all the discarded substances. Kerosene was the main product of refining, but investing on what we call today research and development (R&D), he soon discovered numerous sub-products like lubricants, paintings and greases that gave his company additional profits.

  • Vertical Integration

Rockefeller recognized that the total control of the delivery chain would drop their costs. Pipelines, tankers and a network of home retail where part of the strategy to reach more costumers and keep out his competitors. This business model, which was established by Rockefeller’s companies, was later followed by all industry giants around the world.

  • Philanthropy

Rockefeller understood the power of philanthropy. His first important donation, $35 million, was made to found a Baptist college in Chicago in 1889. This institution was the beginning of the University of Chicago. When he retired from the Standard Oil in 1897, he put all his attention on sharing. In 1913, The Rockefeller Foundation was established with a clear objective: “to promote the well-being of mankind throughout the world.” The creation of the Rockefeller Institute for Medical Research, later the Rockefeller University, was also part of the philanthropic work of his foundation.

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