Rockefeller: A Terrifyingly Gifted Strategist

by | Aug 25, 2014

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Born 1839 in New York. Died 1937 in Florida, aged 98, after a 40 year ‘retirement’


 

“Competition is a sin”

 

A life that spanned the history books The owner and originator of the Standard Oil Company, which monopolised America’s oil industry well into the twentieth century, was always the confident type. He attended business classes for all of ten weeks before starting out in the commercial world. Within four years he had his own food distribution business, and within eight he had built his first oil refinery, supplying kerosene lamp oils as a cheap substitute for whale oil.

Information is power That was just the warm-up. The young Rockefeller spent the Civil War years buying out his oil rivals and planning an ambitious distribution network based on the new and fast-growing railway network. Most importantly, he employed a ‘market research’ team of observers to track the quickly expanding industry in oil-rich Ohio. Sure enough, within three years Rockefeller owned the biggest refinery complex in the world, which became Standard Oil in 1870. Research and strategy had paid off handsomely.

The dirty game begins Standard Oil was one of five competing oil majors in Ohio, but it set about squeezing out its rivals by persuading the rail companies to double all their usual freight rates while simultaneously allowing it 50% discounts for its own ‘bulk contracts’. These rail cartels were eventually broken up by angry state legislators, bringing Rockefeller into public disrepute. But, undeterred, he still continued to buy out his competitors with cash while simultaneously pressing the railroads for further bulk transport discounts and sweetheart deals of every kind. Rockefeller’s instinct for the efficiencies of scale were unmatched: by 1874, just four years after Standard Oil’s incorporation, all 26 of its Cleveland rivals had sold out to it.

Monopolising the pipelines The end of a beautiful friendship came in 1877, when Rockefeller annoyed his railway friends by investing in oil pipelines instead – thus prompting them to start building their own pipelines in response. Standard Oil promptly laid siege to the rail companies by withholding its commissioning altogether – and eventually, starved of revenue, they obediently sold out to Rockefeller. This left him with a virtually complete monopoly of the distribution system. The New York World described Standard Oil in 1880 as “the most cruel, impudent, pitiless, and grasping monopoly that ever fastened upon a country.” No understatement there, then.

A forced retirement By 1885 Standard Oil owned 20,000 domestic wells, 4,000 miles of pipeline and over 90% of the world’s oil refining capacity. By 1890 it was also alarming legislators with an attempted entry into the iron ore industry, which brought it into direct conflict with Andrew Carnegie’s steel empire. And, as government outrage grew, Rockefeller sensibly took a back seat in 1897 and restyled himself as a gentle philanthropist.

Philanthropy If he had known that he would live to nearly 100 – his lifelong aspiration – the old toughie would probably have stayed in business just to spite them all. But his remaining 40 years, though the First World War, the Depression and the start of the Hitler era, proved to be the salvation of his public image.

Rockefeller had always been a devout Baptist and had funded religious and educational causes, including an Atlanta college for black women (now Spelman College). But his General Education Board (1903), his Sanitary Commission (promoting public health) and his Institute for Medical Research (later Rockefeller University) took the giving to new levels. An $80 million gift virtually founded Chicago University. But the press still remembered him for handing out nickels and dimes to everyone he met – including some very rich men. A nice irony.

 

 

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