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Paul Sparks - Online English Lesson Plans, Lesson Material and Ideas for "Culture of English Speaking Countries Lessons" for Xiangtan Normal University...




American Business

Source of Information:

AMERICAN BUSINESS ORGANISATIONS: Americans have always believed they live in a land of opportunity, where anybody who has a good idea, determination, and a willingness to work hard can start a business. Small enterprises account for 52 percent of all U.S. workers, according to the U.S. Small Business Administration (SBA). Some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers. By contrast, 47.7 million Americans work for firms with 500 or more employees.

A particular strength of small businesses is their ability to respond quickly to changing economic conditions. They often know their customers personally and are especially suited to meet local needs. 

Small companies that rapidly became major players in the national and international economies include the computer software company Microsoft; the package delivery service Federal Express; sports clothing manufacturer Nike; the computer networking firm America OnLine (AOL); and ice cream maker Ben & Jerry's.

Congress created the Small Business Administration in 1953 to provide professional expertise and financial assistance to persons wishing to form or run small businesses. In a typical year, the SBA guarantees $10,000 million in loans to small businesses, usually for working capital or the purchase of buildings, machinery, and equipment. SBA-backed small business investment companies invest another $2,000 million as venture capital.

The Sole Proprietor:
Most businesses are sole proprietorships, they are owned and operated by a single person. In a sole proprietorship, the owner is entirely responsible for the business's success or failure. He or she collects any profits, but if the venture loses money and the business cannot cover the loss, the owner is responsible for paying the bills, even if doing so involves their personal assets.

  • Advantages of Sole Proprietorships: They suit people who like to exercise initiative and be their own bosses. They are flexible, since owners can make decisions quickly without having to consult others. By law, individual proprietors pay fewer taxes than corporations. And customers often are attracted to sole proprietorships, believing an individual who is accountable will do a good job.

  • Disadvantages of Sole Proprietorships: A sole proprietorship legally ends when an owner dies, although someone may inherit the assets and continue to operate the business. Also, since sole proprietorships generally are dependent on the amount of money their owners can save or borrow, they usually lack the resources to develop into large-scale enterprises.

The Business Partnership: One way to start or expand a venture is to create a partnership with two or more co-owners. Partnerships enable entrepreneurs to pool their talents; one partner may be qualified in production, while another may excel at marketing, for instance. States regulate the rights and duties of partnerships. Co-owners generally sign legal agreements specifying each partner's duties. Partnership agreements also may provide for "silent partners," who invest money in a business but do not take part in its management.

  • Advantages of Partnerships: They are exempt from most reporting requirements the government imposes on corporations, and they are taxed favorably compared with corporations. Partners pay taxes on their personal share of earnings, but their businesses are not taxed. 

  • Disadvantages of Partnerships: Each member is liable for all of a partnership's debts, and the action of any partner legally binds all the others. If one partner looses money from the business, for instance, the others must share in paying the debt. Another major disadvantage can arise if partners have serious and constant disagreements.

Corporations: Although there are many small and medium-sized companies, big business plays a dominant role in the American economy. In the United States, most large businesses are organized as corporations. A corporation is a specific legal form of business organization, chartered by one of the 50 states and treated under the law like a person. Corporations may own property, sue or be sued in court, and make contracts. By the mid-1990s, more than 40 percent of U.S. families owned common stock, directly or through mutual funds or other intermediaries. But widely dispersed ownership also implies a separation of ownership and control. Because shareholders generally cannot know and manage the full details of a corporation's business, they elect a board of directors to make broad corporate policy. Corporate boards place day-to-day management decisions in the hands of a chief executive officer (CEO), who may also be a board's chairman or president. The CEO supervises other executives, including a number of vice presidents who oversee various corporate functions, as well as the chief financial officer, the chief operating officer, and the chief information officer (CIO). The CIO came onto the corporate scene as high technology became a crucial part of U.S. business affairs in the late 1990s. As long as a CEO has the confidence of the board of directors, he or she generally is permitted a great deal of freedom in running a corporation.

  • Advantages of Corporations: Large companies can supply goods and services to a greater number of people, and they frequently operate more efficiently than small ones, they often can sell their products at lower prices because of the large volume and small costs per unit sold. They have an advantage in the marketplace because many consumers are attracted to well-known brand names, which they believe guarantee a certain level of quality. Because a corporation has legal standing itself, its owners are partially sheltered from responsibility for its actions. Owners of a corporation also have limited financial liability; they are not responsible for corporate debts. Because corporate stock is transferable, a corporation is not damaged by the death or disinterest of a particular owner. The owner can sell his or her shares at any time, or leave them to heirs.

  • Disadvantages of Corporations: Large corporations at times have shown themselves to be inflexible in adapting to changing economic conditions. As distinct legal entities, corporations must pay taxes. The dividends they pay to shareholders, unlike interest on bonds, are not tax-deductible business expenses. And when a corporation distributes these dividends, the stockholders are taxed on the dividends.

There are many ways for corporation to raise money, or capital, such as:

  • Issuing Bonds: A bond is a written promise to pay back a specific amount of money at a certain date or dates in the future. Bondholders receive interest payments at fixed rates on specified dates. Corporations benefit by issuing bonds because the interest rates they must pay investors are generally lower than rates for most other types of borrowing and because interest paid on bonds is considered to be a tax-deductible business expense. However, corporations must make interest payments even when they are not showing profits.

  • Issuing Preferred Stock: A company may choose to issue new "preferred" stock to raise capital. Buyers of these shares have special status the company encounters financial trouble. If profits are limited, preferred-stock owners will be paid their dividends after bondholders receive their guaranteed interest payments but before any common stock dividends are paid.

  • Selling Common Stock: If a company is in good financial health, it can raise capital by issuing common stock. Typically, investment banks help companies issue stock, agreeing to buy any new shares issued at a set price if the public refuses to buy the stock at a certain minimum price. Some companies pay large dividends, offering investors a steady income. In general, the value of shares increases as investors come to expect corporate earnings to rise.

  • Borrowing: Companies can also raise short-term capital by getting loans from banks or other lenders.

  • Using profits: Companies also can finance their operations by retaining their earnings. Some corporations, especially electric, gas, and other utilities, pay out most of their profits as dividends to their stockholders. Others distribute, say, 50 percent of earnings to shareholders in dividends, keeping the rest to pay for operations and expansion. Still other corporations, often the smaller ones, prefer to reinvest most or all of their net income in research and expansion, hoping to reward investors by rapidly increasing the value of their shares.

Franchising: Successful small businesses sometimes grow through a practice known as franchising. In a typical franchising arrangement, a successful company authorizes an individual or small group of entrepreneurs to use its name and products in exchange for a percentage of the sales revenue. The founding company lends its marketing expertise and reputation, while the entrepreneur who is granted the franchise manages individual outlets and assumes most of the financial liabilities and risks associated with the expansion. While it is somewhat more expensive to get into the franchise business than to start an enterprise from scratch, franchises are less costly to operate and less likely to fail. That is partly because franchises can take advantage of economies of scale in advertising, distribution, and worker training. It is estimated that the United States had about 535,000 franchised establishments in 1992 -- including auto dealers, gasoline stations, restaurants, real estate firms, hotels and motels, and dry cleaning stores. Franchise companies were expected to account for about 40 percent of U.S. retail sales by the year 2000.

A NATION OF FARMERS: Agriculture in the United States has changed dramatically over the last 200 years. At the time of the American Revolution (1775-83), 95 percent of the population were farmers. Today that figure is less than 2 percent. Today individuals or families own only 64 percent of the farmland. The remainder is owned by corporations, large and small, and farming and its related industries have become big business -- "agribusiness."

Farming is very successful in America mainly because of the quantity of land and the good weather conditions. Desert only exists in a small part of the western United States. Elsewhere, rainfall ranges from modest to plenty, and rivers and underground water allow for irrigation where needed. Large stretches of level or gently rolling land, especially in the Midwest, provide ideal conditions for large-scale agriculture. 

American farmers have always accepted new technology, throughout the 19th century one new tool or invention followed another in rapid succession. By the time of the American Civil War (1861-65), machines were taking over the work of haying, threshing, mowing, cultivating, and planting, in doing so they brought big increases in productivity. 

Another factor in the rise of agricultural output was the rapid flow of settlers across the Mississippi River in the late 19th century. The federal government promoted the internal migration in several ways, including the Homestead Act. Enacted in 1862, the act perpetuated the existing pattern of small family farms by offering a "homestead" of 65 hectares to each family of settlers for a nominal fee. For a time inventions and pro-farming policies were almost too successful. Overproduction became a serious problem after the Civil War. With demand unable to keep pace with supply, the prices farmers received for their products fell. The years from the 1870s until about 1900 were especially hard for the American farmer. 

THE GOVERNMENT'S ROLE IN FARMING: Beginning with the creation of the Department of Agriculture in 1862, the federal government took a direct role in agricultural affairs, going so far as to teach farmers how to make their land more productive. After a period of prosperity in the early 20th century, farm prices declined in the 1920s. The Great Depression of the 1930s drove prices still lower, and by 1932 farm prices had dropped, on average, to less than one-third of their 1920 levels. Farmers went bankrupt by the tens of thousands. 

The government pays farmers to plant fewer crops to stop over production.

Price supports and payments apply only to such basic commodities as grains, dairy products, and cotton; many other crops are not federally subsidized. Farm subsidy programs have been criticized on the grounds that they benefit large farms most and accelerate the trend toward larger -- and fewer -- farms.

Overall, American agriculture has been a success story. American consumers pay less for their food than those in many other industrial countries, and one-third of the cropland in the United States produces crops destined for export. In 1995 agricultural exports exceeded imports by nearly two to one. 

THE AMERICAN STYLE OF MASS PRODUCTION: Thanks to several waves of immigration, America gained population rapidly throughout the 19th and early 20th centuries, when business and industry were expanding. Population grew fast enough to provide a steady stream of workers.

In the late 18th century, American manufacturers adopted the factory system, which gathered many workers together in one place. To this was added something new, the "American system" of mass production, which originated in the firearms industry about 1800. The new system allowed the final product to be made in stages, with each worker specializing in a different task. 

By 1890 America's factories production was bigger than the production from farms. By 1913, more than one-third of the world's industrial production came from the United States. 

Lower costs made possible both higher wages for workers and lower prices for consumers. More and more Americans became able to afford products made in their own country. During the first half of the 20th century, mass production of consumer goods such as cars, refrigerators, and kitchen stoves helped to revolutionize the American way of life. 

By the end of World War II in 1945, the United States had the greatest productive of any country in the world, and the words "Made in the U.S.A." meant high quality. 

The 20th century has seen the rise and decline of several industries in the United States. The car industry has struggled to meet the challenge of foreign competition. The clothing industry has declined in the face of competition from countries where labor is cheaper. But other manufacturing industries have appeared, including airplanes and cellular telephones, microchips and space satellites, microwave ovens and high-speed computers. 

As high-tech industries have grown and older industries have declined, the proportion of American workers employed in manufacturing has dropped. Service industries now dominate the economy, selling a service rather than making a product, these industries include entertainment and recreation, hotels and restaurants, communications and education, office administration, and banking and finance.

Some Americans are concerned that by investing abroad, American business is making future competitors. The American government policies improved Japan's economy. The North American Free Trade Agreement in 1993, however, confirmed the continuing American commitment to international trade. 

INDUSTRIAL DEPRESSION: At the start of the 1920s there was a  Communist revolution in Russia , which lead to a fear that revolution might also break out in the United States. Meanwhile, workers in many parts of the country were striking for higher wages.

President Franklin Roosevelt vowed to help "the forgotten man," the farmer who had lost his land or the worker who had lost his job. Congress guaranteed workers the right to join unions and bargain collectively, and established the National Labor Relations Board to settle disputes between unions and employers. 

Not long after, skilled craftsperson's and industrial workers led to the founding of a new labor organization, the Congress of Industrial Organizations (CIO).

The Depression's effect on employment did not end until after the United States entered World War II in 1941. Factories needed more workers to produce the airplanes, ships, weapons, and other supplies for the war effort. By 1943, with 15 million American men serving in the armed forces, the United States had a labor shortage, which women (in a reversal of societal attitudes) were encouraged to fill. Before long, one out of four workers in defense plants was a woman. 

THE AMERICAN ECONOMIC SYSTEM: The capitalist system means people are naturally selfish, they are involved in manufacturing and trade in order to gain wealth and power. It leads to increased production and sharpens competition. As a result, goods circulate more widely and at lower prices, jobs are created, and wealth is spread.

Most Americans believe that their nation could not be a great economic power without capitalism, also known as free enterprise. Meaning that government should interfere in business as little as possible. 

THE PAST PROBLEMS IN AMERICAN BUSINESS: Factory owners often required them to put in long hours for low wages, provided them with unsafe and unhealthy workplaces, and hired the children of poor families. There was discrimination in hiring: Black Americans and members of some immigrant groups were rejected or forced to work under highly unfavorable conditions. Entrepreneurs took full advantage of the lack of government oversight to enrich themselves by forming monopolies, eliminating competition, setting high prices for products, and selling shoddy goods. 

In 1890, the Sherman Antitrust Act took the first steps toward breaking up monopolies. In 1906, Congress enacted laws requiring accurate labeling of food and drugs and the inspection of meat. During the Great Depression, President Roosevelt and Congress enacted laws designed to ease the economic crisis. Among these were laws regulating the sale of stock, setting rules for wages and hours in various industries, and putting stricter controls on the manufacture and sale of food, drugs, and cosmetics. 

New federal agencies, such as the Environmental Protection Agency, have come into being. And new laws and regulations have been designed to ensure that businesses do not pollute air and water and that they leave an ample supply of green space for people to enjoy. 

The sum total of these laws and regulations has changed American capitalism. There is scarcely anything a person can buy in the United States today that is not affected by government regulation of some kind. 

Political conservatives believe there is too much government regulation of business. They argue that some of the rules that firms must follow are unnecessary and costly. In response to such complaints, the government has tried to reduce the paperwork required of businesses and to set overall goals or standards for businesses to reach, as opposed to dictating detailed rules of operation. 

THE WORK FORCE TODAY: After the war a wave of strikes for higher wages swept the nation.

The American work week typically amounts to between 35 and 40 hours, but there are many differences: people working part-time or on "flexi-time" or "telecommuting" from their homes with the assistance of phone, computer, and fax machine. 

MONOPOLIES & MERGERS: The corporate form clearly is a key to the successful growth of numerous American businesses. But Americans at times have viewed large corporations with suspicion, and corporate managers themselves have wavered about the value of bigness.
In the late 19th century, many Americans feared that corporations could raise large amounts of money and harm smaller ones or could combine and collude with other firms to stop competition. People said that business monopolies would force consumers to pay high prices and deprive them of choice. The concerns lead to two major laws aimed at taking apart or preventing monopolies: the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914. Government continued to use these laws to limit monopolies throughout the 20th century. In 1984, government "trustbusters" broke a near monopoly of telephone service by American Telephone and Telegraph (AT & T). In the late 1990s, the Justice Department sought to reduce dominance of the computer software market by Microsoft Corporation.

In general, government antitrust officials see a threat of monopoly power when a company gains control of 30 percent of the market for a commodity or service. While antitrust laws may have increased competition, they have not kept U.S. companies from getting bigger. 

The 1980s and 1990s brought new waves of friendly mergers and "hostile" takeovers in some industries, as corporations tried to position themselves to meet changing economic conditions. Mergers were prevalent, for example, in the oil, retail, and railroad industries, all of which were undergoing substantial change. Many airlines sought to combine after deregulation unleashed competition beginning in 1978. Deregulation and technological change helped spur a series of mergers in the telecommunications industry as well.

Also in the late 1990s, Travelers Group merged with Citicorp, forming the world's largest financial services company, while Ford Motor Company bought the car business of Sweden's AB Volvo. Following a wave of Japanese takeovers of U.S. companies in the 1980s, German and British firms grabbed the spotlight in the 1990s, as Chrysler Corporation merged into Germany's Daimler-Benz AG and Deutsche Bank AG took over Bankers Trust. Marking one of business history's high ironies, Exxon Corporation and Mobil Corporation merged, restoring more than half of John D. Rockefeller's industry-dominating Standard Oil Company empire, which was broken up by the Justice Department in 1911. The $81,380 million merger raised concerns among antitrust officials, even though the Federal Trade Commission (FTC) unanimously approved the consolidation.

Instead of merging, some firms have tried to improve their business through joint ventures with competitors. Because these arrangements eliminate competition in the product areas in which companies agree to cooperate, they can pose the same threat to market disciplines that monopolies do.

A spectacular example of cooperation among fierce competitors occurred in 1991 when International Business Machines (IBM), which was the world's largest computer company, agreed to work with Apple Computer, the pioneer of personal computers, to create a new computer software operating system that could be used by a variety of computers. A similar proposed software operating system arrangement between IBM and Microsoft had fallen apart in the mid-1980s, and Microsoft then moved ahead with its own market-dominating Windows system. By 1999, IBM also agreed to develop new computer technologies jointly with Dell Computer, a strong new entry into that market.

THE STOCK MARKET: Very early in America's history, people saw that they could make money by lending it to those who wanted to start or expand a business. To this day, small American entrepreneurs usually borrow the money they need from friends, relatives, or banks. Larger businesses, however, are more likely to acquire cash by selling stocks or bonds to unrelated parties. These transactions usually take place through a stock exchange, or stock market. 

Europeans established the first stock exchange in Antwerp, Belgium, in 1531. It was introduced to the United States in 1792. The stock market was a great success, especially at the New York Stock Exchange, located in the Wall Street area of New York City, the nation's financial hub. 

Americans pride themselves on the efficiency of their stock market and other capital markets, which enable vast numbers of sellers and buyers to engage in millions of transactions each day. These markets owe their success in part to computers, but they also depend on tradition and trust -- the trust of one broker for another, and the trust of both in the good faith of the customers they represent to deliver securities after a sale or to pay for purchases.

Companies are required by law to issue quarterly earnings reports, more elaborate annual reports, and proxy statements to tell stockholders how they are doing. In addition, investors can read the market pages of daily newspapers to find out the price at which particular stocks were traded during the previous trading session. They can review a variety of indexes that measure the overall pace of market activity; the most notable of these is the Dow Jones Industrial Average (DJIA), which tracks 30 prominent stocks. Investors also can turn to magazines and newsletters devoted to analyzing particular stocks and markets. Certain cable television programs provide a constant flow of news about movements in stock prices. And now, investors can use the Internet to get up-to-the-minute information about individual stocks and even to arrange stock transactions.

The Stock Exchanges: There are thousands of stocks, but shares of the largest, best-known, and most actively traded corporations generally are listed on the New York Stock Exchange (NYSE). The exchange dates its origin back to 1792. The smaller American Stock Exchange, which lists numerous energy industry-related stocks, operates in much the same way and is located in the same Wall Street area as the New York exchange. Other large U.S. cities host smaller, regional stock exchanges.

The largest number of different stocks and bonds traded are traded on the National Association of Securities Dealers Automated Quotation system, or Nasdaq. This so-called over-the-counter exchange, which handles trading in about 5,240 stocks, is not located in any one place; rather, it is an electronic communications network of stock and bond dealers. The National Association of Securities Dealers, which oversees the over-the-counter market, has the power to expel companies or dealers that it determines are dishonest or insolvent. Because many of the stocks traded in this market are from smaller and less stable companies, the Nasdaq is considered a riskier market than either of the major stock exchanges. But it offers many opportunities for investors. By the 1990s, many of the fastest growing high-technology stocks were traded on the Nasdaq.

The Regulators: The Securities and Exchange Commission (SEC), which was created in 1934, is the principal regulator of securities markets in the United States. Before 1929, individual states regulated securities activities. But the stock market crash of 1929, which triggered the Great Depression, showed that arrangement to be inadequate. The Securities Act of 1933 and the Securities Exchange Act of 1934 consequently gave the federal government a preeminent role in protecting small investors from fraud and making it easier for them to understand companies' financial reports.

Companies issuing stocks, bonds, and other securities must file detailed financial registration statements, which are made available to the public. The SEC determines whether these disclosures are full and fair so that investors can make well-informed and realistic evaluations of various securities. The SEC also oversees trading in stocks and administers rules designed to prevent price manipulation; to that end, brokers and dealers in the over-the-counter market and the stock exchanges must register with the SEC. In addition, the commission requires companies to tell the public when their own officers buy or sell shares of their stock; the commission believes that these "insiders" possess intimate information about their companies and that their trades can indicate to other investors their degree of confidence in their companies' future.

The agency also seeks to prevent insiders from trading in stock based on information that has not yet become public. In the late 1980s, the SEC began to focus not just on officers and directors but on insider trades by lower-level employees or even outsiders like lawyers who may have access to important information about a company before it becomes public. The SEC has five commissioners who are appointed by the president. No more than three can be members of the same political party; the five-year term of one of the commissioners expires each year.

TELECOMMUNICATIONS: Until the 1980s in the United States, the term "telephone company" was synonymous with American Telephone & Telegraph. AT&T controlled nearly all aspects of the telephone business. Its regional subsidiaries, known as "Baby Bells," were regulated monopolies, holding exclusive rights to operate in specific areas. The Federal Communications Commission regulated rates on long-distance calls between states, while state regulators had to approve rates for local and in-state long-distance calls.

Government regulation was justified on the theory that telephone companies, like electric utilities, were natural monopolies. Competition, which was assumed to require stringing multiple wires across the countryside, was seen as wasteful and inefficient. That thinking changed beginning around the 1970s, as sweeping technological developments promised rapid advances in telecommunications. Independent companies asserted that they could, indeed, compete with AT&T. But they said the telephone monopoly effectively shut them out by refusing to allow them to interconnect with its massive network.

Telecommunications deregulation came in two sweeping stages. In 1984, a court effectively ended AT&T's telephone monopoly, forcing the giant to spin off its regional subsidiaries. AT&T continued to hold a substantial share of the long-distance telephone business, but vigorous competitors such as MCI Communications and Sprint Communications won some of the business, showing in the process that competition could bring lower prices and improved service.

A decade later, pressure grew to break up the Baby Bells' monopoly over local telephone service. New technologies -- including cable television, cellular (or wireless) service, the Internet, and possibly others -- offered alternatives to local telephone companies. But economists said the enormous power of the regional monopolies inhibited the development of these alternatives. In particular, they said, competitors would have no chance of surviving unless they could connect, at least temporarily, to the established companies' networks -- something the Baby Bells resisted in numerous ways.

In 1996, Congress responded by passing the Telecommunications Act of 1996. The law allowed long-distance telephone companies such as AT&T, as well as cable television and other start-up companies, to begin entering the local telephone business. It said the regional monopolies had to allow new competitors to link with their networks. To encourage the regional firms to welcome competition, the law said they could enter the long-distance business once new competition was established in their domains.

At the end of the 1990s, it was still too early to assess the impact of the new law. There were some positive signs. Numerous smaller companies had begun offering local telephone service, especially in urban areas where they could reach large numbers of customers at low cost. The number of cellular telephone subscribers soared. Countless Internet service providers sprung up to link households to the Internet. But there also were developments that Congress had not anticipated or intended. A great number of telephone companies merged, and the Baby Bells mounted numerous barriers to thwart competition. The regional firms, accordingly, were slow to expand into long-distance service. Meanwhile, for some consumers -- especially residential telephone users and people in rural areas whose service previously had been subsidized by business and urban customers -- deregulation was bringing higher, not lower, prices.

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