South Improvement Company
Encyclopedia
The South Improvement Company was a Pennsylvania
corporation in 1871-1872. It was created by major railroad interests, but was widely seen as part of John D. Rockefeller
's early efforts to organize and control the oil
and natural gas
industries in the United States which eventually became Standard Oil
. Although it lasted less than a year and never shipped any oil, the South Improvement Company scheme caused widespread attention to be focused on the relationships between big railroads (which were public utilities pledged to serve all) and big businesses which wanted and demanded favorable treatment.
Thomas A. Scott, president of the Pennsylvania Railroad
set up the South Improvement Company in the fall of 1871. The scheme was intended to benefit both the railroads and major refiners, notably those controlled by Rockefeller through secret rebate
s.
Rockefeller had earlier merged several of the Cleveland area refineries by way of extortion and issued 2,000 shares of stock, of which 900 were controlled by Rockefeller and his partners. Rockefeller then started negotiations to collude with the three major railroads running through Cleveland: the Erie
, the Pennsylvania Railroad
, and the New York Central
. The result of these secret negotiations were as follows: (1) The official rate per barrel from Cleveland to New York would be $2.56, but South Improvement would receive a $1.06 rebate; (2) The railroads would also pay South Improvement $1.06 per barrel of oil shipped that was not produced by South; (3) The railroads would also give reports of the shipping destinations, costs, and dates of all of South's competitors; (4) The commerce would be divided evenly among the railroads, with a double share going to Pennsylvania Railroad; and (5) South would provide tank cars and loading facilities.
The secret concessions would have helped lessen the "vicious" competition among the railroad lines by giving a steady, standardized flow of commerce.
Word leaked out of the South Improvement Scheme, and the proposed 100% increase in rail shipping rates inflamed the independent producers and many smaller refineries. Following a summit and vocal protest by the independent oil producers and refiners led by Henry Huttleston Rogers
and the Charles Pratt and Company
refining interests of Brooklyn, New York, which came close to physical warfare in western Pennsylvania in March 1872 (and came to be known as the "Oil War"), the railroads agreed to back down.
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
corporation in 1871-1872. It was created by major railroad interests, but was widely seen as part of John D. Rockefeller
John D. Rockefeller
John Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...
's early efforts to organize and control the oil
Petroleum industry
The petroleum industry includes the global processes of exploration, extraction, refining, transporting , and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline...
and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
industries in the United States which eventually became Standard Oil
Standard Oil
Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
. Although it lasted less than a year and never shipped any oil, the South Improvement Company scheme caused widespread attention to be focused on the relationships between big railroads (which were public utilities pledged to serve all) and big businesses which wanted and demanded favorable treatment.
Thomas A. Scott, president of the Pennsylvania Railroad
Pennsylvania Railroad
The Pennsylvania Railroad was an American Class I railroad, founded in 1846. Commonly referred to as the "Pennsy", the PRR was headquartered in Philadelphia, Pennsylvania....
set up the South Improvement Company in the fall of 1871. The scheme was intended to benefit both the railroads and major refiners, notably those controlled by Rockefeller through secret rebate
Rebate (marketing)
A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is a type of sales promotion marketers use primarily as incentives or supplements to product sales. The mail-in rebate is the most common...
s.
Rockefeller had earlier merged several of the Cleveland area refineries by way of extortion and issued 2,000 shares of stock, of which 900 were controlled by Rockefeller and his partners. Rockefeller then started negotiations to collude with the three major railroads running through Cleveland: the Erie
Erie Railroad
The Erie Railroad was a railroad that operated in New York State, New Jersey, Pennsylvania, Ohio, Indiana, and Illinois, originally connecting New York City with Lake Erie...
, the Pennsylvania Railroad
Pennsylvania Railroad
The Pennsylvania Railroad was an American Class I railroad, founded in 1846. Commonly referred to as the "Pennsy", the PRR was headquartered in Philadelphia, Pennsylvania....
, and the New York Central
New York Central Railroad
The New York Central Railroad , known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States...
. The result of these secret negotiations were as follows: (1) The official rate per barrel from Cleveland to New York would be $2.56, but South Improvement would receive a $1.06 rebate; (2) The railroads would also pay South Improvement $1.06 per barrel of oil shipped that was not produced by South; (3) The railroads would also give reports of the shipping destinations, costs, and dates of all of South's competitors; (4) The commerce would be divided evenly among the railroads, with a double share going to Pennsylvania Railroad; and (5) South would provide tank cars and loading facilities.
The secret concessions would have helped lessen the "vicious" competition among the railroad lines by giving a steady, standardized flow of commerce.
Word leaked out of the South Improvement Scheme, and the proposed 100% increase in rail shipping rates inflamed the independent producers and many smaller refineries. Following a summit and vocal protest by the independent oil producers and refiners led by Henry Huttleston Rogers
Henry H. Rogers
Henry Huttleston Rogers was a United States capitalist, businessman, industrialist, financier, and philanthropist. He made his fortune in the oil refinery business, becoming a leader at Standard Oil....
and the Charles Pratt and Company
Charles Pratt and Company
Charles Pratt and Company was an oil company that was formed in Brooklyn, New York, in the United States by Charles Pratt and Henry H. Rogers in 1867. It became part of John D. Rockefeller's Standard Oil organization in 1874....
refining interests of Brooklyn, New York, which came close to physical warfare in western Pennsylvania in March 1872 (and came to be known as the "Oil War"), the railroads agreed to back down.
See also
- John D. RockefellerJohn D. RockefellerJohn Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...
- Standard OilStandard OilStandard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
- Charles PrattCharles PrattCharles Pratt was a United States capitalist, businessman and philanthropist.Pratt was a pioneer of the U.S. petroleum industry, and established his kerosene refinery Astral Oil Works in Brooklyn, New York. An advertising slogan was "The holy lamps of Tibet are primed with Astral Oil." He...
- Henry H. RogersHenry H. RogersHenry Huttleston Rogers was a United States capitalist, businessman, industrialist, financier, and philanthropist. He made his fortune in the oil refinery business, becoming a leader at Standard Oil....
- Charles Pratt and CompanyCharles Pratt and CompanyCharles Pratt and Company was an oil company that was formed in Brooklyn, New York, in the United States by Charles Pratt and Henry H. Rogers in 1867. It became part of John D. Rockefeller's Standard Oil organization in 1874....
- Ida M. TarbellIda M. TarbellIda Minerva Tarbell was an American teacher, author and journalist. She was known as one of the leading "muckrakers" of the progressive era, work known in modern times as "investigative journalism". She wrote many notable magazine series and biographies...