On this day in economic and business history...
One of the greatest cultural events in American history began on May 1, 1893, when the World's Columbian Exposition opened to the public in Chicago. The fairgrounds would remain open until the end of October, by which time an incredible 27 million visitors had streamed through its gates -- more than 40% of the entire population of the United States at that time, although an estimated 14 million visitors were foreigners. Through a number of exhibits and events, the Exposition (also known as the Chicago World's Fair) staked out the upcoming 20th century as an American century, similar to the way London's Great Exhibition of 1851 had shown the world the grandeur of the British Empire near the height of its 19th-century power.
The Exposition, more than anything else, was a coming-out party for the relatively new technology of electricity. A fierce bidding war erupted between recently formed General Electric and rival Westinghouse Electric to power the Exposition, with GE backing direct current and Westinghouse promoting alternating current. It was one of the earliest battles in the War of the Currents, eventually won by alternating current, and the Exposition's great success undoubtedly helped sway opinion in favor of this safer and more reliable option. The Exposition was also, in many ways, the event that cemented Nikola Tesla's legacy as an innovator. As the mastermind of alternating current, Tesla provided several exciting displays of electricity for the public beyond the awe-inspiring sight of an illuminated fairground.
The Exposition also gave the public its first ride on a Ferris Wheel; its first taste of Cracker Jacks, Cream of Wheat, Pabst Blue Ribbon beer, and Quaker Oats; and, for many, a first experience with other religions offered on equal footing, which was so forward-thinking that similar efforts were not made again in the U.S. for another 70 years. The Exposition also exposed Milton Hershey to German chocolate-making techniques, which he would develop to perfection a decade later when he built America's first chocolate factory.
In many ways, the Exposition was a dry run for the spread of American consumerism, which would be fine-tuned a decade later at the Louisiana Purchase Exposition in St. Louis. The Chicago and St. Louis fairs exposed more people to more new ideas and products in less time than had ever been managed before, ripening the fruit of consumerism in a nation that was rapidly progressing toward industrialization and a modern economy.
The left behind
Not everyone got to enjoy the Columbian Exposition, as an economic panic took hold in 1893 that would create the most devastating depression the U.S. had experienced up to that point in time. The second railroad bubble in two decades had ended in catastrophic fashion as bubbles often do, and unemployment (such as it was in a largely agrarian society) surged into the double digits. Hundreds of banks failed, and thousands of businesses closed, and a movement in support of bimetallism -- i.e., using both gold and silver as currency -- gained popularity among the many dispossessed small farmers of the country. The grim economic conditions also spurred the creation of an army -- Coxey's Army, which on May 1, 1894 marched into Washington, D.C., to petition Congress for relief.
Coxey's Army was a protest march of the unemployed, created and led by Ohio businessman Jacob Coxey, that marched from Ohio to the nation's capital in the spring of 1894. Despite occasional armed resistance, more than 500 men made it into Washington, where Coxey intended to demand that the government initiate massive public-works projects to create jobs building roads and government buildings, paid for by paper currency that would reverse the deflationary effects of the gold standard. Coxey never got to address Congress on these issues, as he was arrested on the steps of the Capitol for trespassing, but his ideas would eventually take root in the Franklin D. Roosevelt administration, which enacted virtually all of his demands to fight the one depression that outdid 1893's.
The birth of private equity
Kohlberg Kravis Roberts was founded by Bear Stearns alumni Jerome Kohlberg, Henry Kravis, and George Roberts on May 1, 1976. From its outset, the private-equity firm would set the pace for its industry, as the three founders were among the first to undertake leveraged buyouts at Bear Stearns. The trio might have remained at Bear Stearns in that capacity, had their proposals to form a dedicated investment fund not been repeatedly rejected.
KKR had only a handful of investors when it set up shop, and it took a year to target and complete its first buyout. The firm grew rapidly thereafter, and by the end of the 1970s KKR was already setting records for public-to-private transaction values. In 1984, KKR completed its first billion-dollar buyout, but this was only practice for the buyout that made it a legend. In 1989, in partnership with Drexel Burnham Lambert and Merrill Lynch, KKR completed a $31 billion leveraged buyout of RJR Nabisco, the deal that set the high-water mark for such activities and marked the peak of the leveraged-buyout boom of the 1980s. The deal was so well-covered in the press that it became the basis for a book (and later a made-for-TV movie) titled Barbarians at the Gate.
It took KKR 16 years to fully realize its returns on the Nabisco deal despite divesting its ownership of the consumer products company by 1995. The parts of that company have since been reformed as Reynolds American and Nabisco Group, a subsidiary of Mondelez. Three years after divesting RJR, KKR made its intentions known to sell shares to the public, but the financial crisis of 2008 pushed its offering back to 2010. By that point, KKR had completed more than $400 billion worth of private-equity transactions in more than 160 companies.
The great deregulation
The New York Stock Exchange chipped its first crack in the great dam against retail investment dollars on May 1, 1975, when it ended the requirement that all trade commissions be enacted at a fixed rate. Kenneth Silber writes about this momentous occasion in Research magazine:
By the 1960s, fixed commissions were generating a degree of investor discontent that was hard to ignore. Pension funds and other institutional investors had become big players in the market, creating a powerful constituency for lower trading costs. Brokerage firms competed for their lucrative business with "soft dollar" amenities such as research reports, and individual investors looked jealously at these special deals for institutions. ...
The NYSE began pushing back, reflecting the views of most of its members that fixed commissions were needed to keep the industry profitable or at least couldn't be abandoned quickly without causing massive damage. ...
But the momentum was on the other side. Congressman John Moss held hearings on fixed commissions and introduced a bill that would eliminate them. The SEC continued its reform push, despite the distractions of some unrelated political imbroglios. In 1972, the agency lowered the upper limit on fixed-commission transactions to $300,000.
Ray Garrett, who became SEC chairman in September 1973, was a Battle of the Budge veteran who had little interest in higher political office. Shrugging off diehard opposition from the brokerage industry, he pressed for a complete shift to negotiated commissions. The agency ordered an end to all fixed rates as of May 1, 1975. As an interim step, in April 1974, commissions on orders under $2,000 were unfixed. ...
Over time, though, the changes would prove dramatic. Commissions, which had averaged over $0.80 per share in the early 1970s, dropped to some $0.04 per share in the early 21st century. While full-service brokers lowered their rates, discount brokers emerged to lower commissions more. In the 1990s, Internet trading furthered that trend.
Public participation in the stock market skyrocketed. Some 15% of households had some degree of exposure to equities in 1975, a figure that would rise to around 50% three decades later.
The move was well-timed, occurring a few short years before the great wave of Baby Boomers entered their prime earning years and began looking for places to invest. One need only examine the performance of the Dow Jones Industrial Average before and after that momentous shift to understand its importance.
The Dow's first 79 years of existence saw its value rise from 41 points to 831 points on May 1, 1975 -- an annualized growth rate of 3.9%. Over the following three decades, the Dow rose to 10,252 points, growing an average of 8.7% per year. In 1975, daily trading on the New York Stock Exchange resulted in a transaction volume of approximately 18.6 million shares, showing 3,600% growth from volume traded at the turn of the century. By 2005, more than 2 billion shares exchanged hands every day on the New York Stock Exchange, representing an 11,000% increase in volume over three decades.
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