The Rise and Fall of the Southern Pacific Railroad Company
A useful lesson in business history
Today's article differs slightly from what I have been doing for the past few weeks. Rather than analyze a current situation in the world of business, I am going to tell a story of one of the most influential businesses in history and how it rose to its peak. If you live in the western United States, you have undoubtedly heard of the Southern Pacific Railroad Company, which still exists as a subsidiary today. However, at one point, the Southern Pacific was one of the companies that controlled the western USA, and its history is both intriguing and educational.
In the 1860s, the Republican Party gained power through a few mandates. Winning the Civil War and opposing slavery were the primary ones, but they also sought to build a transcontinental railroad, one that would unite the new and prosperous Western states with the powerful Eastern ones. As a result, several grants were provided after the Civil War for companies to build railroad segments to span the United States.
In California, this call was initially taken up by engineer Theodore Judah. A long-time supporter of the idea of a transcontinental railroad, Judah sought investors and found them in four powerful early California elites. Leland Stanford, a pompous future governor of California and the founder of Stanford University. Collis Huntington, a local shopkeeper known for his drive and ambition. Mark Hopkins, the fiscal conservative who reigned in the rest of the group. And Charles Crocker, a well-connected man with ties to engineering and building communities.
The four investors, known theatrically as "The Associates" or "The Big Four," soon took over their new company, the Central Pacific Railroad, from Theodore Judah, who would pass away soon after. Leland Stanford stood as their president, and the one who effectively led their negotiations within California, Charles Crocker was in charge of the actual building of the railroad. Mark Hopkins was in charge of finances, and Collis Huntington pulled strings in Congress, often utilizing semi-legal loopholes to his advantage. Due to this, the Associates then quickly expanded their railroad lines, taking control over much of California.
Among their purchases, expansions, and aggressive corporate moves, one of their most important ones was purchasing Southern Pacific. For legal reasons, the Central Pacific was eventually merged into the Southern Pacific. For the sake of simplicity, I will refer to the company as the Southern Pacific from this time onwards.
The Southern Pacific railroad soon laid tracks all the way to Utah, becoming one of two companies dominating the American railroad industry and a giant of extraordinary power. As with any company of this size, the next step was to consolidate their rather incredible gains.
This segment was where significant legal challenges soon began. The Southern Pacific was able to make a case for its survival through a series of rather famous court cases. Two that I would like to highlight amongst several that can and have filled up entire books would be the Mussel Slough tragedy and the case of Santa Clara County vs. Southern Pacific Company. In Mussel Slough, in southern California, Southern Pacific got into a conflict with some settlers on land that they had claimed, resulting in an armed conflict and several deaths. While the Southern Pacific won the legal challenge, this irreparably damaged the company's reputation, one that it would never recover from.
Their most significant court case, Santa Clara County vs. Southern Pacific Railroad Company, changed the history of corporate America by defining the basic rights of a corporation, including some protections of the equal protection clause. This began the era of corporate personhood that led to the rise of modern-day corporate America.
These legal controversies did not hurt the Southern Pacific and its leaders in a legal sense. Still, they destroyed the reputation of the mighty railroad company, and they were viewed as cynical and greedy. Many literary legends, such as Frank Norris and Ambrose Bierce, viscously attacked the Southern Pacific, making the mighty railroad company enemy #1 in the minds of many Californians.
As if things were not tough enough already, the Associates began infighting right around this time. Leland Stanford and Collis Huntington always had a minor rivalry. But now that they felt they had no other business rivals, they publicly began feuding, ending with Huntington becoming their company's new president. At this point, the Associates were over, four wealthy businessmen who had seemingly built a large corporate empire, but now their era was over. The four would be rich, but their era of mutual dominance was over. It also didn't help that despite the four becoming wealthy beyond imagination, the Southern Pacific was bloated and fiscally in trouble, having relied on government support for its initial rise. The company slogged along till the middle of the 1900s when it was finally purchased by Union Pacific.
How This Relates to Today:
This is a rough summary of the early history of the Southern Pacific, and there are more than a few asterisks and technicalities that I grossed over. Nonetheless, I think the story of the rise and fall of the Southern Pacific bears a shocking amount of similarity to today's Silicon Valley tech entrepreneurs and major companies.
The Southern Pacific consolidated its power, dominating California's railroad line as a complete monopoly in the state. This resulted in arguably the first real wave of antitrust and antimonopoly legislation in the United States, culminating in legal challenges that Southern Pacific often won while facing crises when it came to PR. The same can be seen with modern tech companies, who are facing a revitalization of antitrust legislation (a story for another day) and seeing increased public controversies as a result.
Both the Southern Pacific and the companies of today aimed to control space. The Southern Pacific sought to purchase as much land as possible, helping dominate any sector, even those that were mildly related to its main objective of dominating the railroad industry. Similarly, today, many large tech companies seek influence over online spaces, competing with each other for these spaces.
Additionally and most critically, the Southern Pacific and today's tech companies completely disrupted the world as it existed. They brought to life new technologies that are omnipresent today, and their innovation brought them and the rest of the world into the modern age.