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South Improvement Company
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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.
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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 rebates.
Rockefeller had earlier merged several of the Cleveland area refineries and issued 2,000 shares of stock, of which 900 were controlled by Rockefeller and his partners. Rockefeller then started negotiations with the three major railroads running through Cleveland: the Erie, the Pennsylvania Railroad, and the New York Central. The results of the 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 and treat everyone equally in the future. Although the state of Pennsylvania repealed the South Improvement Company's charter in April of 1872 before it had even conducted a single transaction, the railroad's promise was short-lived.
Although the independents had celebrated victory and took the powerful railroads at their word, Rockefeller was already at work on another approach. He acquired many competing interests, stifling others by competitive pressures which later became unlawful. Special considerations were soon again granted by the railroads. Independents such as Ida Tarbell's father were forced into financial ruin. However others joined the momentum of Standard Oil. Even the outspoken and brilliant leader from the "Oil War" of March, 1872, Henry H. Rogers and his mentor Charles Pratt soon chose to become part of Standard Oil after being approached by Rockefeller.
While Rogers joined the Standard Oil juggernaut, and became one of its key men, he also later (in 1902) granted detailed interviews with investigative journalist Ida Tarbell "to set the record straight," which in turn greatly facilitated public sentiment and action in the creation of U.S. antitrust laws and a breakup of Standard Oil ordered in 1911.
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