Concentration and Power in the Food System (part 3)

October 21, 2016

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This post will discuss the chapters of Philip Howard’s book dealing with commodity processing, farming, and agricultural inputs.

Commodity processing

For many food commodities, a small number of firms have increased their control of markets, giving them more power to hold down the prices they pay farmers while charging high prices to consumers. In soybeans, for example, the “ABCD” companies (ADM, Bunge, Cargill and Louis Dreyfus) have a combined market share of 85%. How such concentration reduces competition is suggested by a saying of ADM executives, “The competitor is our friend and the customer is our enemy.” Taking that to its logical conclusion, ADM was found in the 1990s to be engaged in illegal price fixing. The soybean industry has also become more vertically integrated through contracts between commodity processors and growers:

This strategy results in bypassing spot markets, for example, and reduces opportunities for price discovery (Murphy, Burch, and Clapp 2012). Where previously there were numerous buyers and sellers and frequent reporting of prices at numerous stages of the food system, now there are networks of firms that control the majority of these transactions via direct ownership, alliances or contracts.

The major food processors enhance their power by influencing federal legislation and international trade agreements, through both lobbying efforts and direct participation of executives in writing the rules.  Federal law requires food aid to poor countries to be channeled through American companies. As a result, about two-thirds of the aid money goes to the three largest firms for “purchasing, processing, and shipping these products, frequently at higher than market prices.” A former vice president of Cargill helped write the World Trade Organization agreement that allowed industrial countries to keep subsidizing their commodity farmers.

The story for pork production and processing is similar. There the top four firms (Smithfield-Shuangui, Tyson, JBS Swift and Cargill) have a combined 63% share of slaughtering capacity. Vertical integration has also increased. By raising more hogs themselves and making contracts with other producers, the big processors have been able to move the industry away from public auctions with more transparent and competitive pricing.

Recent efforts to invoke the antitrust laws, particularly the Packers and Stockyards Act of 1921, have generally been unsuccessful. In 1998, cattle ranchers brought a class action lawsuit against a meat processor for price manipulation, and were awarded $1.28 billion in damages by the jury. However, “the judge, who was a Reagan appointee, set aside the verdict.”  The 2008 farm bill called for the USDA to develop new regulations to protect competition in the meat industry, but industry lobbyists have so far been able to keep them from being implemented.

Concentrations of power in the hands of processors have not only hurt farmers and ranchers. In processing plants, wages have fallen and work injuries have risen.

Farming and farm subsidies

Farming itself is the stage of production with the least concentration of corporate power. There are still two million farms in the United States, although the largest 100,000 account for about two-thirds of the agricultural sales. The number of farms has been falling, by about 65% for dairy farms from 1987 to 2007 and 70% for hog farms from 1992 to 2009.

Howard describes mid-size farms as being on a “treadmill,” trying to produce as much as they can just to stay where they are financially. The underlying problem is the “inelasticity” of food demand; people do not necessarily eat more just because farmers can produce more. Ample supply may just lower prices, but farmers may then try to produce more in order to compensate for low prices, putting them in a vicious circle.  Farmers are dependent on larger firms that are “(1) located upstream and sell products to farmers, (2) located downstream and buy farm commodities, or (3) have vertically integrated into numerous stages of the food system, including production.”

Although the mystique of the “family farm” may be invoked to justify farm subsidies, most of the subsidies go to the larger operations. And when subsidies boost productivity through such means as research and development, extension services, or money for fertilizer, the lower prices that result benefit the large buyers of farm commodities more than the small producers. More grain production lowers the cost of grain for the grain processors and the big meat producers that feed grain to their animals.  Meanwhile, prices for end consumers can remain high, as long as the dominant firms have the power to keep any cost savings for themselves. It’s a double win for them, since the farmers’ share of the dollars consumers spend on food has been declining.

The trend toward fewer but larger farms is associated with many environmental problems. States have sometimes welcomed Confined Animal Feeding Operations (commonly referred to as “factory farms”) as a source of jobs and revenue, only to encounter the unexpected costs of air, water and land pollution. Large companies such as Smithfield, the biggest pork producer, play a prominent role in the political conflicts that ensue. For example, “political candidates in North Carolina received more than $1 million from Smithfield’s political action committee, which was followed by granting CAFO’s exemption from zoning laws and most liabilities from pollution.”

Agricultural inputs

Farmers have long relied on inputs purchased from off the farm; farm machinery is an obvious example. Today, dependency on outside inputs is being extended to biological inputs such as plant seeds and animal semen. “Seeds and animal breeds have been an open access, common resource for millennia, developed and improved through the efforts of countless generations of people. Increasingly, however, dominant firms are appropriating these resources.” Companies are developing oligopolies here too, and they are aided by government in two ways: enforcing intellectual property rights and subsidizing biotech innovation.

What Howard calls a “seed-chemical complex” has developed, as chemical companies expand into seed production after achieving an oligopoly in pesticide production. Farmers used to rely on the natural process by which seeds reproduced themselves from year to year. But then came the development of hybrid seeds, which offered new opportunities for profit. Hybrid varieties might offer a high yield in the first year, but they didn’t do as well when harvested and replanted, so that farmers needed to buy the seeds every year. They could also be patented, once the Supreme Court extended patent protection to genetically modified organisms in 1980. Courts upheld contracts that prohibited farmers from saving seeds from one year to the next, and patent holders defended those contracts by sending around spies to identify violators and then suing them.

The four largest firms in the seed business (Monsanto, DuPont Pioneer, Syngenta and Wilmorin/Groupe Limagrain) have a combined market share of 58%. As farmers have turned to buying seeds every year, seed prices have risen faster than other inputs. “Research and development has shifted to focus on varieties with the potential for blockbuster profits, to the exclusion of those with wider benefits, such as those better adapted to low chemical inputs or specific regions.” Scientists have complained that contract restrictions are hampering independent research and scientific innovation.

Corporations are working toward similar control over animal genetics. Where they have succeeded, farmers now rely on artificial insemination to reproduce a few genetic varieties of animals. Two firms, Erich Wesjohann Group and Hendrix Genetics, control almost all sales of genetic material for turkeys, laying hens and broilers. “For turkeys, there is only one breed, the Broad Breasted White, that makes up nearly 100 percent of the global supply, and acquisitions in this sector have reduced this breed to just a small number of strains….The birds cannot reproduce without artificial insemination and have difficulty walking due to the disproportionate weight of the breast.” Genetic homogeneity has proceeded to the point where most US chicken broilers are Cornish Rock crosses, and most of our eggs come from White Leghorns. Most of our milking cows are Holsteins from Netherlands, and most of our swine are hybrids of just three breeds.

As a result, the decline in economic competition has its parallel in a decline of biodiversity. This entails some risk:

Large commercial breeders often ignore susceptibility to disease to focus on traits that increase profits and instead rely on antibiotics to control illness. This practice contributes to antibiotic resistant microbes and threatens human health. It also increases the risk that an epidemic disease will have a dramatic impact on the food supply.

Before reading this book, I had not thought about food as information, or about how the concentration of power in food production depends on the control of information. The battle that is shaping up over intellectual property obviously includes genetic information, as resistance grows to allowing life forms to be patented. The Supreme Court has rejected patents on human genes, but not genes of other organisms. Howard discusses this issue under the heading of “Reclaiming the commons.” That reminded me of Jeremy Rifkin’s discussion of the “collaborative commons” in The Zero Marginal Cost Society. The future distribution of wealth and power may depend on the degree to which information can be decentralized, diversified and shared.


Concentration and Power in the Food System (part 2)

October 20, 2016

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The last post provided an overview of Philip Howard’s book.  This one will focus on concentrations of power in food retailing, distribution, and what Howard calls “engineered consumption.”


In the last few decades, the grocery industry has moved from considerable fragmentation to a high concentration of power in the hands of a few firms. Economists commonly measure this with a “concentration ratio,” which is simply the sum of the market shares of the leading companies. Often they base the calculation on the top four companies, and the resulting measure is called CR4. “Most institutional economists suggest that when four firms control more than 40 percent or 50 percent of a market, it is no longer competitive.” For supermarkets, Walmart, Kroger, Safeway and Supervalu have a combined market share of 51%. For fast food retailers, McDonald’s, Yum! (which owns KFC, Pizza Hut and Taco Bell), Subway and Wendy’s control 43%. For convenience stores, power remains more fragmented, except for the 24% market share of 7-Eleven. The concentration ratio may actually understate the concentration of power, since it overlooks vertical integration, as when a retail firm acquires one or more of its suppliers.

One reason for the rapid increase in concentration is the relaxation of anti-trust enforcement under Ronald Reagan. [I also know from reading transcripts of the Watergate tapes that Richard Nixon was already declining to enforce anti-trust laws in the 1970s.] The Robinson-Patman Act of 1936 was specifically aimed at the first supermarket chain, A & P, which Howard calls “the Walmart of its day.” The law prohibited the practice of discriminatory pricing, where A & P obtained discounts from its suppliers that were not available to other retailers. [I also remember my grandfather complaining that the chain store would come into town, undercut the prices of smaller stores to drive them out of business, and then raise prices.] Since the 1980s, the anti-regulatory climate promoted by corporations and free-market conservatives has reduced government checks on corporate power, not only by regulatory agencies but by courts:

Beginning in the late 1970s, large corporations funded public and private think tanks, which in turn arranged for judges to go on all-expenses-paid junkets. These were typically held at resorts in warm weather states, such as Florida and Arizona, where the judges could play golf. While there, they would also attend seminars presented by Chicago School economists suggesting that mergers and acquisitions would increase efficiency, and should not be opposed unless there was clear evidence of harm to consumers.

With Walmart leading the way, the biggest retailers pressured their suppliers for the kind of volume discounts that Robinson-Patman was supposed to curb. In addition, consolidation was accompanied by lower wages in the grocery industry, but higher prices and profits. By 2010, the six heirs of the founder of Walmart had accumulated a fortune greater than the net worth of the lowest two quintiles (40%) of families in the United States. They were also spending millions of dollars lobbying to get Congress to repeal estate taxes, now supported, by the way, by the current Republican presidential nominee and most Republicans in Congress.

The prize for the industry with the greatest wage inequality goes to the fast food industry, where the ratio of CEO pay to average worker pay surpassed 1,200 by 2012.

Recently, the Federal Trade Commission has become more active again in questioning mergers and acquisitions, as well as some other anticompetitive practices.


Food distributors stand between producers and retailers. Theirs is also a story of increasing concentration, especially for the “broadline” distributors that carry the widest variety of products. The top four firms (Sysco, US Foods, Performance Food Group and Gordon Food Service) have a combined market share of 48%. That share increased by 10% just between 2003 and 2013. Sysco tried to acquire US Foods in 2013, but withdrew from the deal after a U.S. district court issued an injunction to stop the acquisition.

The power of distributors is somewhat limited by the countervailing power of large retailers to produce products themselves or obtain them directly from producers. This is called “disintermediation,” a fancy term for cutting out the middleman. Not all retailers can accomplish this, however, since many find it more convenient and less costly to rely on a large distributor. Distributors can also promote retailer dependency by becoming the sole provider of a desirable product.

A similar power struggle goes on in beer distribution, although the number of distributors is much larger. Distributors have benefitted from old laws in many states that prohibit breweries from selling directly to retailers. Although distribution is fragmented among some 3,000 firms, they have organized into a powerful trade association to lobby for the continuation of those laws. They also limit competition by obtaining from brewers the right to market in particular territories. However, the brewers themselves are also very powerful. The top four (Anheuser Busch InBev, MillerCoors, Crown Imports and Heineken USA) have close to an 84% market share. They have pressured states to let brewers to distribute their own product, and twenty states allow this.

The recent resurgence of small brewers threatens the dominance of both large producers and their distributors. After falling from over 2,000 to only 48 from the late 1800s to 1979, the number of breweries has recovered to over 2,700. Some states exempt microbreweries from their laws prohibiting direct sales to retailers. Big brewers have tried to turn the craft beer trend to their advantage by buying up existing craft brewers or introducing fake craft beers.

Although broadline distribution is increasingly concentrated, there are many small distributors that can succeed by offering particular products that consumers want, such as farmers markets offering local produce.

Engineered consumption

In theory, consumers remain free to reject the offerings of any particular company, unless that company has an absolute monopoly on a product that every consumer must have. There is no worldwide water monopoly…yet. However, dominant firms can exert a great deal of power over consumption itself. Howard discusses two particular ways they do so: deskilling and spatial colonization.

The term “deskilling” usually refers to dumbing down jobs, but in the consumption context, it means encouraging consumers to rely on businesses to do things that they used to know how to do for themselves.

Deskilling increases control for capitalists but makes us more dependent upon them by eroding our knowledge and abilities. Food preparation and cooking practices that were once common have become less prevalent, often through the active efforts of food manufacturers to make buying higher profit-margin processed foods a regular habit.

An early example of deskilling was the marketing of infant formula, which discouraged breastfeeding, especially for low-income and minority women who obtained free formula from the government. A more recent example is bagged salad, which encourages consumers to purchase convenience at the cost of higher prices, lower nutrition and greater risk of foodborne illnesses. The top four marketers of bagged salad (Chiquita/Fresh Express, Dole, Earthbound Farm, and ReadyPac control 64% of the market).

“Spatial colonization” refers in part to the normal process of business expansion into new markets. In the food business, it also means controlling supermarket shelf space. The larger companies can better afford the slotting fees charged by retailers for desirable space. “By offering very slight variations on existing products, they are able to take up even larger amounts of shelf space, crowd out smaller competitors, and prevent new competitors from breaking into key retail outlets.”

Spatial colonization also includes invading “mind space” with advertising. Perhaps the most disturbing example is the incessant marketing of foods high in salt, sugar and fat in programming directed at children. “Most of us would call these products addictive, as they are deliberately engineered to have tastes, textures, and synthetic flavors that make them difficult to consume in moderation.” Many of the junkiest foods have profit margins more than double those of other foods, so the incentives are there to colonize consumers in that manner.

Howard ends his chapter on engineered consumption on a hopeful note. Some consumers are turning away from processed foods and “reskilling” themselves in healthier cooking. New media of communication allow consumers to talk back and talk to one another, as opposed to being just a passive mass audience for corporate advertising. And public advocacy groups have had some success in getting harmful ingredients such as trans fats out of some foods.


Concentration and Power in the Food System

October 19, 2016

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Philip H. Howard. Concentration and Power in the Food System. London: Bloomsbury, 2016

If you bought any margarine recently, you probably bought it from Unilever or ConAgra, which together control 68% of U.S. sales. The label might have said Promise or I Can’t Believe It’s Not Butter, but what you can believe is that those are made by Unilever. Or it might have said Parkay or Blue Bonnet, but you can bet your bonnet those are made by ConAgra. In many parts of our food system, we have an illusion of more competing brands than there really are.

Forty of the world’s five hundred largest companies by market capitalization are in the food business. They include such firms as Nestle, Coca-Cola, Anheuser-Busch, PepsiCo and Unilever in packaged foods and beverages; Walmart, McDonald’s, Starbucks, Costco and Woolworths in food retailing; and Bayer, BASF, Caterpillar, DuPont, Monsanto and Dow in agricultural inputs. Nearly half of these forty companies are headquartered in the United States.

Howard describes the food system as “an hourglass-shaped system, with a large number of farmers at the top, an even larger number of people who eat food at the bottom, but a much smaller number of firms in the middle that control how food is moved from producers to consumers.”

Capital as a mode of power

Howard’s book offers a perspective on the food system that is a little different from that of mainstream economics. Most economists think of capitalism as a mode of production, where an increase in economic concentration usually represents an increase in the efficiency of production. Bigger companies win out because of economies of scale: they can produce or distribute the most at the least cost, which is good for consumers. Howard is skeptical of this conventional wisdom:

Mainstream economists tend to view concentration as unproblematic, due to a strong abstract belief in economies of scale, despite insufficient empirical evidence to support these supposed efficiencies (Johnson and Ruttan 1994; DiLorenzo 1996). Consumers are often claimed to benefit from synergies and lower transaction costs that are expected to result from mergers and acquisitions (Farrell and Shapiro 2001). Because of their organizational complexity, however, many large firms actually encounter diseconomies of scale and experience a loss of efficiency with increasing size.

I would have appreciated a more detailed discussion of the research bearing on this crucial point.

What Howard stresses is not the efficiency that may come with larger size, but rather the power. Even if a dominant firm can operate more efficiently, it doesn’t necessarily have to pass the benefits on to consumers or workers. The more it dominates the market, the more it can use its market power to keep prices high and wages low.

Howard bases his perspective especially on Jonathan Nitzan and Shimson Bichler’s perspective in Capital as Power. In this view, corporations are primarily seeking to increase their capitalization. “Technically this is calculated as the firm’s current share price multiplied by the number of shares outstanding, but it can be viewed as an estimate of the future stream of earnings in present values while adjusting for perceived risks.” Increasing capitalization “requires active efforts to restructure markets and society in ways that increase their power, including encouraging increased consumption of their products and sabotaging potential alternatives, particularly those that would allow people to be more self-reliant.”

This perspective takes us beyond economics narrowly defined and into the realm of political economy or economic sociology. It is interested not only in the workings of the economy itself, such as pricing mechanisms, but the workings of many interconnected institutions, especially the interaction between economic organizations and agencies of government. Being big enough to influence government policy for their own benefit is one of the main reasons corporations want to accumulate power.

Impacts of economic concentration

Americans have long believed in the benefits of market competition and worried about the domination of markets by a small number of large corporations. In practice, we have outlawed monopolies but tolerated quite a bit of oligopoly. The most obvious result of oligopoly is the ability of the largest firms to negotiate from strength when setting prices. Their aim is usually to keep the prices of their products high, those of their suppliers low, and the price of labor (wages) low as well. Their methods are usually subtle enough to avoid being charged with illegal price-fixing:

In order to raise consumer prices, it is not necessary for executives to gather in one room and conspire to achieve these markups. When just a few firms control a large share of the market, they can simply indicate their intention to raise prices, and the others will benefit by following suit, a strategy that is called price signaling (Baran and Sweezy 1966). Oligopolistic firms can more easily pressure each other to avoid price wars that would lower their profits. The result is an unwritten rule that rivalries based on advertising, product differentiation, and reducing labor costs are expected, but competing on price is unacceptable.

Another likely result of oligopoly is a reduced incentive to innovate, since companies facing less competition may be able to retain market share without bearing the costs and risks of innovating. Concentration limits choice and makes consumers more dependent on a few companies, even if their products are not as advanced as they could be.

Oligopolistic firms are also in a stronger position to impose costs on society such as environmental damage or threats to human health. These are very big issues in the production and consumption of food.

Feedback loops

The capitalist food system is very dynamic, with complex feedback loops affecting whether and where firms can continue to increase market share. Positive feedback reinforces the power of the dominant firms. “As they increase their power they accrue even more advantages, which then reinforce their ability to restructure society.” Big firms become even bigger through reinvesting profits in internal growth, acquiring other companies through mergers and acquisitions, demanding more favorable prices for goods and labor, or obtaining government subsidies.

However, positive feedbacks:

…are unlikely to continue indefinitely and some may already be approaching limits or asymptotes that threaten to undermine the stability of the entire system (Bichler and Nitzan 2012). As firms move closer to these limits, the negative feedbacks increase, which require more force to counter, further accelerating the feedbacks.

One kind of negative feedback is social resistance in the form of public opposition to low wages, high prices, environmental damage, or unhealthy foods. There are also natural limits, such as “dwindling supplies of fossil fuels, key fertilizers, pollinating species, water, and fertile soil, as well as increased possibilities of climate change, severe weather, pests, and disease.” Clearly these can be threats to the market share of particular firms, at least in the short run. What remains to be seen is whether they will force a reorganization of the food system that undermines the concentration of capital itself. Howard would no doubt welcome that, but he does not argue strongly that it will happen.

Howard devotes an entire chapter to one noteworthy form of resistance, the organic food movement. In 1990,Congress authorized the U.S. Department of Agriculture to develop standards for organic foods. After about ten years of study, USDA published a standard that limited the organic label to foods free of genetic engineering, irradiation, sewage sludge, synthetic pesticides and fertilizers, growth hormones and antibiotics. The standards were not as strict as many organic producers wanted, but they did define a market that companies such as Whole Foods could see as an opportunity. They capitalized on it (literally), while food co-ops that had sprung up by the thousands in the 1970s declined to only a few hundred. Big companies adopted some healthier practices in at least a part of their operations. But they also worked behind the scenes to keep standards weak, while dominating the market to the detriment of small producers and marketers with higher standards. The latter were caught between the desire to maintain their standards and the economic incentives to give up and sell out to larger companies. Some have rejected the organic label itself as no longer meaningful and worked to develop more demanding forms of certification.

While acknowledging that “challenges to…negative impacts on human health, the environment, animal welfare, and labor practices…have experienced some successes,” Howard concludes that “resistance to dominant food and agricultural firms’ efforts to increase their power may have changed some of the strategies they use but…failed to reverse trends toward increasing their market share.”

Later posts will examine different parts of the food system in more detail.


Is Donald Trump a Republican?

October 17, 2016

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As I write this, Donald Trump is losing support among women, which will probably cost him the election. Because the country remains rather evenly divided between the two major parties, a very lopsided outcome is unlikely in the popular vote, although more likely in the electoral college. My guess is that Trump will end up with about 40% and Clinton with about 50%, but that difference will be enough to give Clinton a decisive electoral college win.

As Trump has lost support, more Republican leaders have tried to distance themselves from him. They want this to be his defeat alone, not really a defeat for the party. He’s not really a Republican, you see, and so the party can kiss him goodbye and move on.  Democrats are more interested in tying Trump to the party, so if he sinks like a stone he will take other Republicans down with him. Last week, President Obama described Trump as just putting his own brand name on some old Republican ideas, just as he puts his name on buildings built by somebody else.

On most issues, I see a lot of similarity between Trump’s positions and those that Republicans have taken in the past. There are also some differences, but they are often due to Trump’s emphasis on themes that today’s Republican leaders would like to play down, especially white male resistance to the ascendancy of women and minorities. The party got a lot of mileage out of those themes in the past, but that train is running out of steam. Trump and his supporters are keeping it going, and that makes it hard for the G.O.P. to treat his candidacy like a foolish affair that can be quickly forgotten.

To elaborate the similarities and differences between “Trumpism” and Republicanism, consider several different kinds of conservatism: economic, foreign policy, social and cultural.

Economic conservatism

Republican orthodoxy in this area calls for limited government intervention in the economy, reliance on free markets, low corporate and personal taxes, minimal economic regulation, and support for international trade.

Donald Trump supports quite a bit of this. He wants an end to many regulations and a moratorium on new ones. He supports additional tax cuts, especially for corporations and the wealthy, which he expects to boost economic growth for all, in traditional “trickle-down” fashion.  He is more comfortable than most fiscal conservatives with borrowing to support federal spending, especially on infrastructure projects. This departs more from what conservatives say than what they actually do, since Republican economic policies since Reagan have not generated enough tax revenue to avoid deficits anyway.

The biggest difference is on trade. Republicans have been the strongest supporters of the free-trade agreements that Trump now condemns. Traditionally, Republicans have emphasized the advantages of trade for American businesses, such as access to foreign markets and to inexpensive labor, materials and components. Trump would put higher tariffs on foreign goods to protect domestic manufacturers and their workers from foreign competition. This protectionism appeals particularly to vulnerable blue-collar workers, a traditional Democratic constituency.

Foreign policy conservatism

Republican “neocons” generally support strong political and military U.S. engagement with the rest of the world. This is partly a matter of economic self-interest, such as a desire for Middle Eastern oil. But it is also based on the argument that the world’s strongest democracy should be actively engaged in spreading democracy around the world.

Donald Trump has been more critical of foreign wars. He claims to have always been against the Iraq war, although he voiced at least cautious support for it when it started. On the other hand, he claims to have the best plan for defeating ISIS, without saying what it is. While he seems more interested in bombing terrorists than opposing Russian expansionism, he is certainly no foreign policy dove. His support for massive military spending is very Republican. He has also taken a very hard line favoring Israel over the Palestinians, in contrast to President Obama’s more balanced position.

Social conservatism

On hot-button social issues, such as abortion and same-sex marriage, Trump has not taken very clear and consistent positions. He is currently pro-life, although he has been pro-choice in the past. Early in the campaign he even said that women who have abortions should be punished, but he quickly backtracked. He has promised to appoint Supreme Court justices who will overturn Roe v. Wade.

Gay rights have not gotten much attention in this campaign, perhaps because the issue of same-sex marriage has been settled by the Supreme Court. However, Trump has selected as his running mate a Christian conservative known for his hostility to gay rights. As Indiana’s governor, Pence supported a law that would allow businesses to refuse service to gay customers, as a matter of individual conscience.

Trump has the support of most Christian conservatives, although some are now breaking with him over his sexual remarks and alleged sexual aggression.

Cultural conservatism

By cultural conservatism I mean especially white nationalism, or resistance to the ascendancy of African Americans, Latinos and other cultural minorities. I would also include male resistance to the rights claimed by women. Many Trump supporters are women, but they tend to be less educated women who do not identify as strongly with feminism or with career women like Hillary Clinton.

Cultural conservatism is at the core of the Trump phenomenon. His campaign began with a strong “build the wall” anti-immigration stance. Now it appears to be ending with insults against women and allegations of sexual mistreatment of women. After having been recorded boasting about sexual aggression, Trump is in the awkward position of attacking the women who accuse him of doing precisely the things he boasted about.

Trump has also insulted African Americans by stereotyping their neighborhoods as nothing but slums full of poverty, crime and violence. He claims they are worse off than ever before because of Democratic policies (Republicans apparently having no complicity in perpetuating our racial problems). So they have “nothing to lose” by voting for him, although he has put forth no policy program except a vague appeal to “law and order” and a return to “stop and frisk” policies that have been ruled unconstitutional.

How much of this can be called Republican? Well, aside from the sexual aggression, quite a bit. Ever since the Democratic Party became the party of civil rights and women’s rights, the Republican Party has been the refuge for those opposing those movements. It has been the party of the “Southern strategy,” “law and order,” and resistance to the Equal Rights Amendment and affirmative action.

On immigration, the G.O.P. has been divided for some time. The business wing of the party has wanted access to immigrant labor, but the cultural wing of the party has wanted strict limits on immigration and deportation of anyone arriving illegally. Neither wing has been particularly enthusiastic about paths to citizenship, perhaps because immigrants without civil rights are easier for businesses to exploit.

After the last presidential election, the Republican National Committee recognized the need to broaden the party by appealing more to minorities and women. Obviously, Donald Trump has failed to do that, not because his views are so novel, but because they are so depressingly familiar! In many ways, he has just been more outspoken about things that many Republicans have believed for a long time.

Weakening the party

Every candidate is different, and Donald Trump may depart more from the Republican norm than most. But take away the outrageous personality and the disgusting treatment of women, and the policy differences are not so remarkable. Many of them are matters of degree or emphasis: more emphasis on the costs rather than the benefits of trade and immigration, more emphasis on fighting terrorism and less on fighting for democracy around the world, more emphasis on perpetuating old stereotypes and attitudes and less on addressing the concerns of women and minorities.

Most Republican leaders now recognize that the Trump candidacy has been a setback for the party. When they consider what to do about it, however, they face a real dilemma. If they reject too much of what Trump represents, they can alienate a lot of Republican voters. But if they don’t reject enough of what Trump represents, they can damage the Republican brand for a long time. The Party needs to rebrand itself as more than the party of angry white men, while at the same time not alienating too much of their base. This will take a while to sort out, and in the meantime popular support for Republicans will probably suffer.

Trump’s Taxes: Can the Fox Guard the Henhouse?

October 6, 2016

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David Cay Johnston has come up with a plausible explanation of how Donald Trump used business losses to avoid paying federal income taxes. Johnston is an expert on how the wealthy use the tax code to their advantage. My aim in calling attention to this is not just to criticize Trump for minimizing his tax bills, but to raise the larger question of what kind of tax reform is needed and whether a Trump administration is likely to pursue it.

Turning business failure into personal gain

In the early 1990s, Donald Trump was the owner of failing casinos and other unsuccessful business ventures. He had borrowed and spent so lavishly that his businesses couldn’t make their loan payments and still turn a profit. Trump was like a homeowner living in a flashy mansion but going broke trying to make the payments on it. He reported net operating losses of $916 million in 1995 and was $3 billion in debt.

The operating losses had a silver lining, however. The federal tax code allowed him to use those losses to offset personal income for as many as 18 years, running from two years before the reported loss to 15 years after.

As for the debt, he got the banks to forgive almost $1 billion of it by threatening “endless litigation” if they tried to collect what he owed. Trump has boasted about his habit of paying less than he owes. “I’ve borrowed knowing you can pay back with discounts.” Many borrowers who lost their homes in the real estate meltdown would have liked that deal. Conservatives accused President Obama of “subsidizing losers” when he proposed assisting such homeowners.  Trump also got a tax break on his debt forgiveness, which would normally be considered a form of income. But Congress created an exemption that allows real estate owners to avoid this tax liability if they sacrifice future deductions for depreciation instead. (One of the tax benefits of real estate is the ability to take a deduction each year for property depreciation.) Trump had personally testified on behalf of the exemption.

Trump still had a problem, however. He still owned properties that were losing money, and they were now worth even less as investments because he had forfeited the future tax benefit of depreciation in return for an immediate tax benefit for himself. Nevertheless, he was able to sell the properties to a new stock corporation he created, Trump Hotels and Casino Resorts. The investors must have grossly overestimated the potential return, perhaps as Johnston says because they “saw gold in his brand name.” They bought the shiny image and overlooked the ugly reality. Could there be a lesson here for voters?

As the chairman of Trump Hotels and Casino Resorts, Trump was well paid whether the company succeeded or failed. He also had the company borrow more money in order to pay off his previous loans, thus saddling the corporation with what had been his personal obligations. With him in charge, the company lost over a billion dollars; the stock value plummeted, and the investors were wiped out. He walked away with millions of dollars in tax-free income, but everyone else lost–investors, contractors, and the taxpayers who subsidized his me-first business practices.

Why does it matter?

All of the financial moves I’ve described may have been legal. (Johnston does charge him with tax fraud in other contexts, but that’s another matter.) Trump’s defenders blame his economic failures on economic conditions beyond his control, justify his tax maneuvers as normal efforts to avoid paying more than the tax code requires, and praise his “genius” in achieving personal success in the face of financial adversity.

All of those claims are controversial. Rather than dispute them, I want to emphasize something else, which is tax policy. Donald Trump himself has said something like this: The tax system is rigged, but since I know the tax code so well and have brilliantly used it to my advantage, I’m the best person to fix it! Or to put it a little more whimsically, I’m the smartest fox to guard the henhouse, since I’ve been feasting on chicken for a long time!

This is a clever argument. The problem I have with it is that I see no evidence of Trump’s interest in tax reform. Democrats continue to complain loudly about his failure to release his tax returns. I wish they would call more attention to what he has released, which is at least the main outline of a tax plan. As I described it in an earlier post, it is standard Republican fare. It makes the tax code flatter and less progressive by lowering tax rates for the wealthy, and it includes new goodies like the elimination of the estate taxes that are paid by only the richest one-fifth of one percent. Surprise surprise, Donald Trump and his family stand to make a fortune from his own tax proposals. In contrast, Hillary Clinton wants to increase estate taxes and implement the “Buffet rule,” which would require those with million-dollar incomes to pay at least 30% in income taxes. I see little chance that her plan will get through a Republican-controlled Congress, but at least it’s an authentic proposal for reform.

So Donald Trump, who has cultivated the image of the populist outsider, defender of the working people, is really the protector of the rich and powerful. Hillary Clinton, the Washington insider, is really the progressive reformer. The cunning fox shows no sign of giving up his chicken dinners. If we want someone to guard the henhouse, we’d better elect a hen.