Texas Finds Home-Grown Is Best

By Jim Hightower

Vol. 9, No. 3, 1987, pp. 9-15

Everybody, of course, is all for economic development, but traditionally what that has meant is economic development for the few and the rest of you get in line-the "take that old cold tater and wait" plan.

Now I know some will wonder what an agriculture commissioner has to say to them on economic development-after all most people don't own a pen of hogs or a field of corn. But as that old bumper sticker reads, "If you eat, you're involved in agriculture." However, my message is not about cows and plows, but rather about plowing up common ground, about planting new seeds of economic growth in our region, and, if we do it right, throughout this nation.

My message is simply this: the economic future of the South does not rest in the continuing pursuit of high-tech, high-cost pie-in-the-sky deals that are being shopped by national conglomerates going state-to-state to see what kind of deal they can get. Rather we ought to be putting our resources, public and private, into grunt-level, here-and-now economic development programs that invest in our own people. People who are already here.

We need to be investing at a grass-roots level in new enterprises that are based on small- and medium-sized businesses, that are based on workers in their unions and in cooperatives, that are based on small farmers and community enterprises, that are based on the entrepreneurs and on the wildcatters in our society. Not the powers that be, but the powers that ought to be. And the powers that can be if we just put a little bit of investment out there and lay some tools down that people can pick up. This is not trickle-down, but percolate-up. It is a policy of clearing a broad foundation out of small- to medium-scale enterprises on which communities can build for years to come.

Needless to say, this is not what we have been doing in the country at a national, state, or even local level. Really what we've got now is an approach to economic growth that says it's okay to help the rich get richer. That puts government in the pocket of the big boys and never holds them accountable for the results that they produce for the larger public. Basically, we're talking about a perverted public policy of greed. An attitude of "I got mine, you get yours. Never give a sucker an even break. Caveat emptor. Adios chump." That's pretty much what it comes down to.

For the past six years, of course, at a national level we've called this policy Reaganomics, with the predictable result that rigor mortis is spreading throughout our economy. The apologists on the other side say, "Nonsense, Hightower, look at this, the economy's just booming. Here's the head-


Page 10

line from an April Dallas Times-Herald, 'Dow Passes 2400 Mark. Wall Street's record-breaking bull market zipped past yet another milestone of the history books Monday as the Dow Jones Industrial average closed above 2400 for the first time.'"

By their standards, America's standing tall. The economy is booming. Wall Street's whizzing.

And it is, it's whizzing on us, because if you look down here right beneath that headline it says, 'General Motors to lay off 2,000 workers at local plant.' And right over here in the column right next to it it announces that Safeway is going to be closing 141 stores in north Texas.

Reaganomics has created a boom but for whom? Who is profiting? Stockholders, they say. Those little democrats out there who own America's great economic fortress. Well, eighty-one percent of all U.S. households own no stock at all. And if you want to look at it the other way, eighty-five percent of all stock is in the hands of the wealthiest ten percent of U.S. families. In fact, forty-three percent of all stock is in the hands of that one-half of one percent of families that make $280,000 and more.

Do you want to know who's really making money out of this whizzing that Wall Street is doing? In 1981, only four corporate executives made more than $1 million in salary and other compensation. In 1985 we had 146 executives making more than $1 million. Those shiny new leaves at the top of the tree are looking mighty pretty as we continue to sprinkle and polish them with our governmental policies.

But you know you can't keep a tree alive by watering it at the top. Meanwhile down here at the roots our economic tree is dying. Now I'm not talking just about poverty, not talking just about the illiterate, the unable, the folks who just gotta have welfare. I'm talking about our most productive people, the middle class that is supposed to be the hallmark of our economy. I'm talking about the workers and the businesses that we've been counting on to make this economy actually run over the years.

Of course, as a commissioner of agriculture I work out there with those dirt farmers, you know, and probably six years ago they voted for Ronald Reagan. He was promising a seven-course dinner and they didn't know until later it was a possum and a six-pack.

In the intervening six years we have lost a half-million U.S. farmers. In my state alone we've lost 49,000 farmers-17,000 in the last two years. That's ten percent of all the farmers in our state, but it is one-third of the full-time, commercial, family-farm operators who have gone bankrupt, who have had their farms, their productive assets, their economic potential and that of their families and their future generations, stolen from them by government policy that establishes a price on their commodity that is about one-half of what it actually costs to produce that commodity.

With those disappearing farmers have gone the local implement dealers, hardware stores, and government services that are financed by the taxes of people on the land-when they're able to pay taxes. And we have had the greatest collapse of banks in the United States since the 1930s.

Bankers are now beginning to understand their direct tie to those productive families that are being wiped out as a matter of Washington economic policy. The farm families are going down. People who six years ago had a cash flow and considered themselves a full member of the middle class now find themselves out of business and often off the farm.

Working families are involved in the same struggle.

Ronnie Reagan did promise to get American industry moving again, and he has-it's moved to Japan, to Brazil, to Korea, everywhere except within our own country. Since 1978 we have lost 11.5 million manufacturing jobs. Some of which have been replaced by service economy jobs that pay only forty-five percent of what the manufacturing jobs paid. It seems that forty-four percent of the jobs created under Reaganomics now pay poverty-level wages, $180 dollars a week or less. And thirty percent are part-time jobs. And two-thirds of the people filling those part-time jobs are people who want and need full-time work.

Well, we have the minimum wage.

In 1968 a minimum-wage earner could make ninety-four percent of a poverty-level income. Today a minimum wage earner makes about sixty-two percent of a poverty-level wage. And that's if you're working at all. None of us are more than about two paychecks from poverty. If you do get laid off, you've got only a sixty percent chance of finding a new job. That's unless you're black. If you're black you've got a forty-one percent chance. And if you do get a new job, it's going to pay eighty percent of your old wages.

Not surprisingly what this adds up to in our society for the first time in fifty years is a national policy of downward mobility. From 1965 to 1973-a period of rising expectations in our society, a period during which the bad old government was on our backs, remember-annual incomes for families with children rose by twenty-three percent. In 1985, the annual income of those families was 6.6 percent less than it was twelve years ago. And for the poorest twenty-four percent of Americans, it was one-third less than it was in 1973. From the 1940s through the 1960s, people at thirty years of age were making a third more than their parents were making a decade earlier. Now people at thirty years of age make only ten percent more than their parents made ten years ago. In 1973 it took twenty-one percent of the gross monthly wages of a thirty-year-old worker to buy the average home. Today it takes nearly half of his or her gross wages to buy a home.

We're talking about downward mobility in our society. The decline of the middle class. We're not talking about


Page 11

people coming up out of poverty but people falling down into poverty in greater and greater numbers. In Texas from 1981 to 1986 we added 891,000 people to the poverty rolls. That is the population of a city bigger than Dallas that previously was in the middle class and is now officially on the poverty rolls.

What in the world's going on?

An old singer in Texas years ago wrote a tune that went like this: "Little bee sucks the blossom but the big bee gets the honey. Little man picks the cotton but the big man gets the money."

What we really have today as a result of Reaganomics is freedom for the capital to flow into what some are calling a casino economy, essentially money chasing its own tail rather than being invested in enterprises that create new growth, new jobs, new products, new productivity, new competition, new wealth for our people.

Last year there were 4,022 mergers, leveraged buyouts and takeovers in the United States of America. More than four thousand companies bought by larger companies, soaking up $190 billion in capital. In the last three years, nine thousand companies changed owners at a cost of nearly $500 billion in capital. For what? They didn't build any new plants. They didn't create any products. They're not doing new research. They're certainly not hiring new people. They're not adding new competition to our society. They're not decentralizing wealth.

They're paper shuffling, that's all. The lawyers, account brokers and bankers have achieved hundreds of millions of dollars in income through non-productive fees associated with these transactions that build nothing. Shareholders-that ten percent of America that owns eighty-five percent of the shares, or that one-half of one percent that owns forty-three percent of the shares-split $20 billion in profits out of those mergers. Twenty billion dollars in profits for which they did nothing. They created nothing.

We have a little case study right now down in Texas with the buyout of Safeway corporation. There's a company called Kohlberg, Kravis and Roberts-not exactly a household name. But it is an investment syndicate that since 1979 has made about two dozen buyouts. In 1986 they bought Beatrice Foods, which at the time was the largest food conglomerate in the U.S., for $6.1 billion. Beatrice had previously bought Norton-Simon for $1.1 billion and Esmark Corporation for $2.8 billion. Now those are all one company under Kohlberg, Kravis and Roberts. Ten billion dollars spent to create nothing except they are now the largest food conglomerate in America, built on financial finagling.

Who pays for this? Well, we're going to pay for it, because as a means of paying off that leveraged buyout Kohlberg, Kravis and Roberts is shutting down three thousand Safeway stores and unemploying thirty thousand people. The United Food and Commercial Workers Local in Dallas, representing some 8,500 workers in Safeway alone, was told initially to expect a five dollar average pay cut and then later was told that those 141 stores were going to be closed and/or sold.

Those that are going to be sold are going to be sold largely to non-union or anti-union companies that have no interest in picking up those workers. If they do get hired they're going to take much less pay than they were getting under the union contract and two-thirds of those workers stand to lose their retirement and pension benefits.

Safeway is hardly alone in this process. In fact, in the pension playing that's going on there are some ten thousand pension funds-covering some ten million workers-that have insufficient assets to fulfill the promises that have been made. And there's just example after example of that. Here's LTV, Inc., when it declared Chapter Eleven bankruptcy last year announcing that of course they were going to have to do away with some of the pension programs and health benefits of the workers. But they also announced that while they were doing that they were also going to give performance awards to their executives to the tune of $829,000. The chief executive, in fact, was to get a $165,625 bonus for his work in driving the company into Chapter Eleven and he was going to get a $2 million life insurance policy and a golden parachute worth 150 percent of his annual salary.

Here's the Eddie Chiles corporation, the Western Company of North America, talking of cutting its employee pension benefits at the same time it was implementing a plan to give key executives bonuses ranging from thirty to fifty percent of their annual pay. Texas American Corporation freezing the pension of their workers. General Motors announcing that its profits were down 31 percent and that it therefore could not pay workers the production bonuses that they were entitled to, but GM would of course be able to give 5,700 top executives some $169 million in bonuses.

So, you get the sense of it. At the same time corporations overall have stripped employee pension funds in this country of nearly $16 billion in assets in the last ten years-and there is another $145 billion in promises on pension plans


Page 12

and health benefits that they have set aside no money to provide for.

If you did to a 7-Eleven what these folks are doing to our economy, you'd be doing ten to twenty down at the state penitentiary. But they're getting away with golden parachutes, more money, buying Jaguar cars and feeling good about themselves. That's the situation we're in.

What are we going to do about this? Well it seems that we have a couple of things to do.

First, we can be developing our own enterprises.

I use agricultural examples because that's where I come from. In Texas, we've been working with farmers, small business people, poor people, and local officials to try to do three things.

One, help farmers sell what they produce. It seems obvious to do that, but it has not been a focus of agriculture policy in the past. Instead, we've tried just to produce more-higher yield out of each seed and out of each acre, never worrying what we're going to do with the yield once it becomes a surplus and nobody's buying it.

Now we're trying to help folks sell their yield. Part of this is localizing our economy again. For example, when we started our first project in Houston, Kroger Corporation was importing watermelons from Florida. Meanwhile, Texas melon farmers were losing sixty percent of their crop because they didn't have a market for it. It was rotting in the fields. What little they did sell was out of a pickup truck on the side of the road, getting a penny a pound for it.

So we persuaded Kroger to try Texas melons and we organized a coop to handle the distribution. In 1984, the


Page 13

first year of that co-op, we sold Kroger every melon the farmers produced, 500,000 pounds of watermelon, not at a penny a pound but at seven and a quarter cents a pound, a negotiated price. Those farmers had a 165 percent increase in their income as a result.

The consumer benefited because instead of paying $3.50 for that Florida melon they got that sweet Walker County melon for $1.98. And the money they spent stayed right there doing good and rippling though that local economy. This year those farmers are producing a million and a half pounds of watermelon and other crops not only for Kroger but for distribution to other supermarket chains. We've got dozens of these co-ops in the state of Texas now organized to sell directly into the market that's already established within our state and now even going out of it. We've got the Pathmark chain in the Northeast buying directly from low income Mexican-Americans in the Rio Grande valley, who are able to get four times what they were getting down at the packing shed for their squash and peppers by selling it directly to Pathmark. And Pathmark gets a cheaper price than they were getting and a quality that meets their specifications. We can do that across the board. We've got beef co-ops, all kinds of co-ops that are involved in this business.

Then another step that we are taking in marketing is going international. There's no reason the South and individual states can't form their own foreign relations. You don't have to go through the State Department for this. We made a formal agreement with Mexico called the Mexico-Texas Exchange Commission. We are organizing trade projects, joint ventures, dealing in educational programs with each other, solving bureaucratic problems, going direct to Mexico. We've done the same thing with Israel. We're about to do it with Italy. We're finding markets around the world directly from our state.

The federal government's international trade development policy for agriculture amounts to hoping that the Russian wheat crop fails and that Cargill and the big conglomerates can make a sale to them, rather than going out there and finding small purchases that these people want to make and bring them home. Of course we've got an advantage in Texas-we've got a high volume of production, diversification, and an awfully good-looking agriculture commissioner. That may give us a leg up, but other states can do it, too, and we can begin to do put together some international trade programs as a region.

In addition to marketing we can work with people throughout our economy to diversify what they produce. There's no reason all of our blueberries have to come from Maine and Michigan. We can produce blueberries in Texas and now we're doing it. Blueberries are going to be a $50 million a year crop for us. You can make a living on forty acres of blueberries in our state. In fact if you diversify your acreage and set aside maybe four acres for blueberries you'll make enough on that four to subsidize the cow and wheat operation that you're running on the other four hundred acres that you might have. We have west Texas farmers farming two sections of land-that's two square miles-who have been producing wheat and going broke. Now they are producing sprouts on an area about the size of a kitchen table and making a ton of money off that sprout production.

The point is to find things that you can make money on. We're not opposing what another state is doing but we are trying to regionalize and localize our economy in a way that makes sense for little folks out there.

The third step that we are taking is building food and fiber processing facilities. The South has done a poor job of this. We have grown the raw commodities and shipped them to Chicago and Philadelphia and Los Angeles where they chop it up, put it in a box, freeze it, and sell it back to us at a hundred times what we sold it to them. We can get into that business ourselves. We have wheat farmers on the high plains of Texas that this year will mill the first flour to be milled in the panhandle in a generation's time. We were producing wheat which was selling to Kansas because they're wasn't a flour mill within 150 miles of Amarillo. In Kansas, they were making Texas wheat into plain old white flour in barrels and selling it back to hotels and bakers in Amarillo for twenty-eight cents a pound. For every twenty-eight cents a pound that Amarillo consumers bought they were sending twenty-three cents to Kansas because the Texas farmers were only getting a nickel a pound.

Now those farmers are building their own enterprise in Dawn, Texas, outside of Amarillo that is going to make 300,000 pounds of flour a day. That'll make a pretty good biscuit.

We're not talking about a science fair project; this is a real enterprise that will put $10 million a year into Dawn and in its first year of operation will create fourteen jobs right there. Now that doesn't solve Texas's unemployment problem but it takes care of it in Dawn pretty well. Instead of worrying about the global situation, let's worry where our people live. A little bit here and a little bit there will add up.

Rice farmers in the Gulf Coast area who have been going broke producing rice get about four cents a pound have moved into crawfish. Texas is a crawfish-deficit state, believe it or not, but we can produce crawfish and get seventy-five cents a pound for them in the same area where we produce that rice. And all you do is put a little bad hay out there in that rice paddy and throw some crawfish in and come back later with some nets. But then we've been sending our crawfish crop over to Louisiana, which was cutting the heads off the crawfish and deveining them, putting them in a box, freezing them and selling them to Houston at wholesale for $7.50 a pound. Now maybe we're not too bright in Texas, but we can dehead crawfish. We're


Page 14

about to be in the crawfish processing business in Port Arthur.

My point is, if you have lemons, make lemonade.

We have a lot of lemons throughout the South on which we can build enterprises. I work on behalf of agriculture, but opportunities also exist in all kinds of industries. We can have a decentralized economy that's environmentally sound, that generates wealth at a local level, that has not only jobs but good-paying jobs that are upwardly mobile, that allows a local, diversified, abundant management opportunity for little people to be involved. It doesn't have to be owned by some conglomerate. We can do this ourselves and our people can be the managers and the owners.

The role of the state is to be a catalyst. First you must recognize that there is a role for the state and you must stand up and say that. People understand that. They're ready for it. They want help; if it's pragmatic help that's going to benefit them and their community, then they like to see the government working side by side with them.

Reagan said a couple of years ago that there was some lag in the economy but the magic of the marketplace was going to take care of it. The problem is that the magician performs an illusion. You cannot eat or pay your bills with an illusion. Magic has nothing to do with the marketplace, which works because of a lot of hard effort and a lot of good luck. It is a proper role of government to serve as a catalyst, working with local folks to create a pool of capital so they have the financing to do what they are wanting to do in an enterprise that makes economic sense.

You aren't putting people in business to fail. You have work on the market development so what they produce actually has a market, preferably one that is already established and signed for before you build a processing facility. The object is not to put money in a few pockets but to generate for our region a substantial, sound, diversified economy where real money is made, is in the hands of a lot of people and stays in the region.

Some people say, "Now, Hightower, these are cute little projects but we have big economic problems. We need big industry coming in here."

I saw where Kentucky spent $77 million of its economic development money chasing the Saturn auto plant that located in Tennessee [see Southern Changes, Oct./Nov. 1986]. Most states, including mine, were in that chase, all competing against each other, telling General Motors we will build you a railroad spur, we will give you free utilities, we will get you some water, we will train your employees, we will knock wages down, we will take your laundry out- whatever you need. Please come here. What was GM promising? Six thousand jobs were going to come with this, a great economic boom for any state. We all cheered and we should. You've got to pursue those things. But it turns out, of course, that now in Tennessee where that plant is being built that the economy is such that Saturn doesn't look like quite the deal that it was. Now they are talking about three thousand jobs and a lot of those workers are going to be shipped in from other plants throughout the United States.

I looked last summer at three little projects in the Rio Grande valley, an area where real unemployment is between thirty and fifty percent-a desperately hard-hit economy. Two of the poorest Standard Statistical Metropolitan Areas in the nation are in that area. One project was a redfish hatchery and processing facility that is being built in the little town of San Benito. The second was by low-income Mexican-American cucumber producers who had been selling cucumbers to the local packing shed which shipped the cucumbers to Chicago where pickles were made of them. Now these farmers are building a pickle factory. The third project was a new enterprise making newsprint out of a plant called kenaf. Those three projects-the kenaf facility, a pickle farm, and a redfish farm, will put $157 million in first-year sales and create 3,800 jobs for the people in that region.

This is real economic growth. Texas now does six percent of the nation's food processing. You have a similar situation in any state in the South. If we were to do just one percent more it would put $3 billion a year in sales into our economy and create ninety thousand jobs. The thousands and thousands of jobs and billions of dollars we have to generate will come from small enterprises, not conglomerates moving out from other states down to us.

To do that will require that we alter our national and state policies.

One vital area of work is capital formation, to counteract the capital being siphoned off by the federal deficit or by this


Page 15

casino economy. Congress needs to look at the Federal Reserve in terms of national policy. Congress needs to mandate some "greenlining"-guaranteeing that a certain amount of a bank's assets or loan portfolio has to go to community enterprises and small business, to new enterprises, to co-ops, to union efforts in plant buyouts.

At a state level we can create, as we are doing now in Texas, small-enterprise growth funds. It's time to generate some public projects again. We need the jobs. The economy is down. Many things that need to be done are relatively inexpensive to do and now is the time to invest in them. All those conservatives talking about the big, bad government are walking down the river walk in San Antonio marveling at how beautiful it is, and it was built by the WPA in the 1930s. We need to have those kinds of programs again. They do not have to come from a national level. We can do them at a state level as well.

Finally, we need to look at worker investment. The United States' greatest economic advantage and most underutilized asset is its workforce-not based on its cheapness but based on its intelligence, its adaptability, and its gumption to make things work. The workforce is there. As much as eighty-five percent of the workforce for the year 2000, a dozen years from now, is already working. These are the people in whom we must make the investment of basic education programs, not cutting back on our public schools and higher education and technical colleges and vocational programs. We should put those loan and grant programs back out there so a typical family can get the kid into school again. Then we need training and constant advancement within the workforce. We need portable pensions that go with the worker, not with the job. We need child-care at an affordable level that meets the needs of families who are having to earn two incomes to make ends meet. We need health care.

The American public understands that need because they are the ones who are needy. We need not be afraid of advocating these things at a state and at a national level. The people are way ahead of the politicians. You go out there and talk these things and you will be supported on them.

Our programs will work if we base the nation's growth not on the Rockefellers, but on the little fellers. It will work because it taps genius instead of greed.

There is a moving company in Austin that has an advertising slogan, "If we can get it loose, we can move it." That is what we are talking about. If we can get this economy loose at a grassroots level, the people will move it themselves.

Jim Hightower is the Texas Commissioner of Agriculture.