In February, 1999, Dr.s Heffernan, Gronski, and Hendrickson (professors in the Department of Rural Sociology at the University of Missouri) presented a paper entitled “Concentration of Agricultural Markets” to the National Farmers Union. That paper outlined fundamental changes in the social structure of rural American communities imposed by corporate agriculture. One of the report’s most astonishing assertions was: Today, most rural economic development specialists discount agriculture as a contributor to rural development because of the food system’s emerging corporate structure.
Imagine—agriculture is being “discounted” as a contributor to rural economic development. For most of rural America, what else is there besides agriculture to provide a foundation for their local economies? Moreover, what “structural” change could’ve happened that would cause farming to become irrelevant to rural economic development?
The authors continued:
“Formerly, in most family businesses … profits were … distributed locally among labor, management and capital. … [I]t made little difference how the profits were distributed … since the local family spent most of their profits in their local community. Thus, the rural community retained all of the profits [derived from local farms] and those profits… contributed to the economic well-being of the community.”
“Today, however, large non-local corporations, whether hiring local labor as wage earners or piece rate workers, see labor as just another input cost to be purchased as cheaply as possible. . . . Instead of being spent locally, farm profits now go to the company’s distant headquarters and are then sent to all corners of the globe to be reinvested in the food system.”
Thus, by reducing family farmers from owners to mere managers, laborers, growers or sharecroppers, the globalized, corporate food system sucks farm profits out of local farm communities, leaves rural communities to survive on farm wages alone, and thereby impoverishes entire rural communities.
To illustrate, consider farmer John Brown who (with his family) successfully owned, managed and worked an Iowa farm in 1950. When farmer John passed on, he left the farm to his son (farmer Bob) who took out a bank loan in the 1960s (when agriculture was hot), failed to repay the loan in the 1970s (when agriculture went cold) and lost ownership of the farm through foreclosure.
When the new owner (a corporation headquartered in New York) bought the Brown’s farm, they “generously” allowed Bob Brown and his family to continue to manage and work the farm (just as his father had). Bob’s family was pleased. Even though they’d lost actual ownership, they could still manage and live on “their” farm. Besides, their corporate owners provided a good medical, dental and life insurance policy. So maybe losing ownership wasn’t so bad.
But no matter what sort of wages, dental plan and insurance Bob’s family received as corporate employees, they (and their local community) did not receive the farm profits (perhaps 20% of the gross income). Instead, those profits were whisked out of the local Iowa community where they were created, sent to the corporate owner’s headquarters in New York and spent wherever the corporation wished.
If all the farms in this rural Iowa community were owned by distant, non-local corporations, none of the community’s farm profits would be spent within the community where they were created. So, if we had 20 local farms that each generated an average of $50,000 in profits per year, $1 million in profits that would otherwise be spent locally would instead be transferred to corporate headquarters in New York.
A million dollar loss can be significant in small, rural communities. As a result of this corporate drain, $1 million worth of televisions, microwave ovens, new cars and similar products that might otherwise have been bought and sold in the local community will not be bought. Further, because the local electronics and automobile dealers won’t sell as many TVs, microwaves and cars, they will also suffer reduced profits and also be less able to purchase additional products from their neighbors.
Invisible Multiplication
The “Concentration of Agricultural Markets” paper also explained:
“So long as family businesses were the predominant system in rural communities, newly generated dollars [profits] in the agricultural sector would circulate in the community, changing hands from one entrepreneurial family to another three or four times within the rural community before leaving the rural community. This ‘multiplier effect’ greatly enhanced the economic viability of the community.”
This “multiplier effect” is a subtle concept to grasp, but its effects are not confined to rural communities. In fact, the multiplier effect is regularly seen in the competition between big cities to attract tourists and conventions.
For example, suppose the National Fireman’s Association wants a place to hold their annual three-day convention. And suppose that convention will be attended by 2,000 firemen who will spend an average of $1,000 each on hotel, food, taxis, souvenirs and entertainment. That means the city that wins that convention will add $2 million into its local economy. That’s good for local business, local workers and local politicians. The hotel owner makes more money and buys a new car; the car dealer makes more money and buys a new TV; the TV dealer makes more money and makes a down payment on a new house. Everyone within the local community profits from the extra money brought in from the outside visitors.
As a result of these cascading sales, economists guesstimate that every outside dollar brought into a community changes hands as much as three to seven times and thereby “multiplies” into the equivalent of an “extra” $3 to $7 in economic activity for the local community. This “multiplier effect” means that the extra $2 million actually spent by the fireman conventioneers will “magically” generate the equivalent of $6 to $14 million of additional local business.
That’s why the City of Chicago will fight tooth and nail with the City of Miami to host the Fireman’s Convention. The city that brings in $2 million may get an economic boost worth $6 to $14 million.
A Zero Sum Equation?
While economists are happy to talk about the positive consequences of the “multiplier effect,” no one mentions multiplier effect’s dark side. While a local community might generate an additional $5 million in business activity for every $1 million in convention dollars it attracts, what happens to the communities that lost the $1 million in the first place?
For example, suppose the Chicago Insurance Salesmen’s Association agreed to hold its annual convention in Dallas, Texas. 2,000 Chicago insurance salesmen come to Dallas and each spend $1,000 on Dallas hotels, meals, and topless bars. The Dallas economy receives an actual injection of $2 million “Chicago” dollars which, thanks to the “multiplier effect” generates $6 to $14 million in new economic activity in Dallas.
While Dallas celebrates its “multiplied” good fortune, what about Chicago? When the Chicago salesmen withdrew $2 million from the Chicago economy to spend in Dallas, did the Chicago economy suffer a “mere” $2 million loss? Or did the Chicago economy suffer a “multiplied” $6 to $14 million loss?
I believe the “multiplier effect” must be a zero-sum equation. I believe that if the addition of $2 million to the Dallas economy can generate $10 million “multiplied” gain in economic activity, then the $2 million loss to the Chicago economy must also cause a correlative $10 million “multiplied” loss.
After all, if the multiplier effect is real and it didn’t generate “multiplied” losses at the “source” community equivalent to the “multiplied” gains at the receiving community, we could all become infinitely wealthy simply by spending our money somewhere far from home. 1f 1 had $100 to spend, 1′d just go spend it in your community and you’d get a “multiplied” $1,000 benefit. Then you could take that $1,000 and spend it in my community, and my community would get a “multiplied” $10,000. Then we’d take our newly found $10,000 and spend it in your community, etc. etc. It would be the economic equivalent of a perpetual motion machine. Obviously, that makes no sense. We can’t take $1,000 and spin it into $10,000 or $100,000 just be sending it to a series of distant communities.
Instead, the most likely way for the multiplier effect to work is as a “zero sum” equation. That is, if you can take $1,000 from Chicago and spend it in Dallas and Dallas gets a “multiplied” $10,000 benefit, then it follows that the Chicago economy should have suffered an equivalent $10,000 “multiplied” loss.
Multiplied Farm Losses
When farmer Bob went to work for the new corporate owner of his former family farm in Iowa, Bob might’ve received higher wages and better benefits than he ever made when worked for his Dad (farm owner John Brown). Maybe his dad paid him $30,000 a year, and the corporation pays him $40,000—plus a dental plan. Such a deal! Sure, he lost ownership of the farm but, hey, he’s doin’ better than ever before. (Better living through incorporation, hmm?)
However, because 1) the $50,000 in farm profit that former farm owner John used to spend in the local community has been vacuumed out and sent to corporate headquarters in New York; and 2) the multiplier effect of this loss may be equivalent to an “invisible” $250,000 loss to the local community—the local community will lose its former economic vitality and begin to “mysteriously” run down.
Thus, although the new corporate farm manager makes more money as a salary, his personal gain is more than offset by the multiplied loss to the community caused by the exportation of local profits to distant corporate headquarters.
So if our hypothetical Iowa farm town sold 20 local farms to distant corporations, there might be 20 farm managers making better money than they’d ever hoped to make. But if the 20 farms each “created” an annual $50,000 profit, and if that collective $1 million in profits were transferred far away from the local community to the distant corporation headquarters—then a 3 to 7x “multiplied effect” of the measurable $1 million loss might cause the equivalent of an “invisible” loss of $3 to $7 million in local economic activity.
Should we be surprised if a rural community subjected an annual $5 million loss “mysteriously” withers into a ghost town?
Man Does Not Live by Jobs Alone
When the local economy first begins to decline, the local TV dealer and Ford franchise will make some extraordinary deals just hoping to stay in business. And of course, corporate farm manager Bob will thank his lucky stars he’s got the distant corporation to pay his wages while his local community slips into a mysterious economic depression. Further, being one of the few well-paid individuals left in the community, Bob could even make some great buys at his neighbors’ “going out of business” sales.
But in a year or two, the New York corporation that owns the farm will call farm manager Bob to tell him that due to falling wage scales in his community, they can no longer afford to pay him $40,000 to run the farm. In fact, because the local Ford dealer (who went broke and lost his franchise) is willing to run the farm for just $25,000 a year (and no dental plan), manager Bob is out unless he’s willing to accept a $15,000 pay cut and work for $25,000 (that’s $5,000 less than the $30,000 he used to make when his dad owned the farm). Now what? As long as the profits are drained from the local economy and sent to a distant corporate headquarters, the “multiplier effect” may cause the local community to slide deeper into depression.
If so, in another year or two, the distant corporate owner might call again and tell corporate farmer Bob to accept another pay cut (now the former TV dealer is willing to manage the farm for just $20,000 a year). And so long as local profits continue to be exported to distant corporations, local competition for work will eventually drive wages down to a subsistence level.
Man Does Not Live by Wages Alone
Implication: Wages alone are not enough to sustain a local community; profits are the lifeblood of any community. Why? Because in any business, profits are not simply what’s “left over” after you deduct your costs for labor, material and overhead (like rent). Instead, I suspect that profits are to some extent a “created” (or at least “imported”) form of money. I.e., if farmer Bob grows 1,000 acres of corn, most of that corn is probably sold to Chicago or New York. Very little of that corn is consumed locally. Thus, farmer Brown’s corn is bringing money from distant communities, just like the Dallas Convention Center brought in the Chicago Insurance Salesmen’s Convention.
If so, these “incoming” profits have an economic impact that is “magically” and “invisibly” increased by the “multiplier effect” and thus far greater than the mere numbers might suggest. I.e., they farmers can bring in $1 million that they count, but the community will be “stimulated” by the equivalent of $3 to $7 million.
I suspect that insofar as profits are “created” or “imported” they are “new money” injected into the local community. As such, the economic effect of these newly-created profits should be identical to the effect of the money brought into town and spent by visiting firemen at their national convention. For every $1 of “imported” profit, the local community might get a $5 boost in economic activity. Thus, one small farm’s (or store’s) annual profit of just $50,000 might generate a multiplied benefit to the local community of $250,000. Given the “multiplier effect,” you can see how important locally-owned small businesses can be. You local “mom and pop” farm or grocery store might not make much profit for Mom & Pop, but it would make a “multiplied” profit for the local economy.
Even though a farm or grocery store owner might not be particularly wealthy, by spending his profits locally, he would be making a “multiplied” contribution to his community far greater than his own income. If so, “imported” profits are the magical fuel for economic growth. Children would be healthy, schools safe, parents optimistic, and the community would be a “good place to live”.
In a sense, profits are our “savings”. They are the cushion we need to carry us over unexpected expenses like a tornadoes, crop failures or birth of another child. Without profits, a community can’t cope with emergencies or even afford to have more children without sinking deeper into poverty.
So, when an Iowa community sells its 20 local farms to Archer Daniel Midland or some other foreign corporation—or when Walmart moves in and drives the local “mom and pop” grocery store, tire store and tv store out of business—the profits that were previously imported by from foreign economies into the local Iowa community suddenly dry up and are exported to the distant ADM and Walmart corporate headquarters. When the profits generated in the local economy are no longer retained in the local community, the negative side of the “multiplier effect” will cause that community’s economy to slowly grind to a halt. Despite having better dental plans when working for ADM and cheaper prices for TVs and computers at Walmart, the local economy will begin to wither. Kids will move away to the big cities to find jobs. Prosperity will give way to poverty. Pessimism will replace optimism. Property values will fall. The town will die.
And virtually no one will understand why. Virtually no one will understand that their local community is being drained of its economic life blood by distant corporations that bought the local farms, built the Walmart and sucked the local profits out of the community. When those profits disappear from the local economy, the “multiplied effect” can cause a virtually invisible economic catastrophe.
Next—in “Multiplier Effect Part II: Corporate Colonization”—I’ll apply the “multiplier effect” to show how the multi-national corporations of Global Free Trade and the New World Order can effectively “colonize” distant countries, extract local profits and reduce formerly prosperous nations—including the USA—to poverty.
