The Rich Get Richer and the Poor? Guess!

The combined after-tax income of the nation's richest 2.6 million Americans, the top 1 percent, was about equal to that of the 88 million people in the bottom 35 percent of income, according to a recent analysis of U.S. income patterns by the Washington, D.C-based Center on Budget and Policy Priorities.

The analysis was based on data from the Congressional Budget Office, which began tracking after-tax income in 1977 when the bottom 35 percent had twice the after-tax income of the richest 1 percent.

"Wage trends have been very uneven in the last few decades, declining at the bottom, stagnant in the middle and most of the improvements going to the top," said Isaac Shapiro, a senior analyst at the center. "Income disparity is part and parcel of the free market. That's a given," he said. "Americans have a tolerance for income differences because there has always been hope that you could take the path of upward mobility. But if the only group that gains is the upper group, that perception will tear at the social fabric."

When all American families are divided equally into five groups, or quintiles, the middle quintile in 1994 got 15.2 percent of all after-tax income. In 1977, the middle group got 16.3 percent of after-tax income signifying that the after-tax income for the heart of the U.S. middle classes decreased during the past two decades.

At the very bottom, the poorest fifth of all U.S. families got 4.2 percent of after-tax income in 1994. In 1977, this group got more, roughly 5.7 percent of all after-tax income.

In 1994, the top 1 percent of families' average after-tax income was $374,131. This meant that those in this group got 11.4 percent of all the after-tax income in the nation. In 1977, this group only had 7.3 percent of all after-tax income.

In related news, Internal Revenue Service data, recently released, shows that from 1980 to 1995, when corporate revenues and profits soared, senior corporate executives of companies did even better, as their pay increased at a much faster rate.

Total tax-deductible executive pay, before inflation, rose 182 percent, to $307.6 billion in 1995. Corporate revenues rose 129.5 percent, to $14.6 trillion, while taxable corporate profits rose 127 percent, to $560.1 billion. Corporate income taxes rose 114 percent, to $197 billion.

Executive pay can grow much faster than corporate profits "only because chief executives are paying themselves," Robert Monks, a principal of Lens Inc., an investment fund told the New York Times. "They have all this diaphanous language about performance and all these committee reports on how pay was determined, but the simple truth is that executives are setting their own pay."

Both the actual rise in corporate pay and the higher rate at which it has grown in comparison with corporate revenues, profits and income taxes is actually understated significantly in the tax data. During the 15-year period major changes took place in the composition of executive pay packages, effectively delaying corporate income-tax deductions for the bulk of executive compensation.

Executives can defer part of their salary or bonus, for example, and delay making tax payments until the deferral ends, usually after retirement. "The really big deferrals," pointed out Graef Crystal, publisher of an executive-pay newsletter, are in stock options. "No taxes are due on stock options until they are exercised, which on average is seven years after they are granted," he adds.

ADM's Corporate Culture: Buy, bye competition

Undaunted by its legal woes, ADM's new chief executive, G. Allen Andreas, has announced the company plans more big acquisitions of food-processing plants in the next few years. Andreas took over as CEO in April from uncle Dwayne Andreas, 79, who remains Chairman of the Board. In an interview with the Wall Street Journal's Scott Kilman, the younger Andreas said he expects ADM increasingly to buy the commodity-processing plants that are being divested by cost-cutting branded food companies.

Recently, ADM acquired the cocoa operations of W.R. Grace & Co. for $470 million and paid $258 million for a 22 percent stake in Gruma SA, the largest tortilla maker in Mexico. Allen Andreas helped negotiate both transactions.

By purchasing Grace's cocoa holdings and in June purchasing ED&F Man's five cocoa processing plants for $223 million ADM now becomes the world's largest cocoa processor. Its processing capacity, according to industry analysts, now exceeds 450,000 metric tonnes. With second-place Callubaut-Berry and third-place Cargill, the three processors control 40 percent of the world's cocoa processing capacity.

As one European trader was quoted in a news wire story, the three are now the earth, moon and sun in the chocolate business. As such, "Cocoa is dead as a trading commodity" be added.

ADM also has announced that it will purchase 58 owned or rented grain elevators in Brazil and Paraguay, two of which are port terminals, from a firm called Glencore Grain.

ADM Milling Co., a subsidiary of ADM Co. has announced plans to purchase a controlling interest in Jamaica Flour Mills, Jamaica's only flour producer. ADM, which offered about 13 cents a share for Jamaica Flour's 360 million shares, claims to have acquired sufficient sale agreements from shareholders to close the deal.

Jamaica Flour's board of directors made a case that shareholders accept the offer. New rules in the Caribbean Community (Caricom), of which Jamaica is a member, may remove Jamaica's 25 percent duty on imported flour and open the market of 2.5 million people.

ADM Milling also recently purchased flour mills in Belize and Barbados, two other English-speaking former U.K. colonies who are Caricom members.

Ethanol Lives!

Despite the fact that it made nearly every hit list of "corporate welfare;" despite the fact that its biggest champion, Robert Dole, is no longer in the U.S. Senate; despite the fact that environmentalists no longer are enthusiastic about it as an alternative fuel; despite the fact it is receiving "mixed" support from the White House; despite the fact that the General Accounting Office (GAO), Congress' investigative agency, has questioned its merits; and despite the fact that its biggest producer, ADM, has become a political liability, the ethanol subsidy, which has cost more than $7 billion to date and will last until 2000, survived another recent tax-bill debate by Congress -- and nearly was extended further into the 21st century.

Occasioned in 1978 by the Mideast oil shocks, the ethanol subsidy was intended as a short-term incentive for alternative fuels. Later clean-air laws were expected to boost demand and make long-term subsidies unnecessary.

The subsidy gives gasoline blended with ethanol a 5.4 cents-a-gallon reduction in the federal gas tax of 18.3 cents -- equal to 54 cents per gallon of ethanol, since most gas blends contain one-tenth ethanol. Through 1995, that cost the federal highway trust fund, which receives proceeds from gas taxes, $7.1 billion. The tax break goes to blenders like ADM, but creates product demand which claim to benefit producers and farmers.

Its longevity, GOP Sen. John McCain of Arizona told the Wall Street Journal, "is a cautionary tale about what happens to quote-unquote temporary subsidies around here. They never go away."

The history of ethanol shows that supporters originally expected rising oil prices to let ethanol be priced competitively with gasoline without government help. Instead, oil prices remained low. Consequently, today ethanol -- available mostly in Corn Belt states because of distribution problems -- accounts for less than 1 percent of U.S. fuel consumption and according to the GAO that share won't increase even if the subsidy survives another two decades.

Early in his presidency Bill Clinton's economic advisers had opposed ethanol subsidies; however, the president has remained pro-ethanol since his 1992 Iowa campaign days. Today, his apparent heir Al Gore, trumpets the disputed environmental benefits. Not surprisingly, Gore's potential Democratic rival, House Minority Leader Richard Gephardt of Missouri, is one of ethanol's biggest cheerleaders.

Faced with elimination, ethanol forces recently went on the offense in the Senate. When the Finance Committee drafted its own tax bill, it included an amendment by Iowa Republican Senator Charles Grassley extending ethanol subsidies through 2007 at a cost of $3.8 billion. A chief supporter of the extension was Sen. Carol Moseley-Braun, a Chicago Democrat who reportedly needs votes from rural downstate Illinois -- home to ADM's Decatur headquarters -- in her tough reelection fight next year. The Journal reports that she keeps a pink hat labeled "Ethanol Queen" in her office.

In the subsequent Senate debate, Sen. McCain tried to kill the extension. He lost 69-30, thanks, he says, to the Senate's "rural tilt," its back scratching ethic ("You support my subsidy and I'll support yours") and the desire "to subsidize thousands of corn growers -- and Archer-Daniels-Midland." Despite its recent legal problems, ADM divided nearly $1 million between the two political parties during the last election cycle, according to the watchdog Center for Responsive Politics.

Corporate Fish Story!

Igene Biotechnology Inc. has filed a $300 million federal lawsuit accusing ADM of stealing its secret formula for making a natural compound that turns pale-fleshed farm-raised salmon bright pink.

The Columbia, Maryland, firm in an August lawsuit contends that a former employee, who was arrested in July on theft charges, copied hundreds of pages of the company's trade secrets and gave the documents to ADM. Such secrets are worth millions, the lawsuit claims, because Igene has developed a new, cheaper method of producing a chemical needed to give the flesh of farm-raised salmon the same pink color as wild fish.

According to the lawsuit, Igene has been working since the early 1980s to develop a more efficient method of producing the chemical needed to make farm-raised salmon pink. Called "astraxanthin," the compound is extracted from a yeast.

Igene is a tiny company, with fewer than a dozen employees. It has lost so much money pursuing the elusive salmon-coloring chemical that its stock now sells for only 13 cents a share.

But, as the Washington Post's Jerry Knight reports, Igene not only discovered how to make a stronger form of the compound, it also found a way to make salmon absorb it more readily. In July the company signed a contract with a Mexican chemical company, Fermic SA, to begin full-scale production.

Previously, Igene negotiated for production of the chemical by ADM, but talks ran into a snag in July 1995 when the Justice Department disclosed that it was conducting its criminal antitrust investigation of ADM's bio-products division. The Igene lawsuit said the company was dealing with Mark E. Whitacre.

Igene now contends that ADM reneged on a contract to use the company's method for producing the salmon food supplement. Its current lawsuit seeks $450,000 in damages for breach of contract over that dispute. The bigger damages being sought in the case, however, are for the alleged theft of trade secrets. Igene contends that its process is worth as much as $100 million, and contends it is entitled to triple damages under federal law.

The lawsuit, Knight reports, said that Igene officials became suspicious that company records were being leaked when an ADM official came up with copies of documents the company had not given him. In July, the company said, Igene's president left several documents spread out on his desk before quitting for the day. When he returned the next morning, the papers were all neatly stacked. At that point, Igene officials called the police.

At DuPont, It's Better Eating Through Chemistry

Fresh from its $1.7 billion "investment venture" with Pioneer Hi-Bred, which currently dominants the corn-seed market, DuPont Co. has announced that it is continuing its efforts to establish itself as a major player in agricultural biotechnology by acquiring Protein Technologies International, a subsidiary of Ralston Purina Co., for $1.5 billion.

Presently, Protein Technologies supplies about 75 percent of the worldwide market for soy proteins used in processed foods.

The acquisition reflects the latest in a trend in the chemical industry, as biotechnology begins to blur the lines of demarcation between the different parts of the food chain. As the New York Times recently reported:

"Until recently those lines seemed etched in stone: Chemical companies provided fertilizers, pesticides and other products that helped farmers grow more of a specific crop; farmers grew the crop and sold it as cattle feed, or to companies like Protein Technologies; they processed it into food ingredients that companies like Nestle or Borden incorporated into everything from hot dogs to ice cream to infant formula."

In recent years, DuPont, Monsanto Co., Novartis AG (the Swiss company formed by the merger of Sandoz and Ciba-Geigy) and a small number of other chemical companies have been experimenting with plant genetics producing seeds that grow corn with a higher oil content, allowing feed lot managers to fatten cattle more quickly. They have also been engineering soybeans to make them more palatable.

"DuPont is just now ramping up its plants to make improved soybean seeds, and they need to be sure they will have the access to the most customers," Jeffrey Spetalnick of Oppenheimer & Co. told the Times' Claudia H. Deutsch.

That need will grow even more critical over the next few years, Paul Leming, an analyst with Deutsche Morgan Grenfell, predicted. "Companies like Archer-Daniels-Midland or Protein International will contract with farmers to grow a specific type of soybean or corn," he said. "Companies like DuPont and Monsanto want to be sure that it is their genetically engineered corn or soybeans that are being requested."

"Biotechnology allows for a real linkage between food and health and wellness and seed," Robert Fraley, co-president of Monsanto Co.'s agricultural sector, told the Times. "And there you're talking about 75 percent of the world's gross domestic product."

It is precisely such "linkages" which led Ralston Purina to agree to sell Protein Technologies, which ended last year with operating earnings of $84.5 million on sales of $420 million. While its official statement said the company wanted to concentrate on its pet-products and Eveready battery companies, one executive reported observed, "We just don't have the connections to make a go of nutriceuticals."

Meanwhile, Monsanto is in the process of buying Holden's Foundation Seeds, a seed-corn company, in an effort to get a stake in the corn seed business.

A. V. Krebs is director of the Corporate Agribusiness Research Project. Contact him at P.O. Box 2201, Everett, Washington 98203-0201; phone 206-258-5345; or e-mail: avkrebs@earthlink.

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