The
AGRIBUSINESS
EXAMINER
June 18, 2002   #169
Monitoring Corporate Agribusiness
From a Public Interest Perspective

EDITOR\PUBLISHER: A.V. Krebs
ADDRESS: PO. Box 2201, Everett, Washington 98203-0201

E-MAIL: avkrebs@earthlink.net
WEB SITE: http://www.ea1.com/CARP/
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CONTRIBUTIONS WELCOME !!!
 

"NEW" DEL MONTE CORP. EMERGES
AS H.J. HEINZ SPINS OFF
STARKIST, PET AND BABY FOODS

BENJAMIN PIMENTEL, SAN FRANCISCO CHRONICLE: In a $2.8 billion deal that will more than double its size, Del Monte Food Co., the San Francisco manufacturer and distributor of canned fruit and vegetables, will take over several brands spun off by H.J. Heinz Co.

Under the complex stock-debt transaction announced Thursday, Del Monte will absorb Heinz businesses that generate about $1.8 billion in sales, or about 20%  of the Pittsburgh company's annual revenue. They include such brands as Starkist tuna, 9Lives cat food, Kibbles 'n Bits dog food and Nature's Goodness baby food.

In exchange, Heinz shareholders will own about 75% of Del Monte, one of the largest producers of processed fruit, vegetable and tomato products. The deal also calls for Del Monte to assume about $1.1 billion in debt of the businesses spun off by Heinz. Technically, the deal calls for the creation of a new subsidiary by Heinz that will be spun off to its shareholders before being merged into a unit of Del Monte.

For Heinz, the deal represents an opportunity to unload pet food and tuna businesses that were not doing well and concentrate on its core products. Analyst David Katham of Morningstar said industry observers have long expected Heinz to get rid of these slower-growing and less-profitable businesses, which he said were dragging them down.

Del Monte officials are pleased with the deal because they expect the added brands will strengthen the company's presence on supermarket shelves. "As this combination develops, Del Monte will be a much stronger company," said Del Monte Chairman and Chief Executive Officer Richard Wolford. "This will be a company that will have leading brands in a number of important grocery aisles."

The new company, which will keep the Del Monte name, is expected to generate about $3.1 billion in annual sales.

In a statement, Wolford called the Heinz brands a "great strategic fit" with Del Monte, adding that "through the reinvigoration of these brands and the realization of synergies, we will be a financially stronger company, well-positioned to deliver shareholder value." Gordon Dean, a managing director at Morgan Stanley, which helped negotiate the deal for Del Monte, said the Heinz products involved in the deal were "not growing under Heinz's ownership as fast the categories in which they compete."

Dean said the businesses unloaded by Heinz "will perform significantly better under Del Monte's management, because Del Monte will focus on these brands and have a clear strategy and reinvest dollars in these brands."

According to Katham, the deal also makes the "newer and slimmer" Heinz more attractive for a corporate takeover in the consolidating food industry, he said. And while the transaction makes Del Monte a bigger player, it's not clear that the new company can become more competitive with its new assets, he added.

"The new Del Monte doesn't look too exciting to me," said Katham, who does not own either Del Monte or Heinz stock and whose firm does not do financial banking business with either company. "There's no obvious way that those businesses work together."

Wolford will remain in his current positions at the merged company, which will continue to be based in San Francisco. About 5,000 Heinz employees will transfer to Del Monte as a result of the deal. The size of the workforce of both companies is expected to remain close to current levels, with fewer than 100 Heinz employees expected to lose their jobs. The deal will have minimal impact on the employees of both companies, Del Monte spokeswoman Brandy Bergman said.

Del Monte, one of the best-known food brands in the United States, has about 2,700 full-time employees and roughly 11,000 seasonal workers at production facilities in such states as California, Washington and Texas. Meanwhile, Heinz is a major food producer, with about 45,800 employees worldwide. Del Monte will take over Heinz's facility on Pittsburgh's north side and use it for its new central office operations in the city.

The new Del Monte's board of directors will have nine members, including three nominated by Del Monte, including Wolford. Six other board members will be nominated by Heinz.

The transaction has to be approved by the boards of both companies, as well as by regulatory agencies and Del Monte shareholders. Both companies hope to finalize the transaction by the end of 2002 or early 2003. . . .. The deal represents the latest chapter in a series of major changes at Del Monte. The brand first appeared in 1891 on premium canned fruit and vegetables of the Oakland Preserving Co., which later combined with other firms to form California Packing Corp. The company was renamed Del Monte in 1967.

Several firms took control of the company through the years, including R.J. Reynolds and a group led by Merrill Lynch, before it was bought by Texas Pacific Group in 1997.

Current Del Monte brands: Del Monte Orchard Select (packaged fruit); Sunfresh Fruit (citrus and Tropical fruit); Contadina (canned tomato products); Del Monte Fruit To-Go (fruit snacks). Heinz will spin off: StarKist (tuna); 9 Lives (cat food); Kibbles n' Bits (dog food); Pup-Peroni (dog food); NawSomes! (dog food); Nature's Goodness Baby Food (baby food); College Inn (soup)

Heinz shareholders will receive about 0.45 shares of the new Del Monte for every Heinz share, which will give them control of about 74.5% of Del Monte. The stake would be worth about $1.7 billion. Del Monte shareholders will get the remaining 25.5% stake, valued at about $700 million.
 

FARMERS, ENVIRONMENTALISTS DISMISS
ROME WORLD FOOD "SUMMIT" AS EXCUSE
FOR DELEGATES SHOPPING, ENTERTAINMENT SPREES

NICOLE WINFIELD, ASSOCIATED PRESS: Environmentalists and farmers dismissed the U.N. World Food Summit as a sham Wednesday, citing the presence of only two leaders from the industrialized world and a preordained outcome many say favors U.S. interests.

Given their first opportunity to speak three days into the summit, they complained they had been left out of the deliberations and that little had been accomplished anyway. Greenpeace said the conference had failed to produce any major new initiatives to fight hunger.

"They failed," said Emiliano Ezcurra of Greenpeace. "They invested millions in this summit, and one by one all the ministers on the podium recognized that they are failing" to cut hunger, he said in an interview.

To be sure, the meeting's goals were rather modest. It was called to reaffirm commitments made in 1996 and to accelerate efforts to meet them. Dozens of environmentalist and farmer groups faced off with country delegations Wednesday at a special forum. It was their first opportunity to address the summit, though they had been meeting on the sidelines.

The United Nations hopes to lower the number of people without enough to eat from 800 million to 400 million by 2015. But the number of hungry people in the world remains the same six years after the target was set at the previous food summit in Rome.

Pat Mooney, head of the Canadian ecological and human rights group ETC, noted that even before the 1996 gathering, governments had come to Rome in 1974 and promised at a food conference to eradicate world hunger altogether. "The conclusion is we can't afford to have many more World Food conferences," Mooney said, to applause from the audience at the forum.

Many activists complained that the summit, which end[ed] Thursday, was undermined from the start because only two heads of state from the developed world attended: host Premier Silvio Berlusconi and Spanish Prime Minister Jose Maria Aznar, representing the European Union.

Most wealthy countries, including the United States, sent agriculture ministers or similar-level officials. Britain didn't even do that, sending instead the head of the "Knowledge Sharing on Special Initiatives" branch of its department for international development.

There were few official explanations for the absences, but the general consensus was that wealthier countries didn't consider the summit a priority for their leaders. Advocacy groups also noted that a follow-up summit hadn't been foreseen so soon after the 1996 one, and was called only after the FAO realized the 1996 targets wouldn't be met. About 80 heads of state did come, but they were almost entirely from Africa and other countries in the developing world.

Indian farming advocate Vandana Shiva said the absence of more high-level delegations from the wealthy countries "means a failure of democracy, a failure of responsibility It's not that they have abandoned the food agenda, they are trying to hijack the food agenda in the wrong direction against the will of the people," said Shiva. She was referring to efforts by the U.S. officials who did come to use the conference to promote Washington's pro-biotech agenda.

The United States, home to several major biotech corporations, hosted a biotech panel on the sidelines of the summit, announced a major biotech conference next year, and U.S. Agriculture Secretary Ann Veneman touted the benefits of biotech in agriculture in her speech.

Many environmental and farmers groups say genetically modified seeds do nothing to increase crop yields and instead make farmers dependent on the corporations that develop and sell them. They criticized the final document of the summit, hammered out before the meeting even began, saying governments caved to U.S. pressure to include references to the benefits of biotech.

There were also jabs that the summit was just an excuse for tourist jaunts and shopping sprees in the Eternal City. "They come for the seven minutes (on the podium), next thing the Colosseum," said Greenpeace's Ezcurra.

On Wednesday, a motorcade of the Indonesian delegation was parked along the swank Roman shopping street, Via Condotti, with members seen inside a fashionable shoe store. A day earlier, cars with the Republic of Congo's seal were parked in front of the Spanish Steps.

"Piano bars in the grand hotels, champagne and night clubs; in Rome, the dolce vita for delegates in the fight against hunger" read the headline in Wednesday's conservative newspaper Libero.
 

MIKE CALLICRATE:
URGES COMMUNITY DEVELOPMENT AS OPPOSED
TO FORMS OF SOCALLED ECONOMIC DEVELOPMENT
WHICH ARE RUINING RURAL AMERICA
AND DESTRUCTIVE TO OUR ECONOMIC SYSTEM

Excerpt from a March, 2002 Acres, U.S.A. interview with Mike Callicrate, a farmer, rancher, and businessman. After graduating from Colorado State University with a degree in animal science, Callicrate moved to northwest Kansas to farm and ranch. Recognizing a need for a feedyard in the area, he built the first of two local commercial feeding operations in 1978. About ten years ago, he began a drive for price discovery reform, after becoming disgruntled with the formula agreement his local buyer was using to buy cattle.

Since that time, he has spoken out against consolidation of the packing, processing and retail segments of the beef industry, and the devastating effects of captive supply. In 1996, he testified before Secretary of Agriculture Dan Glickman's 21-member concentration panel in Washington, D.C. He is a supporter of the Cattlemen's Legal Fund, which was established to raise money for litigation to correct the problem of lost competition and the unfair distribution of beef dollars.

ACRES U.S.A. How can you get competition if the government doesn't interdict what's going on?
CALLICRATE. Well, you know, the whole point of competition and capitalism in a free democracy is that you must have a framework of laws, that all of this operates from within in order to preserve the freedom of the marketplace, the transparency of the marketplace. We have had total ignorance among our government officials, who are charged with enforcing these laws about how important it is to maintain competition, to
maintain a fair distribution of wealth among all sectors in your economy. These people have basically been bought and paid for, or brainwashed, or run roughshod over, but one way or the other, these people don't do their jobs.  . . . . .

ACRES U.S.A. And this market power is regulated to some extent, but their ability to import is not.
CALLICRATE. Absolutely. Imports are big. We can search the globe for the hungriest people who will work the cheapest --- I call them "economic refugees." These big companies with U.S. addresses go around the globe, and they find these desperate people who will work for nothing. They take that production, whether it's beef, lamb, or Nike tennis shoes, and they import it into the highest and best-consuming market in the world --- the U.S.

Today we've got meatpackers importing live cattle, boxed beef, and other meat from several countries around the world, even though it puts our country and our people at risk from a food-safety perspective, even though it drives producers, ranchers and farmers in this country out of business, because they can't compete with slave labor and low-cost production from around the world that doesn't have the mandated costs that we have in the United States. Even though it destroys our economy, we look the other way, and these big corporations with U.S. addresses who deal globally are destroying the very basis of economics in our country, and that's the farm and the ranch, and the raw-material production, whether it be oil, cattle or grain. They are also putting out of business the steel worker, the textile worker, the automotive worker --- they are simply destroying our country, and I view it as a national security issue ó I think it is just as important, just as threatening, as bombs being dropped on New York City. . . . .

ACRES U.S.A. How do we get competitive markets as long as we can't seem to make a dent between the ears of the American people, who are buying into this terrorist paranoia as a public policy?
CALLICRATE. I think what you do is you start small with a new food system. I think you've got to give people an alternative to the food system that is so concentrated and industrialized. We know the food that comes out of this industrialized system is not healthy; it's based on a ridiculous USDA food pyramid that looks more like a hogfinishing diet than it does a good, healthy human diet --- it's too high in carbohydrates, it's causing obesity, it's causing childhood diabetes in record levels --- we've got to inform the American public how dangerous it is to eat this fast food, how
dangerous it is and how economically destructive it is to shop at Wal-Mart --- we've got to start spreading that word.

But at the same time, we simply have to give them an alternative. One of the things I work hard on every day is a company called Ranch Foods Direct, which wants to be part of a new food system in this country that promotes a more localized approach: if you produce it in Kansas, you can consume it in Kansas, and likewise in any other state in this country. There's no reason why we have to produce and raise cattle in Oregon, then ship them to Kansas to be fed and processed, only to have the meat sent back to Oregon. All we've done is worn out highways and burned diesel fuel and worn out tires on trucks. It is ridiculous that we have allowed the bankrupting of good, independent meatpackers in Oregon by this big meatpacking cartel that roams this whole country like a predator, consuming and putting out of business all of their competition. . . . . .

ACRES U.S.A. How far do you think competitive markets can take this situation, in view of the fact that we have so much unregulated international trade?
CALLICRATE. Well, I think we've got to fight the trade agreements. I think in that, of course, you see a sweep across the world --- I mean, look at the hell-raising that's been going on in Seattle, and Qatar, and soon to come to New York City with the WTO meetings. People around the world know that what we've done with these treaties is bad; they know it only benefits big corporations at the expense of people. It's about private interests rather than public good. So, I think we must continue to spread that word, and work with those people around the world who are upset, and try to localize food systems everywhere.

What you do is convince people that it's better to support the producer who is on the land, and it's better to buy from those people on the land if possible, and certainly to patronize stores that feature production from local farmers and ranchers. We see these ideas starting to catch on around the country, and you make it the right thing to do: you advertize, you promote, you spread the word among consumer groups, and you simply have to convince them how bad it is to support a Wal-Mart. That wipes out Main Street rural America and wipes out the farmers and ranchers across the coutryside.

ACRES U.S.A. Unfortunately, many communities have participated in this wipe-out by giving TIF (Tax Increment Financing) assistance to corporations like Wal-Mart.
CALLICRATE. Absolutely, but hopefully they will become more informed, and of course any community that has leadership that would encourage a Wal-Mart in that community, that leadership needs replacing --- you've got to get them out of office. You've got to get these legislators replaced in Washington and throughout the state legislatures that have supported fast track, that have supported anything to do with any kind of a NAFTA, WTO or GATT kind of arrangement. You've got to get rid of these guys who are bought and paid for by these big multinational corporations. We've got a situation in Goodland, Kansas, where Wal-Mart came in with a "Super Center." We had three locally owned grocery stores in Goodland ---- none of them exist today. The meat-market manager at Wal-Mart has reported to me that the day they closed Jubilee Foods --- the last independent grocery store in Goodland, Kansas --- Wal-Mart raised meat prices eight percent.

So, the community is starting to see what a big mistake it was. I think it's important to recognize the difference between economic development and community development. A new Wal-Mart coming into the community might be considered economic development by some people. Economic development according to the USDA is a job for a bankrupt farmer. Is that community development? Community development would be where farmers receive a fair price for what they produce, and have the money to spend on Main Street, at independent, locally owned businesses that generate a seven-times multiplier effect in that community, and generate the wealth that is critical for the survival of this entire nation. That's community development. Many forms of socalled economic development are actually destructive to our economic system.

ACRES U.S.A. That's a powerful statement! Let's discuss parity for a minute. USDA pretends that it's an obsolete idea. Do you think it's obsolete?
CALLICRATE. Is it obsolete that a person should recover his costs of business, is that an obsolete idea? Is it obsolete that we should be able to go in arbitrarily and mandate a person to pay higher costs but not be able to recover those costs? On one hand, we have a farmer who is helpless, a farmer who has no way to price his product in such a manner that it will cover his costs. Yet we are telling him that he is not entitled to recover
those costs ó we're telling him that he has to become "more efficient," that he has to lower his costs, that he has got to work his family members and pay them nothing, that he's got to essentially adopt a slave-labor practice for his family. Does that make sense?

At the same time, we're going to offer him a price below cost-of-production, and at the same time, we're going to adopt a "Freedom to Farm" bill that makes him compete with slave labor in the global market. Is that fair? Is it fair to legislate bankruptcy for farmers and ranchers? No, I donít think it is. I think you've got to take the food system and the farm and ranch production across the country, and you have got to do whatever it takes to keep them in business. If you're going to legislate laws that put them out of business, you have got to compensate them accordingly. Food is a national security issue; it is the most important thing known to man throughout history. Food must be preserved through a sovereign type of food production system. We cannot depend on foreign countries to provide our food supply, as we have oil and gas.

ACRES U.S.A. But this is exactly what they're pretending that we should be doing. In his book The End of Agriculture in the American Portfolio, Steven Blank said that we can import the food and free the land for better uses in the United States, presumably for urban sprawl.
CALLICRATE. Steven Blank sounds like a Chicago-school economist who doesn't balance economics with social issues. You know, food that a person eats each day, that keeps them alive, may not be an economic issue, but it's most certainly a social issue. Like the issue of economic development versus community development, I think it's very important that we balance all of this with a social agenda, as well, and paying a farmer a fair price is critical --- it's keeping him or her on the land. This idea that you bait him with government programs to try to keep him out there isn't really realistic, because he never knows in advance what he's going to be receiving, he can't plan, and he's told by all the Land Grant colleges that he has to get bigger to survive.

ACRES U.S.A. Even the ones who have put the land into "a few strong hands" have gotten so big that they can't survive without the government bailout every year. Would you elaborate on that?
CALLICRATE. In Cheyenne County, for example, where I live, from 1996 to 2000, we have taken in $59 million in government money to keep our farmers in business. Where would Cheyenne County be without $59 million? We would look like a ghetto in a Third World country. We would look like many communities across the United States right now, where we've seen the big hog factory farms go in and wipe out the countryside,
kill the towns, import economic refugees to work in their plants, externalize their costs onto the community by paying people less than living wages, like Wal-Mart does. This is the kind of country we're going to end up with if we don't get a fair price to farmers. If we don't pay the farmer a fair price through competitive markets, then we have to pay him a fair price somehow. Whether through parity or some other approach, the farmer receives his cost of production plus a profit --- that has to happen. One way or the other. The other alternative is that we pay the farmer his shortfall in a government bailout type of system.

ACRES U.S.A. But when you pay the farmer with a bailout type of system, you lose the effect of the multiplier.
CALLICRATE. Absolutely, absolutely, and also, you lose the tax dollars, which are merely transferred, passed through the farmer's pocket on their way to the big corporations, the bankers and everyone else who is preying on the farmer. Any money that's paid to a farmer today is sucked off by these big grain companies that are keeping these prices low, because they're also in livestock production, and input costs in livestock production are grain, and the cheaper they can keep the grain, the more money they make. I'm convinced that there's a cartel in grain that has to be broken up, a cartel in beef that has to be broken up --- we've basically come forward 100 years, but we've ended up right back where we were 100 years ago, with monopolies in many areas of our economy, including food, railroads, oil, banking, etc.

Mike Callicrate can be contacted at P.O. Box 748, St. Francis, Kansas 67756, phone (785) 332-3344.
 

FARMERS WORRY FATE OF FARMLAND INDUSTRIES
MAY PRESAGE FUTURE OF FARM CO-OPS

CHRIS STEBBINS, REUTERS: Since the Great Depression of the 1930s, farmer-owned cooperatives have helped individual farms hold their own in a marketplace dominated by giant corporations.

Some, like Ocean Spray (cranberries), Land O' Lakes (butter) and Sunkist (oranges), did their jobs so well they became huge multi-billion dollar behemoths themselves. But a high-profile bankruptcy filing by one of the biggest such co-ops last week has raised new worries about their ability to compete in a cut-throat pricing environment in which quick financial maneuvers are needed to survive.

The 73-year-old Kansas City-based co-op Farmland --- actually a network of 1,700 smaller co-ops owned by some 600,000 farmer-members in the United States, Canada and Mexico with almost $12 billion in sales last year --- failed to meet a $10 million loan payment due last month and filed for Chapter 11 bankruptcy protection.

Industry experts said Farmland's filing does not necessarily sound the death knell for cooperatives. Those that remain focused, and resist the temptation to provide everything to everyone, may still survive. But many need to move out of their stodgy old management styles and adopt to a harshly competitive environment.

"The question is: can they adapt fast enough as we consolidate industrialized U.S. and global agriculture?" said Mike Cook, an economist with the University of Missouri who specializes in cooperatives. Before its Chapter 11 filing, Farmland had sold off assets like its grain exporting business but also resisted selling off its meat business, seen as its crown jewel, to pork giant Smithfield Foods Inc.

In a sign of the times, Smithfield, just days later, closed on the purchase of an Italian food maker. The acquisition, Smithfield said, "fits perfectly with our strategy of focusing on the value-added, high margin segment of the business."

Farmland managed to turn Black Angus into a name brand, but it's still saddled with big portfolio of commodity type meat products that compete with more heavily advertised brand names. It also is heavily invested in money-losing businesses like fertilizer, sold to its financially strapped farmer-members.

Many farmer-owned co-ops, which unite to expand volume buying power for farm supplies and also sell collectively to customers like grocery stores, are struggling to survive in the face of stagnant sales, lower revenues and operating losses.

Farmland, with its almost $12 billion in sales last year, stands at No. 170 on the Fortune 500 list. But it lost $32.3 million in the six months ended Februnary 28, compared with a $20.3 million loss a year earlier.

Other co-ops are also struggling. The U.S. Agriculture Department, in a June 2001 report on the 100 largest farmer cooperatives, said big co-ops like Farmland that provide a range of products and services saw their net profit fall 60% to $134 million in 1999 from $337 million in 1998. Hundreds have disappeared. In 2000, there were 3,345 farmer-owned cooperatives, compared with 3,791 four years earlier. Co-ops in search of economies of scale continue to merge or form alliances. And experts agree that they must continue to do so if they hope to succeed.

Going it alone is more difficult. Farmland was crushed by debt built up in the early 1990s as it aggressively expanded, striving to become not just a food company with retail meat brands like Black Angus beef but a full-service agribusiness --- supplying fertilizers, feeds and fuels as well as buying its members' grains, cattle and hogs.

Its timing was unlucky. A glut of grain and meat in the late 1990s hurt both margins and exports, while lower farm prices hurt fertilizer use and idled expensive plants.

"To be competitive in the world marketplace or even in a regional marketplace, companies don't have all the resources and all the connections. They need to team up," said David Burton, director of the Arthur Capper Cooperative Center at Kansas State University. Agribusiness corporations --- under the same cost pressures as big co-ops ---
have also pushed for more co-op "partnerships" and investments. Archer Daniels Midland has long been a leader in this and other giants like Cargill Inc. and Conagra have also been active.

Not only do the larger companies bring more money to the table, but also the experience to manage an agribusiness. Cooperatives are run by their boards of directors, in most cases farmer members, who often may lack the business savvy of corporate managers.

Traditional co-ops like Farmland or grain cooperative CHS, for example, also have "open" membership reflecting grass-roots democratic principles. But such unwieldy organizations are giving way to a leaner new generation of co-ops, dubbed "new gens," which require member-farmers to meet specific production and delivery requirements.

Experts say the driving factors behind such new forms is the ability to move and make decisions more quickly, much like a private corporate management. Some "new gens," such as Dakota Growers Pasta, are taking the evolution even further and becoming common stock corporations. "We'll see a lot of interest among the traditional co-ops justifying their existence and we'll see new ones develop," Cook said of the outlook for farmer-owned cooperatives.
 

KEVIN PHILLIPS:
EITHER DEMOCRACY MUST BE RENEWED
WITH POLITICS BROUGHT BACK TO LIFE,
OR CURRENT WEALTH IS LIKELY TO CEMENT
PLUTOCRACY BY SOME OTHER NAME

PAUL KRUGMAN, NEW YORK TIMES: Kevin Phillips's new book, Wealth and Democracy, is a 422-page doorstopper, but much of the book's message is contained in one stunning table. That table, in the middle of a chapter titled "Millennial Plutographics," reports the compensation of America's ten most highly paid C.E.O.'s in 1981, 1988 and 2000.

In 1981 those captains of industry were paid an average of $3.5 million, which seemed like a lot at the time. By 1988 the average had soared to $19.3 million, which seemed outrageous. But by 2000 the average annual pay of the top ten was $154 million. It's true that wages of ordinary workers roughly doubled over the same period, though the bulk of that gain was eaten up by inflation. But earnings of top executives rose 4,300%.

What are we to make of this astonishing development? Stealing (and modifying) a line from Slate's Mickey Kaus, I'd say that an influential body of opinion has reacted to global warming and the emergence of an American plutocracy the same way: "It's not true, it's not true, it's not true, nothing can be done about it."

For many years there was a concerted effort by think tanks, politicians and intellectuals to deny that inequality was increasing in this country. Glenn Hubbard, now chairman of the Council of Economic Advisers, is a highly competent economist; but he demonstrated his fealty during the first Bush administration with a ludicrously rigged study purporting to show that income distribution doesn't matter because there is huge "income mobility" ---- that is, that this decade's poor are likely to be next decade's rich and vice versa.

They aren't, of course. Even across generations there is a lot less income mobility than the folk wisdom about "shirt sleeves to shirt sleeves in three generations" would have it. Mr. Phillips shows that tales of downward  mobility in once-wealthy families are greatly exaggerated; the descendants of 19th-century robber barons are still quite different from you and me.

But the Gilded Age looked positively egalitarian compared with the concentration of wealth now emerging in America. Pretty soon denial will no longer be possible. What will the apologists say next?

First we will hear that vast fortunes are justified because they are the reward for vast achievement. Here's where that table comes in handy, because it tells you what achievements actually get rewarded. Only one of the ten, Tyco's Dennis Kozlowski, has actually been indicted.

But of the rest, three --- four, if you count John Chambers of Cisco --- were Andy Warhol C.E.O.'s: their companies were famous for 15 minutes, just long enough for the executives to cash in their stock options. The list also includes Gerald Levin, who engineered Time Warner's merger with AOL at the top of the Internet bubble; even at the time it seemed obvious that he was trading half his original shareholders' birthright for a mess of cyber-pottage.

We'll also hear that in any case nothing can be done to limit the accumulation and inheritance of vast wealth. We'll be told, for example, that reinstating the estate tax would have devastating economic effects --- even though the great boom of the 1990's took place with a 55% tax on the largest inheritances. I've even been assured by some correspondents that inheritance taxes on the very rich are impractical, that they will always be evaded --- this in spite of the fact that in 1999 the estate tax raised about $15 billion from estates worth more than $5 million.

But it's not just a matter of collecting taxes. Mr. Phillips, a lifelong Republican, is most concerned not by economics per se but by the political consequences of wealth concentration. He warns that "the imbalance of wealth and democracy is unsustainable, at least by traditional yardsticks."

How will this imbalance be resolved? The economists Claudia Goldin and Robert Margo have dubbed the narrowing of income gaps that took place under F.D.R. the "Great Compression"; if I read Mr. Phillips right, he thinks  something like that will happen again. But he also offers a bleak alternative: "Either democracy must be renewed, with politics brought back to life, or wealth is likely to cement a new and less democratic regime ---plutocracy by some other name."

Apocalyptic stuff. But Mr. Phillips has an impressive track record as a political visionary. What if he's right?
 

WOE IS ME MESSAGE TO MADISON AVENUE:
SEX IN MOVIES AND TV SHOWS
INTERFERES WITH VIEWERS "ABILITY"
TO REMEMBER SHOW'S COMMERCIALS

SHANKAR VEDANTAM, WASHINGTON POST: Watching a movie or TV program with strong sexual references interferes with people's ability to remember the commercials in such programs, according to research announced yesterday.

In the first study to empirically measure whether sexually explicit programming helps or detracts from marketers' messages, researchers found that people watching shows packed with sexual innuendo, performers with revealing clothes or sexual scenes were much less likely to remember the ads both immediately after the show and a day later.

The steep declines in memory after the explicit shows were seen among adults of all ages, among men and women, and among those who liked the programs and those who did not. If the research is replicated and confirmed, it could mean the popular notion that more sex in shows equals more watchers and, in turn, a wider response to advertisements, is fundamentally flawed.

"If advertisers find out the most popular programs make the ads less successful, it will revolutionize the TV business," said Jonathan Freedman, a social psychologist at the University of Toronto. Jokingly, he added, "Instead of charging a million dollars a minute, the Super Bowl will charge nothing because no one will be watching any ads. The ideal program for advertisers may be something that lots of people watch but no one likes --- maybe a presidential address."

The study was reported yesterday in the Journal of Applied Psychology and was conducted by psychology professor Brad Bushman and graduate student Angelica Bonacci at Iowa State University in Ames. Similar findings have been reported for violent programs. The researchers say their work could show advertisers and programmers that sex and violence, in fact, do not sell.

Perhaps most tellingly, the impact on memory was seen in people between ages 18 and 25 -- a group that advertisers covet as malleable consumers and that programmers try to attract with risque shows.

"The simplest explanation is that people who watch a sexual program are thinking about sex instead of about the ads," said Bushman in an interview. "People who watch a violent program are thinking about violence, not laundry detergent or soda pop. If you don't pay attention to the ads, you won't encode them in memory."

Bushman and his colleague conducted the research by recruiting 162 men and 162 women between ages 18 and 54. The volunteers were randomly assigned to three groups. The first group saw 45-minute shows with content labeled by cable networks as "V" for violent. Shows included "La Femme Nikita," "Tour of Duty" and "World Wrestling Federation Monday Night Nitro." The second group saw shows labeled "S" for sexual. These included "Strip Poker," "Howard Stern" and "Strip Mall." The last group saw shows that had neither the "V" nor the "S" labels. They included "Miracle Pets" and "Candid Camera."

Within the programs, the researchers spliced in the same nine ads for products such as laundry detergent, soft drinks and cereal. After watching the programs, the researchers measured how well people remembered the products being advertised.

In a separate test, they showed the audience members the commercial in a lineup with three fakes to see whether participants could recognize the product when it was shown to them. People who watched the sexual or violent programs remembered 67% fewer products than those who had watched the neutral programs. In a quiz a day later, the same people remembered 60% fewer products than those who had watched the neutral programs.

Bushman said the data supported his concerns about sex and violence on television and their effects on society.

"There's an emerging argument that sexually explicit media promote sexual callousness, cynical attitudes about love and marriage, an idea that promiscuity is the norm," he said. "Especially when sex is combined with violence, it can increase aggression against women. All those behaviors do not contribute to a more healthy society."

Besides the possibility that the sexually explicit shows make people think about sex instead of the ads --- that people's attention is diverted by the content --- Bushman said it was also possible that the shows changed people's moods or caused arousal, which has been shown to make people less responsive to unrelated commercial messages.

The University of Toronto's Freedman questioned whether the sex or the violence by themselves were responsible for the effect. It could be, he said, that anything that gripped audience members --- from a thrilling drama to a World Cup Soccer match --- could distract people from the ads.

Neil Malamuth, a profesor of psychology and communication at UCLA, said the fact that sex and violence drew people's attention was well known --- which was why advertisers capitalized on it themselves, using sexual imagery to sell products.

"If you had consistency between commercials and programming, there may not be distractions," he said.

Bushman said the next phases of his study would address those questions by varying the content of the ads. He said his team had found ads that used violent, sexual or neutral imagery to sell products. Bushman plans to insert them into programs to see whether they influence people's recall.

Audrey Guskey, professor of marketing at Duquesne University in Pittsburgh, said advertisers had found that sexually explicit or violent ads caused people to remember the ads but not the products.

"If the ad is very avant-garde, has a lot of sex or is very bizarre, people do not remember the brand or the product," she said. Many marketers shy away from controversial or explicit programming because of fears people will be offended and be turned off from buying the product.

So why is there so much sexually explicit programming? George Gerbner, former dean of the Annenberg School for Communication at the University of Pennsylvania in Philadelphia, said one explanation was the increasingly globalized market for programs. Sexually explicit and violent programs might not be the favorites of advertisers, but they allow programmers to resell shows on the global market because sex and violence need no translations, no subtlety of plot and character development, no deep understanding of culture.

"It's a global marketing formula," he said.
 

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