Crony Capitalism vs. American Food

The deadly duo of big government and big food.

On Thursday this week I took part in a great panel discussion on crony capitalism in food and agriculture at the American Enterprise Institute.

Crony capitalism in this area, to me, means that a food business's success is often wrongly contingent upon the business maintaining a close relationship with legislators and regulators.

The lively panel, moderated by the excellent Washington Examiner columnist and new AEI visiting fellow Tim Carney, is part of AEI's exciting new Culture of Competition Project, which promotes a true market economy in which "rewards stem from work and merit rather than political connections."

Besides me, the panel featured talks by fellow panelists (and fellow attorneys) Doug Povich, co-owner of the fabulous Red Hook Lobster Pound food truck, and Emily Broad Leib, who leads Harvard Law School's great Food Law and Policy Clinic. I'd previously sat on respective panels with Povich and Broad Leib, and greatly admire their respective work to defend and strengthen the rights of small food entrepreneurs.

Like me, Carney was very pleased with this week's panel.

"I think the panel addressed a swath of issues where government intervention diminishes freedom, choice, and competition in the world of food," he told me by email.

Povich's talk focused on the struggles of food trucks in the District and neighboring communities to push back against a host of needless regulations backed chiefly by brick-and-mortar restaurants.

Broad Leib, who followed Povich, focused in large part on the many ways food safety regulations can harm small food producers, and advocated for regulations that are proportional in scope to the size of the producer and their market share.

In my remarks closing the panel, which I titled America's Cronycopia, I discussed the frequent difficulties that exist in definitively identifying the phenomenon—which, after all, is hidden and often the result of phone calls and backroom dealings of which journalists and the public have little or no direct knowledge.

I then focused on longstanding crony capitalism in the dairy industry.

Historically, this industry has been one of the most visible practitioners of crony capitalism—at least since it began to use government to squeeze out competition from newfangled margarine—a less expensive alternative to butter—in the mid- to late-1800s. The industry later supported a similar push to ban cheap milk substitutes like filled milk—best (or, perhaps, worst) evidenced in the seminal 1938 Supreme Court case United States v. Carolene Products.

Today, as I noted in my AEI talk, large, subsidized, corporate dairy producers have turned their focus to promoting the FDA's continued prohibition of raw milk.

For example, the Farm Bureau recently passed a resolution supporting only pasteurized sales nationwide. And powerful dairy lobbies opposed a Farm Bill amendment proposed last year by Sen. Rand Paul that would have allowed interstate raw milk sales.

The rest of my talk focused largely on farm subsidies—including new data I presented on how Red (GOP) states receive an inordinate share of these USDA handouts—which should be abolished in all forms immediately (regardless of whether they're doled out proportionately, or whether Red or Blue states benefit most, or which food producers benefit or don't benefit from them).

Using data from the USDA and the Environmental Working Group, I compared both the agricultural output from and subsidy dollars flowing into California and North Dakota. (Note: The figures do not include crop insurance payments.) I noted that while very Blue California is far and away the number one agricultural producer in the country, it ranks a dozen spots behind very Red North Dakota in terms of receiving subsidies—even though North Dakota ranks just nineteenth in agricultural production.

While that's an extreme example, the data I'm crunching (for a forthcoming report) appear to show that Red States and Red districts in Blue States grab an outsized share of subsidies, and that this share represents a huge overall percentage of USDA subsidy payments. Stay tuned for more on this data in the coming weeks and months.