Bloomberg reported on Sunday that California water futures are now officially on the Wall Street markets, with the United States–based CME Group heading up the 2021 contracts connected to the state’s billion-dollar water market. The “commodity” was most recently going for $496 per acre-foot with the main purchasers of the futures—which were first announced by CME in September—expected to be large-scale water consumers, chiefly utility companies and the states’ Big Ag corporations. (California is home to the largest agriculture market in the nation.) “Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,”…
You would think that in a capitalist market one person’s million dollars would count the same as another’s. After all, money is the measure of all things, as is shown by the nonsense of putting a price on carbon emissions, or by economists judging how much you value having access to water by the price you would be prepared to pay for it. But in the mechanism of imperial finance, such equality does not hold.
This is most clearly shown in what is allowed by the powers that run the financial system. For example, the US makes sure that its dollar-dominated international banking network only accepts or pays funds from companies or countries that do not face its many sanctions. That is evident to those who read the news media. What is far less obvious are the ways in which, even among the rich, and even within the US itself, the financial system offers other means of reinforcing the inequality of wealth and power.
Take Airbnb’s recent sale of shares on the market in its IPO. The company raised around $3.7bn by selling a small stake in its ownership via 51.55 million so-called Class A shares, and that valued the whole company at around $47bn. A big jump in its shares from the offer price of $68 to around $140 gained market news attention, but a more interesting story was in the background, one that concerns what a Class A share represents.
Class inequality, even among capitalists
As I have pointed out before in reviews of Google, Facebook and other Big Tech companies, contrary to common prejudice, Class B is better than Class A. The A shares give the holder just 1 vote each. By contrast, Airbnb’s B shares have 20 votes each. This is an extreme divergence, even by Google/Facebook standards, where the B/A ratio is 10/1. The B shares were not on sale, and they are principally held by the company’s three founders and an American ‘venture capitalist’ firm, Sequoia Capital.[1]
So, the 51.55 million A shares have that many votes, while the more than 300 million B shares have around 6 billion votes! It also implies that no matter how many further share offers there are of A shares, it is very unlikely that the small number of holders of the B shares will ever lose control of the company.
I should add here that I don’t care about this. I just want to point out a growing practice that favours monopolistic control of business resources, and one that gets little coverage.
More usually, the news media will focus on other things, such as the elaborate schemes employed by such companies to avoid taxation. Recently there has also been discussion of the monopolistic barriers to entry set up by such companies, and the ‘buy or bury’ tactics used by Facebook and others.
By contrast, this is a more hidden feature of the contemporary capitalist markets that flagrantly contradicts notions of ownership implying control. It is nevertheless quite consistent with the other aspects of the monopolisation of economic power seen today.
Tony Norfield, 11 December 2020
[1] There are also Class C and H shares, also with no voting power, but these are not relevant to the points made here.
That’s the choice soybean farmers such as Will Glazik face. The past few summers, farmers near Glazik’s central Illinois farm have sprayed so much of the weed killer dicamba at the same time that it has polluted the air for hours and sometimes days.
As Glazik puts it, there are two types of soybeans: Monsanto’s, which are genetically engineered to withstand dicamba, and everyone else’s.
Glazik’s soybeans have been the damaged ones. His soybean leaves will curl up, then the plants will become smaller and weaker. He’s lost as much as 40 bushels an acre in some fields, a huge loss when organic soybeans are $20 a bushel. He has to hold his breath every year to see if the damage will cause him to lose his organic certification.
His neighbors who spray dicamba are frustrated with him, he said. There’s an easy solution to avoid damage, they tell him: Buy Monsanto’s seeds.
This reality is what Monsanto was counting on when it launched dicamba-tolerant crops, an investigation by the Midwest Center for Investigative Reporting found.
Monsanto’s new system was supposed to be the future of farming, providing farmers with a suite of seeds and chemicals that could combat more and more weeds that were becoming harder to kill.
Instead, the system’s rollout has led to millions of acres of crop damage across the Midwest and South; widespread tree death in many rural communities, state parks and nature preserves; and an unprecedented level of strife
in the farming world.
Executives from Monsanto and BASF, a German chemical company that worked with Monsanto to launch the system, knew their dicamba weed killers would cause large-scale damage to fields across the United States but decided to push them on unsuspecting farmers anyway, in a bid to corner the soybean and cotton markets.
Monsanto and BASF have denied for years that dicamba is responsible for damage, blaming farmers making illegal applications, weather events and disease. The companies insist that when applied according to the label, dicamba stays on target and is an effective tool for farmers.
Over the past year, the Midwest Center reviewed thousands of pages of government and internal company documents released through lawsuits, sat in the courtroom for weeks of deliberation, interviewed farmers affected by dicamba and weed scientists dealing with the issue up close. This story provides the most comprehensive picture of what Monsanto and BASF knew about dicamba’s propensity to harm farmers’ livelihoods and the environment before releasing the weed killer.
The investigation found:
Monsanto and BASF released their products knowing that dicamba would cause widespread damage to soybean and cotton crops that weren’t resistant to dicamba. They used “protection from your neighbors” as a way to sell more of their products. In doing so, the companies ignored years of warnings from independent academics, specialty crop growers and their own employees.
Monsanto limited testing that could potentially delay or deny regulatory approval of dicamba. For years, Monsanto struggled to keep dicamba from drifting in its own tests. In regulatory tests submitted to the EPA, the company sprayed the product in locations and under weather conditions that did not mirror how farmers would actually spray it. Midway through the approval process, with the EPA paying close attention, the company decided to stop its researchers from conducting tests.
Even after submitting data that the EPA used to approve dicamba in 2016, Monsanto scientists knew that many questions remained. The company’s own research showed dicamba mixed with other herbicides was more likely to cause damage. The company also prevented independent scientists from conducting their own tests and declined to pay for studies that would potentially give them more information about dicamba’s real-world impact.
Although advertised as helping out customers, the companies’ investigations of drift incidents were designed to limit their liability, find other reasons for the damage and never end with payouts to farmers. For example, BASF told pesticide applicators that sometimes it is not safe to spray even if following the label to the letter, placing liability squarely on the applicators.
The two companies were in lockstep for years. Executives from Monsanto and BASF met at least 19 times from 2010 on to focus on the dicamba-tolerant cropping system, including working together on the development of the technology, achieving regulatory approval for the crops and herbicides and the commercialization of crops.
Monsanto released seeds resistant to dicamba in 2015 and 2016 without an accompanying weed killer, knowing that off-label spraying of dicamba, which is illegal, would be “rampant.” At the same time, BASF ramped up production of older versions of dicamba that were illegal to apply to the crops and made tens of millions of dollars selling the older versions, which were more likely to cause move off of where they were applied.
Bayer, which bought Monsanto in 2018, refused to grant an interview with the Midwest Center. Company officials did not respond to requests for comment, instead issuing a statement.
Spokesman Kyel Richard said the company “has seen an outpouring of support from grower organizations and our customers.”
“We continue to stand with the thousands of farmers who rely on this technology as part of their integrated weed management program,” Richard said.
BASF also did not respond to requests for comment, instead issuing a statement.
BASF spokeswoman Odessa Patricia Hines said that the company’s version of dicamba has “different physical properties and compositions” than Monsanto’s. Hines said the company is continuing to improve its dicamba technology.
Earlier this year, a federal jury sided with a Missouri peach farmer who sued the companies for driving his orchard out of business. The jury awarded Bill Bader $15 million for his losses and $250 million in punitive damages designed to punish Bayer. Bayer and BASF are appealing the verdict. The punitive damages were later reduced to $60 million.
Hines of BASF pointed out that in the Missouri trial: “The jury’s
verdict found that only Monsanto’s conduct warranted punitive damages.”
Following the trial, Bayer announced a $400 million settlement with
farmers harmed by dicamba, including $300 million to soybean farmers.
Bayer said they expect BASF to pay for part of the settlement.
An attorney for Bader called the companies’ conduct “a conspiracy to
create an ecological disaster in order to increase their profits” in
court filings. The case largely revolved around showing the companies
knew dicamba would harm thousands of farmers.
According to court exhibits, in October 2015, Monsanto projected it would receive nearly 2,800 complaints from farmers
during the 2017 growing season, a figure based on one-in-10 farmers having a complaint.
However, even one Monsanto executive knew these projections might be
low, according to court records. In late August 2016, Boyd Carey, a
Ph.D. crop scientist overseeing the claims process for Monsanto,
realized it might be more like one-in-five and asked for a budget increase from $2.4 million to $6.5 million to investigate claims. Carey testified that he was awarded the increase.
The projected number of complaints rose to more than 3,200 for 2018,
before going down. After 2018, Monsanto figured that fewer farmers would
be harmed because more farmers would switch to Monsanto’s crops to
avoid being damaged, Carey testified in the Bader trial.
Dicamba
affects all parts of Glazik’s operation. He grows organic soybeans to
avoid exposure to toxic pesticides. He also likes the higher premiums
and the improved soil quality. But with dicamba in the air, he’s less
likely to be successful.
He now has to plant his soybeans later each year. Soybeans are less
likely to be severely damaged when they’re small, and planting them
later than usual means they’ll be smaller when the inevitable cloud of
weed killer envelops his crops. Later planting typically means a bit of
yield loss. It also means a later harvest, which limits planting of
cover crops Glazik uses to improve his soil.
“All crop damage aside,” he said, the weed killer is everywhere.
Oaks, hickories and other trees are damaged near his farm, both in the
country and in town, he said. “The fact is that the chemical can
volatilize and move with the wind and in the air. We’re breathing it.”
A ‘potential disaster’
For two decades, Monsanto made billions of dollars with Roundup Ready
crops, which had been genetically engineered to withstand being sprayed
by the weed killer and adopted by nearly every American soybean farmer.
But by the mid-to-late 2000s, Roundup was starting to fail. Farmer’s
fields were overwhelmed with “superweeds” that had developed resistance
to Roundup’s active ingredient, glyphosate.
In response, Monsanto developed new soybean and cotton seeds that
were genetically engineered to withstand being sprayed by both
glyphosate and dicamba, a very effective weed killer used since the
1960s. It was also touted as the company’s largest biotechnology rollout
in company history. In just three years, Monsanto’s dicamba-tolerant
system was able to capture up to three-fourths of total soybean acreage,
an area the size of Michigan.
Dicamba was not widely used during
the growing season because of its propensity to move off-target and
harm other plants. Because of its limited use, fewer weeds were
resistant to it, making it an effective replacement for Roundup.
Monsanto even dubbed the crops as its money-maker’s next generation,
calling them Roundup Ready 2 Xtend.
But the company faced a problem with dicamba: The weed killer drifted
onto non-resistant plants, some as far as miles away. In its own
testing over the years, Monsanto had accidentally harmed its own crops
dozens of times.
As far back as 2009, Monsanto and BASF received warnings about dicamba from several sources — one company called it a “potential disaster,”
according to court records — but they decided to plow ahead anyway.
“DON’T DO IT; expect lawsuits,” wrote one Monsanto employee, summarizing academic surveys the company commissioned about dicamba’s use.
In order to commercialize dicamba, both Monsanto and BASF worked to develop new formulations with low volatility.
Off-target movement from dicamba can happen in two main ways: drift
and volatilization. Drift is when the chemical’s particles move off the
field when they are sprayed, generally by wind in the seconds or minutes
after it is applied. Volatilization is when dicamba particles turn from
a liquid to a gas in the hours or days after the herbicide is applied.
Damage from volatilization frequently occurs through a process called “atmospheric loading,” which
is when so much dicamba is sprayed at the same time that it is unable
to dissipate and persists in the air for hours or days poisoning
whatever it comes into contact with.
Volatilization is particularly concerning because dicamba can move
for miles and harm non-target crops, especially soybeans, and even lawns
and gardens. Tomatoes, grapes and other specialty crops are also
at-risk of being damaged.
Despite being touted as less volatile, the new versions — Monsanto’s XtendiMax with VaporGrip Technology and BASF’s Engenia — were unable to stop the movement entirely.
During its 2012-2014 testing of an older version of XtendiMax, Monsanto had at least 73 off-target incidents, according to court documents.
In 2014, Monsanto had significant dicamba damage at a training facility in Portageville, Mo. Even in its own promotional videos, Monsanto couldn’t prevent non-dicamba tolerant soybeans from showing symptoms of damage.
The EPA took note of an incident where, through volatilization, dicamba turned into a gas and apparently floated more than 2 miles away, much farther than it was supposed to. During that incident, no one had measured how badly the crops had been damaged and the EPA was unable to definitively determine the symptoms were caused by dicamba. The EPA decided that was an “uncertainty” and approved the use of the weed killer with a 110-foot buffer zone.
In 2015, knowing the EPA was keeping an eye on off-target movement, Monsanto decided to halt all testing of XtendiMax
with VaporGrip Technology. According to court records, it kept its own employees, who were interested in developing recommendations for farmers, from testing, and it limited trials by independent academics in order to maintain a “clean slate.” It asked BASF to halt its dicamba testing
as well.
When a weed science professor at the University of Arkansas asked Monsanto for a little bit
of Xtendimax to test its volatility, the company told him it would have difficulty producing enough dicamba for both him and its independent tests.
A Monsanto employee, who worked at the company for 35 years, didn’t think much of that explanation when he forwarded the email to a colleague.
“Hahaha difficulty in producing enough product for field testing,” he wrote. “Hahaha bullshit.”
Illegal spraying a ‘ticking time bomb’
Weeds cut into farmers’ profits. With low profit margins, farmers will use any tool they can to control weeds.
Monsanto recognized this in 2015 and 2016 when they released dicamba-tolerant crops without their new versions of dicamba. An internal Monsanto slide shows the company knew that many farmers would likely illegally spray older, more volatile versions and harm other farmers’ crops.
But the company decided the benefits of establishing a market share outweighed the risks and launched the cotton crops in 2015. The EPA allowed farmers to spray other weed killers on the crops, and Monsanto decided to launch the seeds with “a robust communication plan that dicamba cannot be used.”
When the seeds were sold, Monsanto put a pink sticker on each bag to indicate it was illegal to spray dicamba on the crops in 2015. The company also sent letters to all growers and retailers, among other tactics, to limit illegal applications of dicamba.
However, in internal communications in April 2015, members of Monsanto’s cotton team joked about this risky strategy.
Monsanto doubled down on this risky strategy in 2016, releasing dicamba-tolerant soybean crops without a weed killer, too. Meanwhile, Monsanto also declined to investigate drift incidents in 2015 and 2016.
In the summer of 2016, BASF sales representatives in the field were reporting older versions of dicamba causing damage, hinting the problem was predictable.
“The one thing most acres of beans have in common is dicamba damage. There must be a huge cloud of dicamba blanketing the Missouri Bootheel,” a BASF employee wrote in a July 4, 2016, report. “That ticking time bomb finally exploded.”
Drift expected to drive sales
Dicamba drift led to widespread news coverage. Monsanto and BASF expected to turn it all into more money.
In an internal document, Monsanto told its sales teams to target growers that weren’t interested in dicamba and dicamba-resistant crops. The sales pitch? Purchasing Monsanto’s products would protect them from their neighbors.
“Interesting assessment that much of the Xtend acreage was planted to protect themselves from neighbors who might be using dicamba? Gotta admit I would not have expected this in a market research document,” a Monsanto executive wrote.
Even as thousands of farms across millions of acres of cropland were being damaged, Monsanto officials were touting the damage as a sales opportunity.
“I think we can significantly grow business and have a positive effect on the outcome of 2017 if we reach out to all the driftee people,” another Monsanto sales employee wrote in an email that year.
One of those customers was Bill Bader, the peach farmer who sued Monsanto for destroying his orchard. Bader testified that while he could not protect his peach trees, in 2019 he planted dicamba-tolerant soybeans to help protect his soybean crops from getting damaged.
“This is the first product in American history that literally destroys the competition,” Bader’s attorney, Billy Randles, said. “You buy it or else.”
Research designed to downplay harm
For years, the EPA told Monsanto it needed to address volatility in its dicamba studies when applying for regulatory approval. But the tests Monsanto conducted did not reflect real-world conditions.
Dicamba would primarily be sprayed on soybeans, but 2015 studies submitted to the EPA were conducted at a cotton field in Texas and a dirt field in Georgia. Neither state has a large amount of soybeans. This guidance followed directives from Monsanto lobbyists that incorporated earlier Monsanto research
showing that higher volatility was detected on fields with soybeans.
In addition, Monsanto did not follow the rules that would eventually be codified on the label.
During the testing in Texas, wind speeds were 1.9 to 4.9 miles per hour. In Georgia, wind speeds were 1.5 to 3 miles per hour. According to the label the EPA approved, dicamba can only be sprayed with wind speeds between 3 and 10 miles per hour. Spraying at low wind speeds is more likely to lead to volatilization because there is increased risk of a temperature inversion, which is when cooler air is caught beneath a layer of warmer air making gases more likely to persist near the ground.
After Monsanto submitted the tests to the EPA, the company still had a lot of unknowns about its product’s volatility, according to internal emails.
“We don’t know how long a sensitive plant needs in a natural setting to show volatility damage. We don’t know what concentration in the air causes a response, either,” he wrote. “There is a big difference for plants exposed to dicamba vapor for 24 vs. 48 hours. Be careful using this externally.”
Despite the design of the studies, and the EPA’s own studies that showed dicamba posed a risk to 322 protected species of animals and plants, the agency conditionally approved the herbicide in 2016. The agency determined that mitigation measures — such as not spraying near specialty crops and endangered species habitats, wind speed restrictions, and a ban on aerial applications — would keep spray droplets on target.
It was only approved for two years, when the agency would review its approval again.
After the conditional approval, BASF knew dicamba still posed risks. While BASF told farmers dicamba drift wouldn’t hurt their bottom lines, the company privately told pesticide applicators
that any drift they caused could decrease farmers’ harvests, according to internal BASF documents. A BASF executive said “from a practical standpoint” Engenia was not different
from older dicamba versions.
Even Monsanto’s sales teams were having problems with dicamba’s reputation after the EPA approved the weed killer.
In an internal email, a Monsanto salesman took issue with BASF changing how it publicly discussed its dicamba product: It used to say volatility was not a problem, but now it said it was. Another chemical company saying volatility was bad could hurt Monsanto’s sales.
“We need to get on this right now!” the salesman emailed his colleagues. “Deny! Deny! DENY!”
‘Never admit guilt’
In 2017, the first season that the new versions of dicamba were approved, damage reached unprecedented levels. Around 3.6 million acres of soybeans were damaged, according to an estimate from the University of Missouri.
In July of that year, Monsanto executives scheduled a meeting to discuss how to combat coverage of complaints.
“We need REAL scientific support for our product to counteract the supposition happening in the market today,” a Monsanto executive wrote in an email. “To be frank, dealers and growers are losing confidence in Xtendimax.”
In late summer 2017, Monsanto had started to blame damage on a BASF weed killer, which is used on the main competitor to Monsanto’s own soybeans. In December 2017, Monsanto agreed to drop that argument
as part of a defense strategy with BASF against farmers.
Both Monsanto and BASF took steps to shield themselves from lawsuits.
“I was always told to never admit guilt,” he said.
On top of the investigations, the label left pesticide applicators liable for damage because it was nearly impossible to follow. A 2017 survey of applicators
found that most trained sprayers had issues with dicamba even when spraying in good conditions and while following the label.
With damage being reported in 2017, Monsanto also declined to pursue a study that would have given the company more information about how dicamba caused damage on real farms. A Monsanto off-target movement researcher sent a request for a project proposal to Exponent, which helped analyze the data Monsanto submitted to the EPA. The study could be done in less than two weeks and cost $6,000.
The company never acted on it, one testified in the trial.
‘The problems have not gone away’
In order to combat the damage, the EPA developed new restrictions on dicamba. In doing so, the EPA dropped an idea that Monsanto opposed, and Monsanto dictated the new restrictions that were adopted.
Aaron Hager, an associate professor of weed science at the University of Illinois, said it is clear the changes haven’t worked.
“We have revised the label and revised it again,” Hager said. “The problems have not gone away.”
The EPA’s decision was eventually voided by the Ninth Circuit Court of Appeals for failing to properly consider the impacts on farmers and the environment. The court ruled the agency gave too much deference to Bayer and also was lacking necessary data to show too much harm wouldn’t be done.
Glazik, the organic Illinois soybean farmer, works as a crops consultant advising other farmers on what to plant. As the damage has continued, he said, more and more of his clients are “feeling bullied into” buying the dicamba-tolerant crops. Others tell him, they have to spray dicamba or else they can’t control the weeds.
But as an organic farmer, Glazik said, no single herbicide is necessary. Instead, farmers have a choice. Well-managed fields can be weed-free without using toxic chemicals, he said.
“You don’t have to have the dicamba spray to control weeds in a field,” he said.
Democratic Rep. Cedric Richmond is set to head the White House Office of Public Engagement
Biden chooses a team that is sympathetic to corporations, many of whom have questionable ties to finance
New research shows inequality remains stark, between rich and poor countries, and between households within countries
Tax provisions nested into the $2.2 trillion CARES Act passed in March are still paying dividends for major corporations, including a rule that has allowed tens of millions of dollars in tax rebates in recent months.
The continued benefits for the wealthy stand in stark contrast to the meager funds provided to working and middle-class families. Recent negotiations in Congress suggest lawmakers are unlikely to provide another wave of $1,200 stimulus checks, and political gridlock has stalled any hope for a dramatic aid package for those in need of direct assistance before the end of the year.
But, with little fanfare, the government is still mailing out coronavirus stimulus checks: The recipients are just large corporations, many of which have thrived during the pandemic.
The Internal Revenue Service is one of the many agencies tapped to process economic relief during the crisis, with a change that allows the government to issue generous retroactive business tax refunds for income taxes paid in previous years.
Amerco, the parent company of U-Haul, has seen hefty earnings this year as Americans have taken advantage of low interest rates and purchased homes in rural and suburban communities. Jason Allen Berg, the chief financial officer of Amerco, told investors in November that the company had just received $110 million in tax refunds from the IRS, with another $123 million pending, through a program designed to revitalize businesses harmed by the economic downturn.
Many other businesses have recently tapped the same pandemic-related tax programs to receive checks from the government.
Investor disclosures show that Kirkland’s Inc. received a $12.3 million income refund, Apyx Medical Corp. received $3.7 million, and Stericycle received $48 million in refunds — all by utilizing the retroactive income tax cut made possible by the CARES Act, the law enacted in March to respond to the crisis. Although earnings are down, the companies have reported profits this year.
The tax refunds relate to changes to IRS rules on “net operating loss” accounting rules, which refer to the amount a company deducts from its taxable income. The CARES Act included a provision that lifts the cap on the amount of losses that can be deducted and allows companies to carry back losses for five years, applying losses to pre-pandemic years with a higher income tax rate, before President Donald Trump’s corporate tax cuts. In other words, a profitable corporation can claim business expenses against years in which it paid a higher tax rate, resulting in a refund.
Unlike other economic rescue programs, this tax provision has no strings attached. Any corporation, even companies that did not suffer from the pandemic, can utilize this change to the tax code and request automatic refunds from the IRS. The money does not need to be used for maintaining employment. Any refund received through the program can be spent on dividends or stock repurchasing plans, or other giveaways to management and investors.
Earlier this year, shortly after the passage of the CARES Act, the Orlando Sentinel analyzed the impact of the “carry back” loss provision, finding that corporations immediately claimed as much as $7 billion in benefits from the change. The largest beneficiaries included Marathon Petroleum with $411 million in rebates, Ameriprise Financial with $220 million, and AmerisourceBergen, which claimed $191 million from the IRS.
AmerisourceBergen, a wholesale drug company, notably later announced a $500 million stock buyback program to boost its stock price and reward investors. In September, Ameriprise Financial announced a $2.5 billion stock buyback program.
“Congress could take a few steps to better focus loss relief to those who need it most,” noted Steven Rosenthal, a fellow at the Urban-Brookings Tax Policy Center, in a blog post on the provision. Rosenthal has written that the program needs to be pared back to business losses incurred only by small businesses.
But there is little interest in limiting the tax provision or extending new support for low-income individuals struggling with high unemployment and diminished economic prospects.
On Monday, a bipartisan group of lawmakers unveiled a plan to extend unemployment benefits, providing $288 billion for business assistance and $260 billion for local governments, along with a limited legal liability waiver to prevent lawsuits by customers and employees harmed by the pandemic. The plan eschews another round of stimulus checks, hazard pay for essential workers, or guaranteed payroll support, a plan discussed widely earlier this year.
Months of political stalemate has led leaders of both parties to gesture support for the new bipartisan plan, pushed by Sen. Joe Manchin, D-W.Va., and Sen. Susan Collins, R-Maine, and the centrist group in the House known as the Problem Solvers Caucus, which includes Rep. Tom Reed, R-N.Y., and Rep. Josh Gottheimer, D-N.J.
It is way past time to remake wage pattern with economic policies that generate robust wage-growth for vast majority.
Shaneé Benjamin for Vox
The collapse of America’s middle class crushed department stores. Amazon and the pandemic are the final blows.
In a New Jersey suburb seven miles west of Midtown Manhattan, the American Dream is on shaky ground.
The Dream in question isn’t the mythological notion that upward social mobility is within reach for all hardworking Americans. It’s a $5 billion, 3 million-square-foot shopping and entertainment complex in East Rutherford featuring an indoor ski slope, an ice-skating rink, and a Nickelodeon-branded amusement park. The complex finally opened last fall, but it’s now facing huge new challenges.
The development’s complicated 17-year history, marked by ownership changes, false starts, and broken promises, had already put American Dream in a precarious situation. The Covid-19 pandemic hitting in March made things much worse. Whether the mall makes it in the long term will hinge in part on how it deals with the collapse of three of the marquee department stores that were to anchor the complex and draw foot traffic — Barneys New York, Lord & Taylor, and Century 21 — which all have gone bankrupt and closed, or are planning to close all their stores in the US.
Around 100 storefronts in American Dream opened their doors to customers in October and November, but the complex’s future is not guaranteed. Its owners, Triple Five Group, missed several mortgage payments this summer, and it’s not clear who might fill the enormous holes left by the three fallen department store chains, or which other retail tenants will opt out of their leases now that the development is missing three of its anchors.
While the story of American Dream is unique in many ways, its struggles are emblematic of the bleak future facing many US malls and department stores — whose destinies have long been intertwined. The downfall of these onetime crown jewels of retail will have meaningful impacts on the Americans who work for them and the communities they’ve long called home.
More than half of all mall-based department stores will close by the end of 2021
Across the US, department stores are shrinking or shuttering altogether. In 2011, US department stores employed 1.2 million employees across 8,600 stores, according to estimates from the research firm IBISWorld. But in 2020, there are now fewer than 700,000 employees in the sector, working across just over 6,000 locations.
The reasons for the struggles are both shared and unique. Since the Great Recession began in late 2007, the vast majority of income growth in the US has gone to high-income households, squeezing middle-class households and altering where they spend money. As a result, chains that sell brands at sharp discounts like TJ Maxx, Ross, and Dollar General have become more popular, siphoning away shoppers from full-price department stores like Macy’s and JC Penney that were designed to cater to a stronger middle class of yesteryear.
Department stores are also facing the reality that they are no longer the main way most shoppers discover or access new brands — which was once perhaps their main appeal as onetime innovators. Consumer brands have increasingly become focused on building connections with customers through their own stores, websites, social media platforms, and other online-only marketplaces.
All the while, department stores’ contraction is upending local labor markets and the communities they called home. And rock bottom is not even here yet. More than half of all mall-based department stores will close by the end of 2021, according to estimates by Green Street Advisors, a commercial property research firm. And that will have a massive impact on malls; as of January, department stores accounted for nearly one out of every three square feet in malls.
“The department store genre has been taking the great American shopping mall down with it, slowly but inevitably,” said Mark Cohen, the director of retail studies at Columbia University who was previously the CEO of multiple department store chains in the US and Canada.
What happens when an entire sector of retail, one that employs more than half a million people, is in free fall — and is slowing or dragging down shopping malls like American Dream with it? And what becomes of the local communities across the country whose social identities and local economies rested on, at least in part, now-fallen department stores and the malls they buttressed? We’re about to find out.
What’s killing the department store
For much of the past century, US department store chains played an important role in many Americans’ lives and an innovative role in the retail sector.
For the American middle class of the 20th century, department stores helped shape what successfully living the American dream looked like. These stores were often an entry point into fashion and home furnishing trends once reserved for only the wealthiest, since they offered large selections of name brands at affordable prices all under one roof — first in big cities, and then following population exoduses to the suburbs. And as the main attractions for malls in the suburban US, they played a foundational role in the idea of shopping as a social activity in the second half of the 20th century.
Department store employees also had it pretty good, for a time. The sector was welcoming to women salespeople, providing a path to certain corporate roles for those who found success, according to the book From Main Street to Mall: The Rise and Fall of the American Department Store. A successful salesperson working in one of these stores, especially before large chains came to dominate the sector, could make a career of their role, providing for their family, no college degree needed. Those days are mostly long gone.
Since the Great Recession began in 2007, the middle 40 percent of the US saw its income shrink
But over the past two decades, a confluence of other factors has placed several giants at death’s door and put even the most innovative in a precarious situation. These factors were both external and internal: Amazon led a boom in online shopping, and many brands that once relied on department stores began selling directly to customers online and in their own stores. Meanwhile, many department store chains made the wrong bets, investing more heavily in store expansion while underinvesting in merchandise differentiation and e-commerce strategies.
But perhaps most critically for the chains targeting the middle class — think Macy’s, JC Penney, and Bon-Ton — this category of households has been struggling since the Great Recession began in 2007. According to a 2018 study from the consulting firm Deloitte, “the middle 40 percent” of the country saw its income shrink in the previous decade, while more than $8 out of every $10 in income growth nationwide went to high-income households. As a result, discount chains that sell name brands at a bargain — like TJ Maxx and Ross stores — became much more attractive to middle-class shoppers than department stores selling at full price. The treasure-hunting aspect of stores like TJ Maxx and Home Goods also added to their appeal over many of their department store competitors. Macy’s, the largest traditional department store in the country, said earlier this year that it planned to close 125 of its 800-plus stores — and that was before the pandemic.
“Sears was built for [the] middle-class mall goer,” Web Smith, the founder of the commerce and media newsletter 2PM, wrote in the wake of Sears’ 2018 bankruptcy. “It’s been the thesis of 2PM, Inc. that retailers who’ve built their businesses for this American demo will continue to struggle until the American middle class rebounds.”
But department stores catering to wealthier customers have failed, too. In addition to Sears and JC Penney, higher-end stores Barneys New York, Lord & Taylor, and Neiman Marcus have all filed for bankruptcy in the past two years. Even Nordstrom, viewed by industry insiders as the most progressive traditional department store chain, is facing significant headwinds. While overall US e-commerce sales increased 45 percent year over year from April to June as pandemic shutdowns pushed more shoppers online, Nordstrom registered just 20 percent growth in online sales.
As more Americans came online and as social media platforms rose in popularity, brands started establishing direct relationships online and through their own stores, which chipped away at their reliance on department stores for finding customers. For a while, department stores still could provide a way to reach mostly older consumers who preferred in-person shopping or others who didn’t have internet access, but the chains became more complementary for popular brands rather than remaining a crucial sales channel.
More mid-priced brands such as Levi’s and Adidas started selling on Amazon and other online marketplaces as department stores targeting the middle class began to struggle, meaning chains like Macy’s now had serious online competition, too. And since Amazon and other top online retailers are in many cases more convenient than visiting a large store where salespeople are trained and paid less than they once were, department store advantages further diminished.
Finally, some private equity companies — investment firms that buy up struggling companies in part by saddling them with debt — have taken aim at the sector, and the debt associated with their takeovers has hastened the demise of some department store chains like Neiman Marcus. The Dallas-based luxury chain filed for bankruptcy earlier this year under crushing debt from its PE owner.
The chain was also late to e-commerce — when it finally started getting aggressivearound 2014, introducing free shipping and returns to better compete with Nordstrom, it didn’t work and instead crimped its profits. The company’s bottom line was also hurt by some of the biggest brands it sells moving from a wholesale model to a more flexible and lower-risk model that was less profitable for Neiman Marcus. While a private equity owner didn’t force these moves, the fallout from these crises coupled with a heavy debt burden was a recipe for disaster.
How the decline of department stores is reshaping communities
While the pandemic has accelerated contraction of the department store industry, the sector has been in a slow descent for decades. And the communities they call home, which experienced the upside of their presence during the golden years, are now faced with a series of cascading challenges.
“First they become an eyesore; it’s aesthetically damaging,” said Vicki Howard, the author of From Main Street to Mall. “Second, there’s the jobs. … Third, it impacts the consumers themselves that have turned to that area for leisure activities, for places to go in the winter, to go with their kids.”
“It’s quite a big economic and social and cultural phenomenon to have these department stores closing. … They occupy such a physical place as well as a social space.”
“It’s quite a big economic and social and cultural phenomenon to have these department stores closing — and malls also,” she added. “They occupy such a physical place as well as a social space.”
The decline of department stores and the malls they supported has required local governments to get creative. In Bartlesville, Oklahoma, a city of 36,000 near the border of Kansas, local officials have embraced discount chains as the local Washington Park Mall has struggled. The city provided $1.5 million in incentives in 2016 to develop an outdoor shopping center with popular discount retailers TJ Maxx and Ross to help offset the longtime troubles of the mall, once anchored by the department stores Sears, JC Penney, and Dillard’s. (Sears and JC Penney both closed their stores there in recent years, and Dillard’s recently turned its mall location into a clearance store.)
“We’ve been exceedingly fortunate to have replaced the mall’s legacy brands with up-and-coming brands better aligned with today’s consumer preferences,” David Wood, Bartlesville’s economic development chief, told Recode in an email.
The city also provided a $200,000 incentive to divide an old Kmart into five smaller retail establishments, including outlet stores Ollie’s and Burkes Outlet, as well as a Dollar Tree store. The new retail additions, Wood added, “have largely offset the employment loss — with rising sales tax collections, too.” Taxable physical retail sales dropped in 2015 and 2016 in Bartlesville but grew modestly in 2018 and 2019. Of course, department store jobs are different from discount chain jobs, which have lower average hourly pay and rarely offer sales commissions.
In Madison, Wisconsin, local city-planning officials are looking ahead to a possible future where their city won’t have malls anchored by department stores. They have been discussing potential redevelopment plans for the areas around the community’s struggling East Towne Mall and West Towne Mall since 2018, and the discussions took on added significance when the malls’ owner filed for bankruptcy in early November.
Several of the malls’ anchor tenants have closed up shop in the past few years, including the department store chains Boston Store and Sears. While the Madison economy is diverse outside of retail, with a large research university and state government offices calling the city home, city planners believe it is critical to start discussing potential redevelopment plans, whether or not the mall’s owner ends up selling or gets on board with redevelopment, because by the time large commercial properties are in true distress, the ripple effects can be dangerous.
“Longer-term vacancies can sometimes snowball and have the effect of spreading and negatively impacting surrounding areas,” said Ben Zeller, a city planner for Madison.
Madison officials have been studying other mall redevelopment plans around the country for ideas about what to do. If redevelopment of these Madison malls does end up happening and looks anything like projects in other communities that city planners are studying, the retail presence would likely be downsized and supplemented by new residential buildings and non-retail employers. Zeller himself lives in an apartment building built on a former mall parking lot in another part of Madison.
At a high level, Zeller told Recode that such redevelopment plans are complex, which means they take time: 15 to 20 years or longer to complete. One challenge involves the fragmented ownership structure of large mall properties, where the main mall may be owned by one business and the department store anchors and restaurants could be owned by separate entities. Another challenge involves restructuring the public street network around malls.
“It’s very difficult to have a future neighborhood created when there are blocks [in existing mall developments] that are 100 to 200 acres as opposed to a normal city block,” he added. Residential neighborhoods typically need shorter street connections to make public transportation and walking viable.
Zeller added that the city wants to make sure that, no matter who buys in, “we ultimately end up with a connected public street network, adequate parkland to serve new residential uses, integrated transit, an improved bike network, and other components of complete neighborhoods.”
In short, communities can rebound from department store chain failures — and the ripple effect on malls — if they have the time and resources to plan two decades into the future like Madison is starting to. But not every American community does.
What it means for the people who depend on retail jobs
While some of the evolution that the department store sector has gone through marked natural generational shifts in consumer behavior, the industry’s failures have had a significant impact for those who work in retail, extinguishing the idea of retail sales positions as careers — whichin the 20th century was an advantage for department stores.
“It’s a negative cycle. If you have less career-oriented employees and higher turnover, you invest less in those employees,” said Jason Goldberg, the chief commerce strategy officer at the global advertising holding company Publicis. “It creates this vicious cycle and then you can’t recruit good employees. They were turned from advisers and very relationship-based salespeople into cashiers.”
With few exceptions, the idea of a department store sales job being a career hasn’t been a reality for decades. In the mid-1900s, they could be steady, family-supporting jobs with fixed schedules. But in the decades following the birth of big-box retailers Walmart, Kmart, and Target — all in 1962 — retail wages began dropping as traditional chains chased the lower-paying labor models of the new discount retailers.
So where are department store employees going?In the five-year period from 2015 to 2019, more started working in discount chains like Dollar General.
“I would have to guess that by 1980 it was not likely that a single-wage earner could support a family while working on the selling floor of a retail store,” said Cohen, the Columbia professor and former department store executive.
Yes, there are still top salespeople at chains like Nordstrom or Neiman Marcus who might pull in six figures, but they are the few exceptions to the rule.
So where are department store employees going as their employers cut jobs, close stores, or go bankrupt?In the five-year period from 2015 to 2019, more started working in discount chains. The category of the retail industry that includes dollar stores like Dollar General jumped into the Top 5 categories of employment that attracted workers who had recently left or were laid off from a department store job. (This job transition data was based on a Brookings Institution analysis of current population survey public-use microdata provided to Recode by Chad Shearer, a former senior research associate at the think tank who is now an economic development consultant.)
That may not be a great thing, as least as it relates to employee earnings. While Dollar General’s stock price has nearly tripled over the past five years, its front-line employees don’t see much of that enrichment. Average hourly base pay at Dollar General is $9, according to the job review site Glassdoor, compared to $11 at Macy’s.
The rise of e-commerce can be seen in this job movement data, too.During the same five-year period, if you combine the “electronic shopping” and “warehousing” job sectors (which both include e-commerce companies) into one category of employment, the combined sector moves into the Top 10 for industries where employees who had recently left department store roles went to work next. It’s possible e-commerce employers should rank even higher in reality, since many e-commerce warehouse employees are technically hired by third-party temporary employment firms.
There are trade-offs to this shift. On the one hand, Amazon warehouse employees in the US make a base wage of $15 an hour, which is a higher base pay than most entry-level department store jobs. But the work is often much more physical in nature than a retail job,requiring workers to pick or stow hundreds of items per hour at a rapid pace and to be able to lift up to 50 pounds of goods. The reality is that when it comes to finding a job in 2020, Amazon and Walmart — already the two biggest private-sector employers in the US — are the retailers offering work. While so many industries have contracted, they’ve added hundreds of thousands of new job openings this year alone. And as department stores continue to cut jobs, the largest players in the new retail economy capture more power in the labor market.
How to rebuild from department stores’ ruins
There is no silver bullet for US department stores to immediately start thriving again, so the best many can do is simply try to adapt and survive. For chains that still have a nationwide presence — like Macy’s or Nordstrom — that means fewer large, full-price stores and more investment in e-commerce sales, potentially supplemented by smaller pickup points for online orders to offset expensive shipping costs. Macy’s executives have also said the company plans to test smaller stores that aren’t attached to malls in an effort to unhitch their destiny from struggling regional malls built for a weakening American middle class.
As department stores fight their uphill battles, they are being replaced by competition that can provide better prices, selection, or convenience to shoppers of all wealth levels
As these chains fight their uphill battles, they are being replaced by a bevy of options that can provide better prices, selection, or convenience to shoppers of all wealth levels. The best discount chains, for example, are still thriving a decade after the Great Recession ended. Even without a strong e-commerce presence, the parent company of TJ Maxx, Marshalls, and Home Goods is moving steadily through the pandemic, with a stock price equal to what it was before Covid-19 hit the US in March. And Dollar General’s stock price hit an all-time high in October; the company is now worth nearly $53 billion.
Brands that sell apparel and cosmetics — key product categories for many department store chains — continue to sell more goods directly to shoppers through their own stores and websites rather than through department store chains. This direct connection gives brands — whether they’re established or new startups — more control over how their goods are displayed, more information about who their customers are, and often better profit margins. Nike, for example, stopped selling through department stores Belk and Dillard’s earlier this year and is no longer available at the online retailer Zappos. Under Armour announced it would cut its wholesale partners in North America by 2,000 to 3,000 stores. New online retailers that attract digital-savvy consumers and, in turn, more brands — like Stitch Fix, Rent the Runway, The RealReal, and ThredUp — were also stealing market share from department stores pre-pandemic.
But Amazon continues to be the titan of the modern retail world. It’s at least seven times bigger than No. 2 Walmart in e-commerce, and it’s continuing to invest in beefing up its physical store presence as well. While the online giant’s direct impact on department stores was minimal for much of its history, things have changed in recent years. Amazon is still not a high-end fashion destination, but it is absolutely a place where a majority of Americans are willing to buy footwear, casual clothing, or basics like underwear and socks. In April, the retail research firm Coresight said that more than 70 percent of apparel shoppers bought clothing or footwear on Amazon in the prior 12 months — an increase of 10 percentage points from 2019 and 25 percentage points from 2018. At the weakest moment for department stores, Amazon is becoming a more powerful direct competitor.
Taken together, the future for department stores is bleak, and for many of the malls they anchor. Yes, the US has too many retail stores — 40 percent more retail square feet per person than No. 2 Canada — and too many subpar malls, considering current shopping trends. Yes, the retailers courting business away from department stores are providing superior products, prices, or experiences that are resonating better with shoppers. Yes, it is normal in capitalism for industry categories to fall while others rise.
But the communities across the country that depended on these stores and malls as job creators will have to get creative to rebuild around their ruins. And the Americans who once saw a department store sales job as a potential career, or at least an entry path to a better-paying retail corporate job, now face a new reality: Many of the biggest retailers hiring today — discount chains and e-commerce giants — are offering less pay, or perhaps better pay but less personable and more grueling work.
Even if you could snap your fingers and return this retail sector to glory, it wouldn’t solve the key societal and macroeconomic problems connected to its decline. While the median US household brought in 48 percent more income in 2018 than in 1970, the vast majority of those gains happened prior to 2000. Along the way, the middle class’s income share — which many of the biggest department store chains catered to — has shrunk by 19 percentage points as the rich keep getting richer. In turn, most shoppers value discounts above all else — who can blame them? And for those who can afford it, the convenience of Amazon Prime delivery and its endless virtual shelves of merchandise is very difficult to beat. If the American dream of department stores wasn’t fully extinguished before 2020, the year of the pandemic will make sure it is.
Jessica Corbett, staff writer
Progressives are calling on the president-elect to reject a “Corporate Cabinet” and instead pick “people dedicated to working in service of the general welfare.”
