For Farmers, a Rare Exercise in Economic Democracy

Date: 29 Sep 2002 | posted in: From the Desk of David Morris, The Public Good | 0 Facebooktwitterredditmail

For Farmers, a Rare Exercise in Economic Democracy
By David Morris
September 29, 2002

Originally Published in the Minneapolis Star Tribune

A few days ago the shareholders of a large Minnesota company approved the company’s sale to a much larger corporation headquartered in Illinois. In and of itself, this was no big news. Last year some 10,000 firms were acquired or merged in a similar manner.

The state media gave the Minnesota sale only passing mention. It deserved more attention. For the company, 22-year-old Minnesota Corn Processors (MCP), was owned by 5,500 Minnesota, Iowa and Nebraska farmers. Each farmer had one vote, making this a very rare exercise in economic democracy.

In traditional corporations, the person with 1 million shares has 1 million times the voting power of someone with one share. At MCP each shareholder had only one vote. Unlike in 99 percent of the other mergers and acquisitions that take place in this country, at MCP those who were going to be affected by the sale of the company were largely the ones who had the authority to decide whether to sell.

The communities of Marshall, Minn., and Columbus, Neb., home to MCP’s two corn sweetener and ethanol plants, and the workers at both plants and at MCP’s headquarters in Marshall did not have the right to vote. But their interests were indirectly taken into account by the requirement that the sale had to be approved by two-thirds of those voting.

The two-thirds requirement is part of a state law that governs farm cooperatives. MCP originally was established as a cooperative. A few years ago it changed its legal structure to a limited liability corporation but maintained the two-thirds proviso.

On Sept. 5, 81 percent of those voting agreed to sell both plants to Archer Daniels Midland (ADM) for about $750 million. The vote was decisive, but Tom Cherveny, reporter for the West Central Tribune, maintained that “even those who supported the sale expressed mixed emotions about it.” Duane Adams, an MCP board member who voted in favor, explained, “It was an emotional day for everyone, no matter what side of the vote you were on . . . It was unfortunate the way it played out.” A surprising number didn’t vote at all — they were torn by the attraction of the large, short-term financial benefit and the concern about losing any influence on their long-term economy.

Some may be disappointed with the outcome of the vote, but none can argue with the process itself. Ownership matters. Local ownership builds better communities. A blizzard of studies confirm that common-sense observation. Communities that boast a variety of locally owned enterprises are more prosperous in so many ways. The economy is more stable and more parts of the community gain its benefits. Civic participation rises. Even child welfare improves.

Despite the evidence that rooted businesses promote strong local economies and communities, this country and state do little to encourage or nurture such ownership. Thirty years ago Congress did provide a tax break for companies that gave their employees stock. But the tax break was not contingent on those employees having any participation or influence in the company. Some 10,000 firms currently have Employee Stock Ownership Plans, but in only about 500 do employees have the kind of authority the farmers at MCP had.

Often local and state governments actually discourage local ownership. How many times does a city or county offer massive subsidies to encourage a branch plant or large retail store to locate there while providing little assistance to their own homegrown firms?

In 1990 Congress established a 10-cent-per-gallon federal tax credit for small ethanol plants. The Internal Revenue Service ruled that cooperatives could not pass that credit through to its members. Some ethanol plants abandoned their cooperative structure in order to gain this additional financial benefit.

In the case of MCP, many farmers who are facing retirement, despite their misgivings, were persuaded to cash out their equity. This problem of how to transfer assets to the next generation has plagued independent farmers for generations. Can we create a vehicle to allow this generation of farmers to cash in their investment in manufacturing enterprises while still allowing the next generation of farmers to maintain the same control over their economic futures?

Ownership matters. Absentee-owned firms use a different economic calculus to make decisions. ADM will acquire or sell, build or shutter plants based on what is best for the corporation as a whole, not what is best for Marshall, Minn., or Columbus, Neb. Its return on investment requirement is far higher than what would satisfy Minnesota farmers. Two days after the vote, ADM laid off 120 workers at MCP’s headquarters, reducing the gross income of the region by several million dollars overnight.

In the next 30 days we will have hundreds of debates among candidates for local, state and federal office. One of the key issues they should discuss is their attitude toward local ownership. What strategies do they propose that will give their constituents the right not only to vote in political elections but to participate in making the economic decisions that will affect their livelihoods and communities?

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David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.