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July 04, 2010

Paying into Politics Makes Politics Pay – Lessons from the Nonpartisan League, Part Two

Posted in: nonpartisan league

At the turn of the 20th century, North Dakota’s population was mostly rural farmers, yet a small number of powerful corporate interests dominated the state’s politics and finances. Most of these powerful financial interests could have served an important role in the economy of the plains but had decided instead to embrace maximum profitability through a parasitic economic model that bled the farmers dry. It was under these conditions, which in many ways resemble our current national financial and political situation, that the Nonpartisan League rapidly organized the farmers to take control of their state.

A powerful oligarchy of corporate interests used campaign donations and political power to shield themselves from taxation and regulation. From “Political Prairie Fire” by Robert Morlan:

From almost the beginning of its statehood until 1906 North Dakota had had a boss, the agent of this oligarchy, and the fact was accepted by most of the voters with a rather indifferent resignation. Alex McKenzie had come to North Dakota in the 1870s with the Northern Pacific Railroad as a contractor and had in a few years managed to make himself the political master of the state. He was an adroit and clever manipulator, generous with money and with personal favors, who preferred to persuade rather than command. The railroads provided the free passes and much of the funds necessary for continued power, in return being protected in matters of taxes and rate regulation.

The Minneapolis Chamber of Commerce, community traders and bankers used their political power and spending to exploit farmers.

The methods by which the Minneapolis Chamber of Commerce, and to a lesser extent the Duluth Board of Trade, determined the farmers’ economic lot are worth more than passing notice. The power of setting prices and determining grades and buying conditions meant virtually complete economic control over the entire area, and on these matters the word of the Chamber was law.

The oligarchy had a variety of tools to rip off the farmers, for example, by falsely classifying their wheat as inferior quality, improperly weighing their grain and charging them for shipping “impurities.” On the issue of grading wheat by quality:

The 1915 wheat crop in North Dakota was approximately 140,000,000 bushels. If this were sold on an average of only one grade below its actual grade, it meant a loss to the farmers from this source alone of $5,000,000. In fact, the experiments of Dr. Edwin F. Ladd, professor of chemistry at the state agricultural college and food commissioner of North Dakota, showed that the wheat in one 100,000,000-bushel crop was actually worth $5,271,398.23 more than the farmers received for it.

Not surprisingly, when this “inferior” wheat finally ended up in the hands of members of the Chamber of Commerce, they had ways of magically turning most of it into a higher, more profitable grade.

Exchange traders who dealt in phantom commodities and futures manipulated the prices of wheat. Think of them as the Wall Street traders of their day, using something like credit default swaps to deny farmers a fair value for their product.

With reference to the speculative system, testimony was offered before a committee of the United States House of Representatives to show that for every bushel of actual wheat sold, fifty bushels of “phantom wheat” were dealt in on the floor of the Minneapolis Chamber of Commerce. The speculators were well aware that most farmers were in debt in the fall and that they had no place to store their grain. Since they were thus virtually forced to sell, it was a simple matter to drive the price down at harvest time.

The regular farmers were also crushed by bankers charging usury-level interest rates. They were the turn-of-the-century equivalent of our payday lenders, credit card companies and predatory mortgage brokers with their ballooning interest rates.

A great many of the farms, as we have seen, also had heavy mortgages incurred in building, acquiring machinery, buying livestock, and the like. The bankers commonly charged as much as the traffic would bear in the way of interest, sometimes such fantastic amounts as 25 to 50 per cent on loans. Such usury not infrequently spelled failure for competent farmers who might otherwise have succeeded. It was apparently also standard practice for many merchants, especially machinery dealers, to charge from 20 to 100 per cent more than a legitimate profit because of real or imagined risks, thus making all purchasers cover any possible defaults. […]

The Williams report showed that no less than two thirds (96) of the national banks in North Dakota were charging usurious rates. Though the law made any rate over 10 per cent usury, many admitted that 10 per cent was the minimum charged on farm loans.

Not surprisingly, the farmers in North Dakota were also getting a raw deal from the private companies that insured for hail damage. Just to the north, Canada had proved that a universal public insurance system would be dramatically better and cost less. Does this remind anyone of the private health insurance situation in this country today?

North Dakota actually had a State Hail Insurance Department, but its program was not compulsory and, though its premiums were lower than those of the old-line companies, it did not follow their practice of taking notes in payment. With the private company rate standing at 43 cents an acre and the existing state rate 30 cents, League organizers could well point significantly toward a neighbor on the north, Saskatchewan, whose acreage tax program cost 10 cents and paid a better rate on losses. Nor was the fact overlooked that in 1913 the private companies took in for North Dakota hail insurance a total of $1,079,813.62 and paid out in losses (a fairly bad year) only $500,109.

Instead of providing necessary services at a reasonable rate of profit, a powerful oligarchy of financial interests, led by the Chamber of Commerce, used its political power to bend or rewrite the rules. They squeezed regular people for every penny possible. This corrupt system led many into bankruptcy and despair. This same parasitic capitalism, caused by corporate ownership of our political system, recently ruined our economy and the gulf coast.

Conclusion

Despite being small in number, the corporate interests were able to rule North Dakota because they were organized and understood that treating politics as a financial investment pays huge dividends. The small farmers, though, were not organized and did not see the personal financial importance of investing in politics. That was until the Nonpartisan League organized the farmers, convinced them to invest collectively in politics and was able to take over the state government to pass laws that put the needs of regular people first. The Nonpartisan League understood what made the Chamber of Commerce so interested in investing in politicians. Back then, just like now, proper political spending can yield more than a ten thousand percent return on investment.

It is possible for an organization of regular people to defeat the corrupt corporate and political machine. The NPL shows us that it has been done before, but it is not easy. It requires leadership, clear goals, strong organization, strategic thinking and regular people independently financially invested in a push for real change.


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