Lynne Kiesling

In the comments to my earlier post about sugar industry rent seeking, Dan asks who are the top recipients of these sugar subsidies.

I did a search on Hoover’s for U.S. companies listing SIC 2061 (cane sugar growing) and 2062 (cane sugar refining and processing) as their primary SIC codes. I excluded beet sugar just to make my estimate of the extent of the subsidy problem more conservative.

This search yielded 112 companies. I ranked them by annual sales revenue. Here are the top 10:

• Contran Corporation
• Imperial Sugar
• American Sugar Holdings
• Florida Crystals
• C&H Sugar
• U.S. Sugar Corporation
• M. A. Patout & Son
• Rio Grande Valley Sugar Growers
• Okeelanta Corporation
• Cora Texas Manufacturing Company

Note that this list does not indicate any particular benefits that any individual company would enjoy if this sugar subsidy in the farm bill passes; nor does this list indicate political contributions or other forms of rent-seeking activity that these firms or their trade associations have undertaken. But if you want to look for parties who will benefit from this legislation, here’s a place to start.

Lynne Kiesling

Today’s New York Times has an editorial on the sugar lobby, and the apparent unwillingness of the members of Congress to do anything constructive to constrain their special interest self-aggrandizement.

A couple of weeks ago the Times ran a story on the sugar industry’s attempts to construct a political hedge for their profits by pushing Congress to implement policies subsidizing the use of sugar in ethanol production. As this editorial notes, NAFTA’s long-suffering provision allowing for increased imports of sugar from Mexico will finally go into effect soon, and the domestic sugar industry is looking for ways to offset what they see as the loss of a market that belongs to them. How will that happen? By the federal government buying domestic sugar at an artificially high price, and then reselling it (probably at a large loss) to ethanol producers:

Under the current system, the government guarantees a price floor for sugar and limits the sugar supply — placing quotas on domestic production and quotas and tariffs to limit imports. According to the Organization for Economic Cooperation and Development, sugar supports cost American consumers — who pay double the average world price — more than $1.5 billion a year. The system also bars farmers in some of the poorest countries of the world from selling their sugar here.

The North American Free Trade Agreement is about to topple this cozy arrangement. Next year, Mexican sugar will be allowed to enter the United States free of any quotas or duties, threatening a flood of imports. Rather than taking the opportunity to untangle the sugar program in this year’s farm bill, Congress has decided to bolster the old system.

Both the House bill, which was passed in July, and the Senate version, which could be voted on as early as this week, guarantee that the government will buy from American farmers an amount of sugar equivalent to 85 percent of domestic consumption — regardless of how much comes in from abroad. To add insult to injury, both also increase the longstanding price guarantee for sugar.

The bills encourage the government to operate the program at no cost to the budget, by selling the surplus sugar to the ethanol industry. That’s not likely. Ethanol makers will never accept paying anywhere near sugar’s guaranteed price. According to rough estimates from the Congressional Budget Office, supports for sugar in the House bill could cost taxpayers from $750 million to $850 million over the next five years.

In addition to finding this proposal inefficient, wasteful, and a pathetic way to spend our tax dollars, I find this legislation, and the process that has produced it, completely and utterly obscene.

Michael Giberson

Larry Ribstein suggests that at least some of Boeing’s troubles with the 787 might have been avoided if either insider trading was permitted in Boeing’s stock or the company was operating internal prediction markets focused on project completion.

The quotes that Ribstein draws from the Wall Street Journal article on Boeing highlight two problems – one with project management, and the other with senior management’s lack of information about the problem. From the WSJ:

Boeing Chairman and Chief Executive Jim McNerney said the company has sent manufacturing and procurement experts numbering “in the hundreds” to suppliers’ factories after discovering problems with the first 787 delivered to Boeing’s final assembly line. Those problems, including a serious lack of documentation on the work remaining to complete the first airplanes, drove the company’s decision this month to delay the first 787 deliveries for six months and to replace the head of the plane’s development efforts. Noting that Boeing was “surprised on the physical reality” of the condition of the first plane, Mr. McNerney said officials “realized we really need to work with [suppliers] to make sure we have better visibility” on the manufacturing process. “We need that data transparency across all of the build in order to execute the plan that we’ve laid out.“

Then Ribstein asks:

Could prediction markets reduce surprises and provide better corporate governance? Henry Manne thinks so. See Insider Trading: Hayek, Virtual Markets, and the Dog that Did Not Bark. An internal prediction market, say inside Boeing, might cull information from all nooks and crannies of the organization that might not otherwise be forthcoming.

Ribstein also suggests that had unregulated insider trading been allowed in Boeing stock, it may have also tipped off upper management to the problems. In Manne’s article, Manne makes similar claims for insider trading – not too surprising given his history on the issue – and then Manne suggests that prediction markets might do a better job than insider trading in this regard.

Obviously, in hindsight, Boeing had exactly the kind of problem that prediction markets can help resolve. Clearly all the information available to some people in the organization was not flowing smoothly to all the people who needed to know. Equally obviously, the cost of setting up such a market would have been much smaller that the costs the company is now facing. Given the high-level, resource-intensive intervention into 787 project management, apparently the surprising delays were judged to be a multi-million dollar problem. (Clearly, this guy was onto something in asking for airplane prediction markets. Bet2give arrived too late on the scene to help Boeing this time, but there is still time for more things to go badly, so maybe some value there if trading builds up.)

And the informational problem isn’t just at Boeing – Ribstein also mentions “Merrill’s $8.4 subprime hit.” A near endless list other examples could be plucked from the business headlines. There may be other organizational reforms or information technologies that would have also brought these problems to the attention of upper management in a more timely fashion. Are they better, or worse, than prediction markets?

Given the high stakes, any company that aspires to be a world-class operation should be asking these questions.

[Cross posted from Midas Oracle]

Lynne Kiesling

If you are attending Reason In DC on Saturday, I’ll see you there! Won’t be there today, though. Tomorrow Ron Bailey, Fred Smith and I will discuss carbon policy. Should be a stimulating discussion …