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1992 Debate with Ross Perot, Bill Clinton, and George H. W. Bush

Controlling Outcomes by Controlling Table Stakes

Nielsen estimates that 84 million people watched the first presidential debate of the 2016 election. That was 36.4% of eligible voters and 60.5% of actual voters. Given how many US voters watch the presidential debates, participating in the televised debates is considered a table stake for having a shot at being elected president.

The official sounding ”Commission on Presidential Debates” decides who gets to be on the debate stage. It’s formation and stated purpose is interesting:

After studying the election process in 1985, the bipartisan National Commission on Elections recommended “turning over the sponsorship of Presidential debates to the two major parties”. The CPD was established in 1987 by the chairmen of the Democratic and Republican Parties to “take control of the Presidential debates”. The commission was staffed by members from the two parties and chaired by the heads of the Democratic and Republican parties… (wikipedia)

The League of Women Voters had been the previous host of the debates.

In 1988, the League of Women Voters withdrew its sponsorship of the presidential debates after the George H. W. Bush and Michael Dukakis campaigns secretly agreed to a “memorandum of understanding” that would decide which candidates could participate in the debates, which individuals would be panelists (and therefore able to ask questions), and the height of the lecterns. The League… released a statement saying that it was withdrawing support for the debates because “the demands of the two campaign organizations would perpetrate a fraud on the American voter.” (wikipedia)

Ross Perot’s 1992 bid for president as an independent was disruptive. Perot took 19% of the vote and many believe that had he not run, Republican incumbent George H. W. Bush would have been re-elected instead of Democrat candidate Bill Clinton.

The CPD excluded Perot from the televised debates in 1996.

Changing the Table Stakes

Four years later, the commission changed the rules of the game entirely, requiring that candidates have at least 15% in 5 national polls in order to get on the debate stage. Which polls count are consider to be “national polls”? The CPD decides.

The creation of the Commission on Presidential Debates (a cartel) and the 15% rule clearly benefit the candidates of the two major parties in the United States at the expense of all third-party (or independent) candidates and the voting populace. This legal collusion has been extremely effective at controlling who has a serious shot at running for president and who ultimately becomes president.

So not only is being on the debate stage a table stake, but having 15% in “5 national polls” approved by the CPD is considered a table stake as well.

When structured in this way, table stakes can be a form of moat or barrier to entry. So whoever controls the table stakes can have tremendous control over the outcome. Check out Jeffrey Pfeffer’s Power: Why Some People Have It and Others Don’t for a few great examples of establishing and controlling tables stakes in corporate environments – even if you’re at the bottom of the power hierarchy.

The Raisin Cartel

In 1937 the US Department of Agriculture picked a group of raisin farmers and handlers and gave them the power to constrict the amount of raisins that all farmers could produce in a given year. This cartel, called the Raisin Administrative Committee, made it a federal crime to attempt to sell more raisins than they determined.

Fun facts: The United States Department of Agriculture, created in 1862, is part of the administrative branch but basically has the power to create laws – a role that’s traditionally reserved for the legislative branch. In 2017 the USDA employed over 105,000 people and had a budget of $151 billion, nearly 8 times NASA’s budget.

Even though cartels, collusion, price-fixing, and other monopolistic practices are clearly violations of US antitrust law, in 1937 a few lucky raisin farmers and handlers became part of a government-protected cartel. The stated purpose of the cartel was to “stabilize” the price of raisins.

Specifically, the Raisin Administrative Committee “a requirement that growers set aside a certain percentage of their crop” to give to the Government, “free of charge.” These raisins are then destroyed, donated, or sold in “noncompetitive” markets, which artificially increases the price of raisins for consumers like you and me (but not my mom – she hates raisins).

In the 2003-2004 growing season, raisin growers were required to set aside 30% of their crop. But that was a relief from the season before when growers were forced to set aside a whopping 47% of their crop.

But like it or not, the rules were the rules. Until they weren’t.

In 2002, when the Raisin Administrative Committee told Marvin and Laura Horne that they could only sell 53% of their raisin crop, they choose to disobey. “The Government sent trucks to the Hornes’ facility at eight o’clock one morning to pick up the raisins,” the Supreme Court opinion reads, “but the Hornes refused entry.”

They were fined $480,000 for the market value of the raisins – even though they would not be compensated that amount when forced to give them to the government – and an additional $200,000 for disobeying orders. Over the next 12 years, the case bounced around various courts until it finally reached the Supreme Court in Horne v. Department of Agriculture.

The court’s opinion was that “Raisins…are private property – the fruit of the growers’ labor – not public things subject to the absolute control of the state.”

Another raisin grower, Dan King, thought that Marvin Horne had acted unfairly: “I think that there’s a set of rules that everybody was playing by during the time that he was not. You know, it’s like everybody stops at the stop sign but not everybody. [If] somebody doesn’t, it causes a problem. And we needed to have the whole industry following the rules or nobody following the rules.”

This is exactly how cartels normally collapse – some members want more for themselves and begin to “cheat.” They produce more than their quota and soon enough everyone is cheating. Except in this case, “cheating” meant competing to supply the right product to the right customer at the right price. While the Supreme Court’s opinion may mean that the cartel members can no longer constrain supply and therefore inflate prices, it also means that consumers pay a lower price on the free market – a clear win for consumers.

WTF is going on in Raisin-town?
Notes: 1) Apparently Dan King is a member of the Raisin Administrative Committee. 2) By the way, the ‘S’ to the far left of his name stands for “Sun-Maid Member Representative,” which collectively controls over 20% of the committee at present. Interesting that a private company has any say in a government agency, let alone a 20% say. 3) Also of note was that the Chooljian Family represents 3 members (and 1 alternate), the Kazarian family has 2 members, and the Sahatdjian family (related to the Sahatjian family) also represent 3 members. Together, these three families control an additional 17% of the member votes. 4) Finally, it turns out that “Sahatjian” v “Sahatdjian” is not a typo but that the two families are related. In fact, there was a real “Sahatjian” v “Sahatdjian” in 2014 – a huge (>$3.25m) lawsuit between the two related families that seems to suggest that things get ripe in the raisin racket frequently – even within families. (Screenshot: Dec 14, 2017)

While I’m glad that things worked out okay for the Hornes and for US raisin consumers, it does make me think about all the other places where consumers are paying artificially high prices because of cartels and how many of those cartels are being protected by those in power.

And while this is an amazing case of a farmer breaking bad rules in order to change them for the better, there was clearly a large element of “right time, right place” involved in the Horne case. Which makes me wonder: How do you know when to be the raisin rebel or when to surrender to the rules?

Credits & Sources:
I originally heard about the Hornes through the NPR Money podcast – one of my all-time favorite podcasts.  And here’s the Supreme Court’s 42 page opinion.