Freakonomics Radio - 386. How the Supermarket Helped America Win the Cold War

Episode Date: August 1, 2019

Aisle upon aisle of fresh produce, cheap meat, and sugary cereal — a delicious embodiment of free-market capitalism, right? Not quite. The supermarket was in fact the endpoint of the U.S. government’s battle for agricultural abundance against the U.S.S.R. Our farm policies were built to dominate, not necessarily to nourish — and we are still living with the consequences.

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Tell us your name, what you do, where you're from. Given the topic at hand, if you prefer to just use your initials instead of your name, that's fine too. You can also anonymize your other details. Thanks. When you think about propaganda campaigns, I am guessing

you don't think of this. Shop your Safeway store. You will always save more. At the sign of the S. Do-do-do-do-do-do-do. At Safeway. After World War I and World War II came the Cold War between the U.S. and the USSR. It featured a space race, an arms race, and a farms race. Things like chicken breeding and hybrid corn took an outsized and somewhat surprising role in U.S. propaganda in the early 1950s. The farms race had an obvious winner. We clearly won the abundance war.

But the American victory was, to some degree, a Pyrrhic victory, whose after-effects are still being felt. Economists who don't do U.S. agricultural policy are horrified by what they see in terms of distorting markets. Today on Freakonomics Radio, how a sprawling system of agriculture technology, economic policy, and political will came to life in the supermarket. Tell me who could possibly afford to buy food in a place such as this? Well, this is just an ordinary food market. Competition and big volume keep prices down. Utterly impossible. From Stitcher and Dubner Productions, this is

Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. The supermarket is so ubiquitous today that it's hard to imagine the world without it. But of course, such a time did exist. There's some debate about when supermarkets actually started, but usually we pin it at around 1930.

That's Shane Hamilton. He's an American historian who teaches at the University of York in England. I'm the author of Supermarket USA, Food and Power in the Cold War Farms Race. Was the supermarket a purely American invention? I argue yes. The easy answer is that the first declared supermarket was built in the United States. I think the broader answer is that what makes a supermarket a supermarket is the industrial agriculture system that enables the affordability of mass-produced foods. The predecessor of the supermarket was the dry goods store. So they didn't have fresh produce. They didn't necessarily have milk or meat or a bakery in-house. That's what a supermarket did,

is it put all those food items and often many other things. You could get, you know, auto parts. You could get your shoes shined in the early supermarkets. It was a kind of one-stop shopping and service emporium. Another big difference? Supermarkets were self-serve. In a dry goods shop, you'd ask a clerk for something and they'd fetch it. In a supermarket, you could ogle the meat and produce yourself, even handle it, and then put it in your basket. The supermarket chain Piggly Wiggly is credited with having pioneered the self-service retail model. It is still operating today in 17 states. But the biggest supermarket chain for much of the 20th century was A&P, the Great Atlantic and Pacific Tea Company.

A&P, as of the 1940s, was the world's largest retailer by any measure, by sales volume, by number of outlets, and so forth. Between 1946 and 1954 in the U.S., the share of food bought in supermarkets rose from 28% to 48%. By 1963, that number had risen to nearly 70%. A&P had so much market power that the Department of Justice went after it for anti-competitive practices. This was an interesting development, considering that the U.S. government played such a significant role in the creation of supermarkets in the first place. The original goal had been to use the supermarkets to drive down the cost of food for urban consumers. The U.S. becomes a majority urban nation by, I think, 1920. And there's a lot of anxiety among leaders, political leaders, thought leaders,

about whether or not U.S. agriculture is going to be productive enough to feed this growing urban population. That's Anne Eflin. I'm a senior economist in USDA's Office of Chief Economist, and I work primarily on domestic policy. The U.S. Department of Agriculture, established in 1862, had a long history of funding and conducting scientific research. You know, a lot of the seed development and livestock breeding. One good example would be the research done in the 1890s on animal disease, on bovine tuberculosis, for example, to identify the causes of those diseases and then to develop

ways to treat that. There was also research on developing new kinds of machinery that would, you know, be less heavy on the ground or less damaging to crops. The USDA's promotion of agriculture went even further than farm machinery and animal breeding. There was a need for better transportation from the farms to the cities. So USDA had a unit that did engineering research on the best road materials and road construction methods. The Rural Electrification Administration was part of the New Deal USDA. The private electrical companies didn't see a profit in expanding out into rural areas, and so that was taken on by USDA.

But perhaps the biggest changes to American agriculture were mechanization and automation. If I may say so, I lived through the structural transformation of the agricultural economy. That's Peter Timmer, an economist who used to teach at Harvard. I'm a retired professor, have worked on agriculture and food policy, poverty reduction, economic development for well over 50 years now. And before that, Timmer was well over 50 years now. And before that, Timmer was a farm boy in Ohio. He worked for the Tip Top Canning Factory, which was founded by his great-grandfather, and the factory's tomato farm.

I'm old enough to remember when we hand-picked all of our tomatoes and we hand-peeled all of our tomatoes. But that, of course, changed. When I was in grade school or junior high school, if we could pack 40,000 or 50,000 cases of canned tomatoes and product in a year, that was a pretty successful year. By the time I had graduated from graduate school, the company was putting out a million cases a year. This was thanks in large part to a mechanical tomato harvester, which came out of the engineering school at the University of California, Davis, with the help of federal research money. It had taken years to get the harvester right, mostly because they first had to get the tomato right,

breeding a new variety that could withstand the rough treatment of the mechanical harvester. I remember when we bought our first one, it was a huge expense, and it just revolutionized our operation. I was just in a microcosm of what turned out to be very general trends in the entire U.S. food system at the time. The general trends could best be characterized as high-volume and standardized agriculture. If you would describe U.S. agriculture policy as aggressive in earlier decades, then in the Cold War era, it was pretty much on steroids. And this wasn't just about feeding a growing U.S. population. This had a political thrust meant to show the Soviet Union and the rest of the world just how mighty the U.S. was. Shane Hamilton again. I don't mean to deny the power and the

might of these weapon systems that were deployed and the space race and all that. But fundamentally, this was a contest to demonstrate that either communism or capitalism was a superior political economic system. After Sputnik, when the United States was trying to understand why it was falling behind in the space race or why it thought it was falling behind in the space race, many of the commentators said, the problem is we're not funding basic research. So after 1957, the budgets of not only organizations like the National Science Foundation, but also specific government departments

like the Department of Agriculture, their budgets for research increased dramatically on the theory that this is how the United States would win the Cold War, by doing the best science. That is Audra Wolff. I'm a writer, editor, and historian. Wolff's latest book is called Freedom's Laboratory, The Cold War Struggle for the Soul of Science. And it really looks at the ways that science as an idea became a tool for propaganda in the Cold War,

especially on the American side. There's this idea that you can change hearts and minds and you can establish a climate of opinion that makes people more willing to accept the American way of life as the better choice. And one of the things that made America so great? Its agricultural system. Things like chicken breeding and hybrid corn took a outsized and somewhat surprising role in U.S. propaganda in the early 1950s. But there was a tension. The United States wanted to promote personal exchanges, scientific and technical exchanges, as a way to promote American values. But at the same time, it was very, very nervous that by doing so, it would

lose the advantages that it had, particularly in grain production. In 1955, the U.S. government unexpectedly had its hand forced. A newspaper editor in Iowa named Loren Soth invited Khrushchev to the United States to see the wonders of American agriculture. That's Nikita Khrushchev, then leader of the Soviet Union. And somewhat to everyone's shock, Khrushchev said yes. Now, Khrushchev, then leader of the Soviet Union. And somewhat to everyone's shock, Khrushchev said yes. Now, Khrushchev didn't come himself until 1959. But in 1955, a group of 12 Soviet agricultural experts came to the United States to see the wonders of American agriculture. They saw how contour farming worked. They saw the wonders of hybrid corn. They saw the chicken breeders. Chicken in the 1920s was pound for pound as expensive as lobster.

By the 1960s, it was so cheap that it was quickly becoming America's most popular meat. What can you tell us about the Chicken of Tomorrow project? The Chicken of Tomorrow. Really, the Chicken of Tomorrow is the chicken of today, in that we're all eating the kind of genetic progeny of the original chicken of tomorrow what it was was a contest to produce the most efficient chicken using genetic techniques basically and it not only had to be a an efficient chicken but very heavy breasts very light feathers, so that when it's plucked, it would look good under cellophane

and then later plastic packaging. And the birds had to be relatively disease-resistant so that they could be put in intensive rearing operations without dying too quickly. This agricultural bounty, those heavy-breasted cheap chickens, those millions of cases of tomatoes, all this was a good candidate for the U.S. propaganda machine. — The U.S. Information Agency were searching for concrete forms of propaganda to display America's wealth. — Enter one of the most concrete forms of display imaginable, the supermarket.

The supermarket is not just a retail box, but actually the endpoint of an industrial agriculture supply chain. A supermarket can't exist without the inputs of mass-produced foods. The farms race was about how do you get the food from industrially productive, technologically sophisticated farms to, you know, this display of abundance. And the display was really crucial. Since the average citizen living under communism wouldn't have access to a Piggly Wiggly or an A&P, the U.S. government brought the supermarket to the communists. The 1957 Supermarket USA exhibit in Zagreb, Yugoslavia, which was then a communist country, was a fully operational 10,000 square foot American supermarket filled with frozen foods and breakfast cereals and everything else. They airlifted in fresh produce from the U.S. because they didn't think Yugoslavian produce was attractive enough. It was about this

display of affordable abundance available to American consumers. For anyone who didn't get the message, there was also a sign touting, quote, the knowledge of science and technology available to this age. In other words, if you like our breakfast cereal, just think how much you'll like the rest of our capitalism. There were quite a few people who thought that if you showed that American consumers could access affordable food, you know, strawberries in December without having to wait in line, that that might actually cause the whole communist system to collapse.

The Supermarket USA exhibit proved tremendously popular. More than one million Yugoslavs visited. Some received free bags of American food. Immediately after seeing it, Marshall Tito, the leader of the country at the time, ordered the whole thing to be purchased. And it was bought wholesale from the United States exhibitors and used as a model. They hired a consultant from an Atlanta supermarket firm to come over and teach them how to build their own chain of socialist supermarkets. So Yugoslavia, along with other European countries, started building American-style supermarkets, which created new buyers for processed and frozen foods from America. This did not, however, lead to a wider embrace of American culture, much less the downfall of

communism. But just a couple couple years later, the Americans took another shot, this time in Moscow, at the American National Exhibition. They built a split-level, ranch-style American house, its kitchen stocked with food and the latest labor-saving appliances. The message was clear. The American economy, based in free market capitalism, was capable of producing things that the Soviets' command-and-control economy simply couldn't. The exhibition opening was attended by Nikita Khrushchev and then-U.S. Vice President Richard Nixon. They engaged in what came to be known as the kitchen debate. You must not be afraid of ideas. That's what we're telling you. Don't be afraid of ideas. We have nothing to fear.

The time has passed when ideas scared us. Well, then let's have more exchange of it. Richard Nixon and Nikita Khrushchev, they are two of the most explicit users of this Cold War farms race language. Khrushchev declared that by outproducing the U.S. in per capita meat and milk production, that would be the Soviet equivalent of hitting American capitalism with a torpedo. Nixon retorted that if there was going to be a torpedo fired, it was going to be by America's farmers and ranchers, to which the farmers and ranchers listening to his speech applauded very mightily. A few months afterward, Khrushchev finally visited the U.S. and he got to see for himself the sprawling cornfields of Iowa. But this was of little help to the Soviet farmers back home.

The fact is, they were unable to modernize Soviet agriculture with the economic structure and strategy that they were following. The economist Peter Timmer again. It was not a technological problem. It was a management and marketing problem. There was a total divorce between what consumers wanted and what the managers of the big state farms were told to produce. Timur was part of a World Bank team that visited the Soviet Union.

He saw for himself their agricultural system and supermarkets. Oh, gosh. I mean, the shelves were empty. It was just weird. We stayed at a government hotel, and there was hardly anything to eat. You talk with the staff of the research agencies and places like that who would struggle just to come up with basic foods, they knew it could be better than that. Khrushchev, despite his bravado, was ultimately forced to buy imported grain from the U.S. Some historians would argue that this was one of the crucial factors that led to his downfall,

that it was just embarrassing on the world stage for the Soviet Union, this vast country with enormous agricultural resources, having to turn to its archenemy for grain. Khrushchev's successor, Leonid Brezhnev, continued the policy of importing food from the U.S. to cover domestic shortfalls. If the two countries had been normal trading partners, this wouldn't have been a big deal. But they weren't normal trading partners. They were Cold War adversaries, the global icons of capitalism and communism.

And it was becoming clear which system would prevail, at least on the food front. Peter Timmer's final analysis? It was a fundamentally failed strategy for agriculture that brought down the Soviet Union. They didn't grow enough and they didn't grow the right things. And there were no price signals telling you what's expensive and what's cheap. They wasted a lot of what they were producing on the land.

It never got into the supermarkets. Timur was actually in Moscow when the Soviet Union collapsed. The neat thing is I have a passport going in stamped Soviet Union, but my passport coming out the exit stamp is Russia. People were so optimistic about what was going to happen. They knew that American supermarkets were a miracle. They had seen it on television. That point had clearly gotten through at least to everybody that I talked to.

And so it seems as though the mighty supermarket may indeed have played a role in America's Cold War victory. Yeah, I mean, this is central to the kind of lie, really, of the supermarket as a weapon. The historian Shane Hamilton again. So when the supermarket is upheld as this, you know, effectively missile, this concrete consumer weapon against the claims of communism it's built on this idea that supermarkets are producing this affordability just through the workings of supply and demand that you know it's unfettered markets that are somehow making food so affordable for american consumers where the reality is for everything from milk to beef to grain to processed foods of all kinds, there's massive government investment in the science and technology that enables the productivity of American farms,

from fertilizers to frozen food processes to distribution and so forth. And that's all erased. The image is that it's just the supermarket itself that is the source of abundance. So when you describe it like that, it's certainly, I mean, you use the word lie and you talk about the hidden components and you make it certainly sound nefarious. But couldn't you argue that, you know, the role of a government is to invest in science and technology that will benefit private industry and ultimately the citizenry? Yeah, I actually don't have a problem with the U.S. government investment in science and technology and encouraging, you know, more productivity. The concern is with, you know, that being disguised as a free market when it's not particularly free. I mean, taking that to a propaganda level and attacking another country for not having free markets,

it's just duplicitous, right? You may or may not be as disturbed as Shane Hamilton is by what he calls the duplicity of the U.S. government for promoting the supermarket as an emblem of free market capitalism. To me, the big question is this. What was the ultimate cost of this supermarket victory? What are the economic and political and health consequences of more than 100 years of agriculture policy

that encouraged industrialization, standardization, and low prices? That's coming up right after this. So the U.S. won the so-called farms race with an industrial approach to agriculture that was heavily influenced by government policy and funding. What were the long-term results of that victory? To figure that out, we need to go back about 100 years. That's on the advice of Anne Eflin, the U.S. Department of Agriculture economist we've been hearing from. Eflin thinks there's one key event that really drove U.S. food policy. And that is production increases around World War I.

Farmers expanded their production to meet wartime goals, and there were some price supports during that time that provided incentives for increased, especially wheat and pork and some of these other staple commodities. But there was no real planning for the aftermath after the increased demand and the price supports that are set up for war go away.

And it left a number of farmers who had, in good faith, developed larger farms and more productive farms with very low prices. So after the war, farmers were producing more food than was necessary. Then came the Great Depression. The economist Peter Timmer. I mean, demand collapsed, but agricultural productivity did not. And what that meant was prices just collapsed. And so that so totally set the mind frame for U.S. agricultural policy. That's when we see the beginning of real price policies for U.S. agricultural policy. That's when we see the beginning of real price policies for agriculture. Price policies for agriculture would take many forms over the ensuing decades, from crop insurance to loans and direct payments and many more.

Now, you can understand why the government would want to make agriculture financially viable and remove some of the uncertainty. A national food supply is a pretty important thing. One key policy tool the government used was a price support system, guaranteeing farmers a certain minimum price for a specific crop at a specific time. There was an idea of something called parity, which was that the price should be such that it would give farmers the same purchasing power in comparison to workers and others in the economy that they had had before World War I,

and that was the guideline for what those price support levels ought to be. But if you increase the price being paid without limiting the amount being produced, well... One of the problems with this is that it leads to a large surplus. This would leave the federal government to buy and store excess produce. In the early 1930s, when the U.S. government guaranteed farmers 80 cents per bushel of wheat, the government wound up buying and storing more than 250 million bushels. These things all take place in the context of their own times. Having policies that found a way to increase farm incomes in the 1930s

I think would be seen as a good thing, but there are also consequences of that over time as they get embedded. If you ever wonder why the USDA's old food pyramid, the diagram of recommended servings of different foods, why the biggest category at the bottom of the pyramid was bread, cereal, rice, and pasta. Well, the U.S. had an awful lot of all those foods. And if you ate as the USDA instructed, there's a good chance you put on a few pounds. You can't think about nutrition without

thinking about agriculture policy. And U.S. agriculture came to be driven by financial incentives. Incentives that, given how government funding often works, weren't always entirely sensible. You know, economists who don't do U.S. agricultural policy are usually horrified by what they see in terms of distorting markets, picking, okay, corn, soybeans, wheat, you guys get big subsidies, apples, grapes, fresh fruits and vegetables, you're on your own. Dairy, incredibly regulated both federally and at the state level, just a mess, just an awful mess. With price guarantees for certain crops and the resultant glut of supply, the government sometimes paid farmers to plant fewer crops. But even this wasn't fully successful. So we have controls on how much can you plant on an acre, but not on how much your yield is on the acres you are planting.

There's a huge boom, lots of new chemicals, fertilizers, machinery that make farms more productive. So even though we're trying to control by reducing the acreage, there continues to be increasing production and surpluses don't go down. But Anne Eflin says this was a problem the USDA wasn't all that unhappy about. Problem solving on the scientific and technical and engineering side tends to run on its own track and be seen as a positive outcome. I don't think there's ever a point at which the policy side is saying, oh, stop providing good science and better agricultural practices so we don't have these surpluses, because when you do that, what you're saying is then stop this economic development.

Solving problems and making farming more efficient are still seen as good projects to continue. The fact that they also create these surpluses is sort of a different track of problems that the farm policy then is trying to figure out solutions to. One solution was to use surplus grain for animal feed. Shane Hamilton again. Those massive surpluses of cheap corn and later soybeans encourages the rise of industrial meat production, concentrated animal production, livestock feeding operations,

where that's enabled by cheap grain production. Industrial meat production, fueled by cheap grain, meant cheap grain production. Industrial meat production, fueled by cheap grain, meant cheap meat, too. It helps explain how the U.S. became one of the world's biggest consumers of meat per capita. Today, more than 30% of corn, more than 50% of soybeans

grown in the U.S. goes toward feeding cattle and other livestock. But even that left a lot of surplus production. So what happened? High fructose corn syrup. Yep, you've got surplus corn, and you've got a demand for easy, convenient sweetener in the food sector.

And that was just a perfect storm. That syrup revolutionizes food processing because instead of a powdery sweet thing, it's a liquid and liquids are way easier to handle in food processing. If I had only one thing to say about the impact of our agricultural programs on what you see in the supermarket and subsequent health issues out of the diet, I would have said the fact that we use so much high fructose corn syrup, that's the example of how things can go badly wrong, even if well intended. I mean, don't get me started on ethanol, because that's the next step in reducing the surpluses, but I don't want to go there. The rise in agricultural productivity tended to favor larger, more industrial farms.

It didn't hurt that they often received the government price supports designed for smaller family farms. As you can imagine, this began to put a lot of small farms out of business. We didn't manage that process very well, but I think just basic economic forces would have pushed us in that direction. It just wouldn't have pushed us as far. Peter Timmer, you will recall, grew up working on the tomato farm and cannery founded by his great-grandfather. You'll also recall when the Tip Top Canning Company got their first mechanical tomato harvester. It just revolutionized our operation.

When the mechanical harvester was introduced, there were around 5,000 tomato growers in the U.S. Within five years, 4,400 had gone out of business. The Timmer family farm and canning factory made the cut. They're still operating today. But between 1940 and 1969, 3.4 million American farmers and their families stopped farming. Quite a few historians suggest that, you know, this all-out push to productivity killed the family farm, effectively. Shane Hamilton again. And it's hard to deny that. On the other hand, we don't apply the same kind of metrics to industrial manufacturing, where similarly there's been massive U.S. government investment in science and technology

to support economic growth and productivity. I'm sympathetic to those who see it as overall a net positive gain. However, you know, the pain is real. Peter Timmer says this massive consolidation on the production side was driven by what was happening on the consumption side, the growth of supermarket chains. Supermarkets were able to manage the supply chains all the way back to farmers, but they didn't want little tiny farmers. Just one supplier, please. It's just way too complicated to contract with 50 or 100. That has changed then the nature of production right down at the level of tip-top canning Company and how we would be able to provide

the kind of regular quality and supply and low price that a Walmart or a Kroger or a Publix would need. I mean, Walmart really came in and looked at the landscape of American supermarkets and saw inefficiencies everywhere. What Walmart did was build on its successful model of general merchandise sales with hyper-efficient logistics and distribution,

brought that into the supermarket industry and really shook things up. I used to ask my class, I'm talking 1985, where is the world's largest supercomputer? And the correct answer was, it's at the Pentagon. Okay, where is the world's second largest supercomputer? Bentonville, Arkansas, home of Walmart. They used that computer to track every single item on every single Walmart shelf. That information technology is what revolutionized food marketing. And it was pretty much invented by Walmart. This technology would spread across

the world, affecting not just the demand side, supermarkets, but the agriculture supply side. So the U.S. experience is formative, and it's formative for two reasons. One, U.S. universities train so many ag economists, food scientists, food policy people to go back to other countries that the U.S. model is pretty well ingrained intellectually. But the other thing, of course, is the biological and mechanical technologies mostly came out of the United States. Another consequence of the scaling up of American agriculture? More standardization and less variety. So apples, in the early 20th century, consumers in, say, New York state would have access to literally hundreds of varieties. Even in mass retail markets, by the mid-20th century, it's down to just a handful, and Red Delicious really dominates the whole market.

And apples became remarkably tasteless by the mid-20th century. You know, so certain qualities were given up in order to gain that advantage of price and abundance. Well, you know, we clearly won the food wars in terms of supply and abundance. We won the abundance war. What we may be in the process of losing is the health and quality dimensions going forward. I think today we're certainly witnessing, perhaps especially among millennials, an attempt to kind of reconfigure values. What are you actually looking for when you go to a supermarket? It's not just price. Price does not contain all relevant information for many shoppers in a contemporary supermarket.

So the costs of pollution, of degraded animal welfare, that are currently not being borne by either producers or consumers of food would have to be borne. If we had worried much, much more about the quality of farmland, of sustainability, about environmental side effects from heavy fertilization on corn, you know, we've got a dead zone in the Gulf of Mexico that is directly attributable to putting fertilizer on corn up in the Midwest. I accused my brothers of poisoning the Gulf of Mexico, and they said, well, what are we going to do? We have to get high yields. There was this sense of everybody being trapped in an old paradigm.

And now, how do we break out of that? I hate to say it, but the current government seems to be trying to take us back to the old paradigm rather than a more sustainable, environmentally friendly, let's make agriculture do more on organic and natural processes. That doesn't seem to be the political driver right now, but it has to come back. We have to make agriculture green, which is a strange thing to say. Peter Timmer has seen a lot of change in the farming business over his lifetime. And who knows, maybe he'll see the change he's hoping for now. But it's going to be hard to break the status quo,

at least in terms of how financial incentives drive food production. For instance, when the Trump administration placed billions of dollars of tariffs on Chinese imports, China responded with their own tariffs on imported American crops like soybeans, alfalfa, and hay. American crop exports to China fell dramatically, as did, of course, farmers' revenues. Just last week, the U.S. government announced they had put together a welfare package to U.S. farmers. The price tag? $16 billion. Coming up next time on Freakonomics Radio.

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