Populism 2.0: Is SeaTac seeing the rebirth of captive-industry politics?

By David Sirota , written on November 26, 2013

From The News Desk

The national conservative movement is waging a war… in SeaTac.

That's a weird sentence. Out of all the places to wage a political fight, why would conservatives and the infamous Koch Brothers choose a Pacific Northwest village of 26,000 that most Americans have probably never heard of?

While lots of us know Seattle for its famed coffee culture, its tech scene and its starring role in "Singles," and many have heard of Tacoma, few probably are familiar with the place that lies between the two: SeaTac - a place so seemingly nondescript that it goes by a portmanteau rather than by its own distinct name.

So why-oh-why would the titans of the right pick there of all places to scream "Freedom!" and try to mount a Braveheart-like stand against something as mundane as a local ballot initiative to raise the minimum wage for many of the town's workers to $15 per hour?

Sure, conservative ideologues oppose economic mandates in most forms. Sure, those ideologues' corporate benefactors have a vested financial interest in keeping wages low. And sure, with SeaTac's childhood poverty levels skyrocketing in recent years, both conservative activists and corporate interests generally want to prevent local - and easily replicable - examples of working-class economic angst being successfully channeled into campaigns for higher wages.

However, in a country with plenty of higher-profile venues in which to wage a class war, the right's interest in SeaTac may have more to do with the town's direct relationship to a geographically captive industry - and what that relationship may portend for a shrewd form of economic populism in this new Gilded Age.

SeaTac as a Pre-Emptive Attack

Though you may not have known it at the time, if you've flown to (or through) what you thought was Seattle, you were actually in SeaTac - the captive home of Seattle-Tacoma International Airport. With that airport being one of America's busiest, the small town has been the site of almost $4 billion in capital investments in just the last 14 years. That is on top of all the ancillary infrastructural and intermodal investments by other municipal agencies.

The particular type of spending in SeaTac is significant: much of it is infrastructural investment in a specific enterprise (the airport). The logistical and financial implications of moving an airport are, well, significant. That means both Seattle-Tacoma International Airport and all the businesses that rely on physical proximity to the airport are captive industries - the captors being the roughly 12,000 registered voters of SeaTac.

Captive industries' status means they can't make the ultimate free market threat: to leave.

Not surprisingly, captive status levels the political playing field between corporate interests and the public because it prevents those corporate interests from using the threat of relocation to cow voters and politicians. As Twitter recently proved, that threat is often politically decisive. Recall that when San Francisco threatened to pass tax laws that the company didn't like, Twitter was able to secure exemptions by threatening to relocate outside the city. Without the possibility of such a threat, though, companies are at the mercy of the public. Captive industries can certainly try to fight local public policies they don't like, but their captive status means they can't make the ultimate free market threat: to leave.

SeaTac is the perfect illustration of that dynamic. As Seattle Times columnist Jon Talton wrote, the "large number of low-wage restaurant and hotel businesses that are captive to their proximity to Seattle-Tacoma International Airport (will) have little choice but to pay the new wage" - if the initiative ends up passing in a recount. No wonder the national conservative movement is doing everything it can to stop that from happening, even in a small town.

Think about it: as a jurisdiction whose entire identity is based on its control of one of the region's major captive industries, even the tiny hamlet of SeaTac could easily become a national advertisement for the progressive possibilities of captive-industry politics. Indeed, that's already happening - as the New York Times put it, SeaTac is being viewed as a "potential model for raising wages and mobilizing workers in other parts of the country."

Should its minimum wage initiative ultimately pass, the town could serve as a strategy blueprint for a new kind of politics - call it Populism 2.0 - whereby the labor movement, progressive organizations and left-leaning politicians begin systematically leveraging public power over other captive industries knowing they do not have to face corporate interests' electorally intimidating threats of relocation.

The business lobby and the conservative movement no doubt see such a prospective trend as a nightmare. Hence, that coalition's interest in defeating a minimum wage initiative in a small town like SeaTac, in part, to stop such a blueprint from ever seeing the light of day.

The Persistent Significance of Location

Of course, back in the late 1990s, corporate luminaries like Jack Welch began envisioning a world without captive-industry politics - a world in which "every plant you own (is) on a barge to move" away from governments, communities, activists and politicians that dare try to regulate them in any way. But while capital has certainly become more mobile in the interim, physicality remains a big factor in the economy - and that means captive industry politics remains a potentially potent force.

Consider the transportation sector as a whole.

A few years ago, the state of Montana used Burlington Northern railroad's captive-industry status to force the company to pay to clean up the sprawling environmental mess the company made in Livingston. When imposing the order, the state government didn't have to fear that the company would up and leave. Why? Because the enormous cost of relaying hundreds of miles of tracks was cost prohibitive for the railroad company.

Similarly, years before SeaTac tried to leverage its power over a captive airport, New York legislators tried to use their leverage over geographically captive airports to impose a so-called "Passenger Bill of Rights" on airlines. In that latter episode, state lawmakers knew that no large airline could stop servicing their state's major cities, and so they knew that imposing new passenger-friendly regulations wouldn't end up diminishing air service or airport-related employment. Legislators' captive-industry populism ended up laying the groundwork for new federal rules.

In all those cases, captive status made even the most powerful transportation behemoths powerless to resist the public will. SeaTac would be yet another example - and likely a roadmap for Populism 2.0 in the next election cycle.

A potentially identical dynamic exists in the energy sector. Because coal, oil and natural gas must be extracted from the earth and because those mineral resources are so valuable, the fossil fuel industry is captive to fossil-fuel rich locales, their voters and their municipal governments.

So, for instance, when towns consider initiatives to strengthen regulation of natural gas extraction, local voters don't have to fear being abandoned by the natural gas industry - or at least they don't have to fear it in the way, say, factory workers had to fear manufacturers heading to Mexico for cheaper labor costs after NAFTA. Liberated from such fears, voters in natural gas country have predictably backed all sorts of regulations on energy development. In most cases, all the fossil fuel industry can do in the face of such grassroots uprisings is try to use a corrupt campaign finance system to either massively outspend their critics during elections - or persuade bankrolled state and federal politicians to preempt the locals. So far, though, this captive industry hasn't been nearly as successful in either endeavor as it would like.

This kind of captive-industry populism no doubt strikes special fear in the hearts of fossil fuel titans like the Koch Brothers who - not coincidentally - helped fund the opposition campaign in SeaTac. They really don't want municipalities to suddenly realize how much potential power the public has over any captive industry, because the Koch's own wealth is almost completely immobile and therefore it is almost completely captive. If SeaTac's captive-industry populism inspired, say, oil-patch localities to start assessing higher severance taxes or if it prompted, say, Chicago to start assessing environmental levies at the city's strategically located ports, Koch Industries' captive status would give the conglomerate little choice but to cough up the dough. So rather than let the idea of captive industry populism build any momentum anywhere, the Kochs would prefer to crush it in small towns like SeaTac before it gains any traction at all.

The Tech Sector Is Not Immune From Captive Industry Politics

If you work in the tech sector, you may think the information economy is totally immune from this kind of captive industry politics. After all, as Princeton economist Alan Blinder notes, a sizable number of tech-based companies are rooted in "types of work that are easily deliverable through a wire (or via wireless connections) with little or no diminution in quality." These firms - whether app developers, back office services or call centers - are the opposite of captive because they can pretty easily and inexpensively relocate. However, that's not necessarily the case for the physical backbone of the technology sector as a whole.

As just one (huge) set of examples, consider server farms. Google is investing $1.2 billion in a corporate data center that relies on its physical proximity to the Dalles Dam; Apple has spent $1 billion on a data center in North Carolina, and is now spending more to build a nearby solar array to power it; Microsoft, Yahoo! and Dell have built data centers in Quincy, Washington to take advantage of Columbia River hydropower; and Facebook is reportedly spending $760 million on a new data center in Lulea, Sweden to take advantage of the Arctic Circle's cooling effects on the servers.

What happens in the tech industry if - when - those communities do figure out Populism 2.0 and use the power they possess?

Because these capital investments are so large and because they are predicated on specific physical locations, these companies quickly become captive to the politics of their respective local governments. That provides those local governments with a rare kind of power over these conglomerates, should they choose to use that power.

Again, conservatives and corporate interests probably hope that by halting initiatives in SeaTac they can prevent communities with captive industries from ever realizing they can use that kind of power in the first place. But what happens in the tech industry if - when - those communities do figure out Populism 2.0 and use the power they possess? What will happen if, say, Oregon or Washington raises hydropower prices on Google, Microsoft, Yahoo! and Dell? What will happen if North Carolina assesses impact fees on Apple to generate revenue for environmental mitigation? What will happen if Sweden's government levies higher taxes on Facebook? And what will happen if other server-farm communities in arid regions start assessing fees on data centers' water usage?

The answer, no doubt, is that tech firms will not attempt - or even threaten - to leave, because they've already invested billions on physical infrastructure that cannot so easily be moved. Instead, they will first try to play local political hardball like Microsoft did back with the town of Quincy, Washington in 2011. That's when, as the New York Times reported, the company reacted to the local utility's energy usage penalty by "threaten(ing) to waste tremendous amounts of power by simply running giant heaters for no purpose."

Those bare-knuckled tactics may get some communities to stand down in the short term (Microsoft ultimately avoided the penalty). However, in the long term, captive companies will more often than not be compelled to do what Yahoo! did in Quincy and simply acquiesce to public policy. And you know what? For all the howls to the contrary by the corporate class, that's a good thing.

The Potential Benefits of Captive-Industry Politics

Recall that before the information age and the attendant era of frictionless capital flight, regulations were dependable if imperfect instruments of progress.

That world obviously has changed, but not so much that the same leverage cannot be brought to bear at least on the sectors of the economy that are still reliant on geography.

In that more geography-reliant world, state and local governments could institute anti-sweatshop rules, civil rights statutes and wage laws with the realistic expectation that those modest policies would result in positive outcomes (safer workplaces, fairer hiring practices and higher pay) and not prompt a deleterious wave of corporate relocations. By the same token, that more geography-reliant world of heavy industry meant that companies had a tougher time using the threat of relocation to pressure governments to engage in a destructive wage-cutting, labor-regulation-slashing race to the bottom. This world just so happened to coincide with middle-class wage increases, less economic inequality and historic progress on civil and labor rights.

That world obviously has changed, but not so much that the same leverage cannot be brought to bear at least on the sectors of the economy that are still reliant on geography.

Now sure, the faux populist argument against such a trend is that it would be bad for the very people new regulations purport to help because those regulations would incur higher costs and higher prices that would supposedly increase unemployment. But those fact-free talking points ignore the realities of both captive markets and competition.

Airports serve a captive market of customers who are trapped in the terminal and whose demand for stuff like airport snacks is relatively inelastic, even if those snacks cost a bit more because vendors are paying a higher minimum wage. Fossil fuel companies serve a captive market of consumers whose demand for automobile fuel and electricity is relatively inelastic, even if those energy sources cost a bit more because the companies are paying more in taxes. Major tech oligopolies serve a captive market of customers who need their services for the most basic communication, even if those oligopolies are forced to charge advertisers and clients a bit more to cover new server-farm costs. If any one firm in any of these captive industries decides to try to raise prices rather than accept the slightly lower profit margins that allegedly accompany tougher regulations, they run the risk of being undersold by more aggressive competitors.

But, then, the word "allegedly" in that latter sentence is key because properly structured regulations don't necessarily harm profit margins. Minimum wage ordinances end up putting more money in the hands of those who are most likely to spend it, which then spurs more local spending and more business revenue, which then often offsets negative effects on employment and earnings (notice that according to an economist quoted in the Times, San Francisco International Airport's $12.93  minimum wage "did not appear to have much impact on staffing levels"). Environmental regulations and fines can reduce expensive environmental messes or at least relieve all taxpayers of the cost of cleanups - which consequently provide taxpayers (and municipal governments) more economically stimulative income to spend in the local economy.

In short, despite all the free-market rhetoric to the contrary, there can be positive regulatory ripple effects in captive industries. SeaTac may seem like just a no-mans-land between two bigger more famous cities, but it and other locales that follow its lead are poised to expose that core truism for all to see - which is exactly what the Kochs and the right most fear.