No. 7 October 1996
Competition vs. Corruption: Reforming New York's Garbage Industry
Mr. Angell is Assistant to the Chairman of Browning-Ferris Industries. He spearheaded that company’s efforts to enter the New York trash handling market.
Until recently, all of the private companies responsible for picking up trash generated by commercial establishments in New York were members of trade associations controlled by organized crime, specifically the Gambino and Luchessi crime families.
Under this system, which has been around since the 1950s, a property owner had no choice about who would haul his trash; his location was, in effect, owned by the hauler, who could buy, sell or trade it as he saw fit. Not surprisingly, these properties changed hands at extraordinarily high prices. Several years ago, the right to pick up trash at Columbia Presbyterian Hospital was sold for $750,000. As a result of indictments handed down this past summer it was disclosed that the right to pick up the trash at the Woolworth Building on Broadway was sold for $850,000.
Because of this arrangement, if the customer got lousy service, or if he believed he was being charged for more trash than he actually generated, he had nowhere to turn. As a result, New York City has enjoyed the highest prices for waste collection and disposal in the United States, with an estimated $500 million in unnecessary charges.
The District Attorney Steps In
But that’s all changing now. It was just four years ago that the Manhattan District Attorney’s office began its investigation into the carting industry. And it was a little more than three and a half years ago that we at Browning-Ferris Industries (BFI) became the first outsiders to break into this closed market.
When Manhattan District Attorney Robert Morgenthau decided to go after the trash hauling cartel, he knew it would involve a long-term investigation. But he was committed to taking as long as necessary to gather the evidence needed to bring the cartel to its knees. He orchestrated highly secret operations involving undercover agents, sophisticated surveillance, wiretapping and electronic eavesdropping. Few people in or out of the government knew anything about the investigation until the indictments were handed down.
At the time we entered the market, members of the financial community who follow the industry thought that this was one of the stupidest things we had ever done, largely because they lived here and understood the way things worked. But we thought it made sense for a number of reasons, including the fact that there had been an increased government effort against the organized crime families in New York City in the 1990s and late 1980s. New York City is also the largest and most dense trash market in the country; it’s the place where anyone in the trash business wants to operate.
Heat from the Mob
So we began putting salespeople on the street and soliciting business. Less than two months after this, we received our first greeting from the competition: The head of a large German shepherd was placed under the mailbox of the BFI representative in charge of developing the market at that time. And taped into the dog’s mouth was a note that read, “Welcome to New York.” That was just the beginning, although it proved to be the most dramatic incident.
The most important factor inhibiting our success in the early days was the enormous fear on the part of potential customers. They were terribly anxious about the consequences of bucking the system, no matter how attractive our offer. And that was true of every kind of business in New York City, from the biggest banks to the smallest delis. For that reason we had a difficult time making any headway.
Six months after we entered the New York market, I paid a courtesy visit to Bob Morgenthau and Dan Castleman, head of investigations in the Manhattan District Attorney’s office. I was told about the investigation and asked if BFI would cooperate. They wanted information about the resistance we were encountering. They also wanted us to allow one of their undercover agents to pose as a member of our company. After some thought, we concluded that the Morgenthau investigation had to succeed if we were to have a future in New York, and agreed to cooperate in what turned out to be a two-year effort. Only four of us at BFI knew anything about the investigation or our decision to cooperate.
In the meantime, we continued to wage our fight to gain new customers, although it was an uphill struggle. Among other things, we had to change our compensation program, putting our sales staff on salary since they were unable to bring in any business. After a while even those of us who knew about the investigation and believed better days were coming started to wonder if we weren’t just butting our heads against a brick wall.
During this time our employees were subjected to continuing harassment. Trucks tailed our drivers on their routes while competitors’ drivers yelled insults at them. A number of our trucks were stolen or vandalized. Our senior officers received threatening phone calls and anonymous mail at their homes. Businesses who hired us, or considered hiring us, were subjected to harassment and intimidation. Two thirds of the customers we signed up backed out after visits from the representatives of their then-current hauler. One trade association also filed a major lawsuit to keep us from doing any business in New York City.
The Mob Is Brought to Justice, and Competition Comes to New York
We fought back as best we could. We responded to every legal challenge. We provided security for our trucks and our people. And we began an aggressive advertising campaign, unprecedented in the trash industry, focusing on the issues of choice and cost.
Finally, in June of 1995, a 114-count indictment was handed down against the leaders of the trash industry in New York City. It named 23 companies, 19 individuals, and four trade associations. Charges included enterprise corruption, grand larceny, arson and assault. At the same time, the assets of these companies were frozen and receivers were put in their place by the court to monitor their operations until after the criminal trial took place.
Since then, there have been more indictments and other measures have been taken. It will, however, take an ongoing effort to rid New York of the cartel.
It will also take the restoration of genuine competition. BFI can’t survive if we are the only alternative to the cartel. I’m happy to report that, in the last six months, two other major companies have come into this market, and we welcome them. But at the same time there are local companies who have agreed to haul away trash for nothing, hoping they will be able to drive everyone else out of the market and then raise their prices dramatically. If this market is to be cleaned up for good, the competition must be among companies with honorable trade practices.
But the outlook is optimistic. The key elements are in place. Some companies are cutting prices to compete responsibly. A major consolidation is under way. And it’s a safe bet that companies under indictment will not be getting new licenses to operate.
The benefits of restored competition are already becoming clear. Our critics have accused us of only going after the biggest accounts, such as giant office buildings. But the opposite is true. We were repeatedly rebuffed by the big building owners and big institutions in the city. Our customers are primarily small- and medium-sized operations for whom trash disposal represented a larger percentage of their costs and for whom a savings of $500-$1,000 per month made a big difference. These people are now enjoying a significant reduction in their expenses.
It’s true that companies like mine are not going to retain a $20 or $50 a month account if it’s not part of an efficient route. But the advantage of this market is its density; companies can become increasingly competitive as they build up their routes, because the next customer represents only a marginal increase in cost.
The result of all of this is going to be a $500 million cut in the cost of doing business, making New York a better place both to do business and to live.