Corporate welfare

Corporate welfare is a term that analogizes corporate subsidies to welfare payments for the poor. The term is often used to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations, and implies that corporations are much less needy of such treatment than the poor. The term is used interchangeably with crony capitalism; to the extent that there is a difference, the corporate welfare might be restricted only to direct government subsidies of major corporations, excluding tax loopholes and all manner of regulatory and trade decisions, which in practice could be much larger than any direct subsidies. The term, "Corporate Welfare", was reportedly invented in 1956 by Ralph Nader; conservatives like Grover Norquist prefer "Crony capitalism".

Origin of term

The term "corporate welfare" was coined by Ralph Nader in 1956. The Canadian New Democratic Party picked up the term as a major theme in its 1972 federal election campaign. Its leader, David Lewis, used the term in the title of his 1972 book, Louder Voices: The Corporate Welfare Bums.

Alternative adages

"Socialism for the rich, capitalism for the poor"

Believed to have been first popularised by Michael Harrington's 1962 book The Other America in which Harrington cited Charles Abrams, a noted authority on housing.

Variations on this adage have been used in criticisms of the United States' economic policy by Joe Biden, Martin Luther King, Jr., Gore Vidal, Joseph P. Kennedy II, Robert F. Kennedy, Jr., Dean Baker, Noam Chomsky, Robert Reich, John Pilger, and Bernie Sanders.

"Privatizing profits and socializing losses"

"Privatizing profits and socializing losses" refers to the idea that corporations want to reserve financial gains for themselves and pass along losses to the rest of society, potentially through lobbying the government for assistance. This practice was criticized in the Wall Street bailout of 2007.

United States

Background

Subsidies considered excessive, unwarranted, wasteful, unfair, inefficient, or bought by lobbying are often called corporate welfare. The label of corporate welfare is often used to decry projects advertised as benefiting the general welfare that spend a disproportionate amount of funds on large corporations, and often in uncompetitive, or anti-competitive ways. For instance, in the United States, agricultural subsidies are usually portrayed as helping honest, hardworking independent farmers stay afloat. However, the majority of income gained from commodity support programs actually goes to large agribusiness corporations such as Archer Daniels Midland, as they own a considerably larger percentage of production.

Alan Peters and Peter Fisher (Associate Professors, Graduate Program in Urban and Regional Planning, University of Iowa) have estimated that state and local governments provide $40–50 billion annually in economic development incentives, which critics characterize as corporate welfare.

Some economists consider the recent bank bailouts in the United States to be corporate welfare. U.S. politicians have also contended that zero-interest loans from the Federal Reserve System to financial institutions during the global financial crisis were a hidden, backdoor form of corporate welfare.

Comprehensive analyses

Cato Institute

Policy analysis conducted by the Cato Institute, an American libertarian think tank, argued that United States fiscal policy allocated approximately US$92 billion in the 2006 federal budget toward programs that the authors considered to be corporate welfare. Subsequent analysis by the institute estimated that number to be US$100 billion in the 2012 federal budget.

Independent

Daniel D. Huff, professor emeritus of social work at Boise State University, published a comprehensive analysis of corporate welfare in 1993. Huff reasoned that a very conservative estimate of corporate welfare expenditures in the United States would have been at least US$170 billion in 1990. Huff compared this number with social welfare:

In 1990 the federal government spent 4.7 billion dollars on all forms of international aid. Pollution control programs received 4.8 billion dollars of federal assistance while both secondary and elementary education were allotted only 8.4 billion dollars. More to the point, while more than 170 billion dollars is expended on assorted varieties of corporate welfare the federal government spends 11 billion dollars on Aid for Dependent Children. The most expensive means tested welfare program, Medicaid, costs the federal government 30 billion dollars a year or about half of the amount corporations receive each year through assorted tax breaks. S.S.I., the federal program for the disabled, receives 13 billion dollars while American businesses are given 17 billion in direct federal aid.

Huff noted that deliberate obfuscation was a complicating factor.

Commentary

In 2002, U.S. Representative Bernie Sanders (I-Vermont) scrutinized corporate welfare policies in the United States, which he estimated at a total of US$125 billion annually.

United Kingdom

In 2015, Kevin Farnsworth, a senior lecturer in Social Policy at York University published a paper in which he claimed that the government was providing corporate subsidies of £93 billion. This amount includes the role of the government in increasing trade, tax relief for businesses that invest in new plants and machinery (estimated by Farnsworth at £20 billion), not charging fuel duty on fuel used by railways or airlines, green energy subsidies, a lower corporation tax rate for small companies, regional development grants and government procurement for businesses (which Farnsworth suggests often favours British businesses even when these are not the best value option available). However, The Register wrote that Farnsworth's figure for tax relief for investment was incorrect and that he had made mistakes in his calculations, noting that he was not an accountant. It also stated that not charging businesses taxes under certain circumstances (when the reliefs applied) was not the same as giving them a subsidy. Fuel duty is not charged on airlines due to the Convention on International Civil Aviation (a UN agency) which specifies that aeroplanes should be exempt from fuel duties.

Political discussion

In 2015, Labour Party leader Jeremy Corbyn proposed reducing this amount during his leadership campaign. Corbyn did not say which specific policies he would change.

See also

• Concentrated benefits and diffuse costs
• Corporatism
• Corporatocracy
• Kleptocracy
• Political corruption
• Pork barrel
• Public choice theory
• Regulatory capture

Further reading

• Johnston, David Cay. Free Lunch (The Penguin Group, New York, 2007.)
• Jansson, Bruce S. The $16 trillion mistake: How the U.S. bungled its national priorities from the New Deal to the present (Columbia University Press, 2001)
• Mandell, Nikki. The corporation as family : the gendering of corporate welfare, 1890-1930 (University of North Carolina Press, 2002).
• Glasberg, Davita Silfen. Corporate welfare policy and the welfare state: Bank deregulation and the savings and loan bailout (Aldine de Gruyter, NY, 1997).
• Whitfield, Dexter. Public services or corporate welfare: Rethinking the nation state in the global economy (Pluto Press, Sterling, Va., 2001.)
• Folsom Jr, Burton W. The Myth of the Robber Barons (Young America)
• Rothbard, Murray N. Making Economic Sense, Chapter 51: Making Government-Business Partnerships ISBN 0-945466-18-8 (1995)

External links

• Anti-subsidy Congressional testimony
• Articles & sources from an anti-subsidy perspective
• Anti-subsidy information from NewRules.org
• A corporate welfare example from N.Y.
• A pro-subsidy perspective
• Interview with Samuel Edward Konkin III - 3 types of capitalists, categorizes State support of businesses as dangerous