Pigs at the Trough: Corporate Welfare
Pigs at the Trough:
The Corporate Welfare State in America
by Craig Butler
The Welfare Reform Act of 1996 was enacted largely because overzealous critics of the welfare program decried its "cycle of dependency" which welfare supposedly created.
(This, despite the fact that the majority of welfare recipients tended to stay on welfare for relatively short periods of time.) Lawrence Bossidy, a wealthy businessman and CEO of AlliedSignal, has been quoted complaining about "the hundreds of thousands of able-bodied people who stay on welfare for years at a time."
Ironically, Bossidy himself is a welfare addict. Sccording to Morton Mintz, a former chairman of the Fund for Investigative Journalism, Bossidy's company has become dependent upon the $30 million handout it annually receives from the federal government. Yet he has been curiously silent about the epidemic of corporate welfare which threatens our nation.
What exactly is corporate welfare -- or "wealthfare," as political analysts Mark Zepezauer and Arthur Naiman refer to it? It's a little hard to define. A general definition offered by consumer advocate and public watchdog Ralph Nader is
"the enormous and myriad subsidies, bailouts, giveaways, tax loopholes, debt revocations, loan guarantees, discounted insurance and other benefits conferred by government on business." Some people look at the public benefits that a particular program provides and weigh that against the public cost to determine if something is wealthfare. Others ask whether the benefit to the private corporation outweighs the benefit to the public.
Nader prefers to specifically define it as
"any program [that] involves the government giving more to private companies than it gets back -- that is, where it is engaging in a transaction that cannot be justified as a fair market value exchange." To Dean Stansel of the libertarian Cato Institute it is "any government spending program that provides unique benefits or advantages to specific companies or industries."
The amount of money the U.S. government spends for wealthfare is subjective, determined by one's particular definition. In his book Corporate Welfare, Stansel estimated that in 1996 $75 billion of federal money was spent on corporate welfare. Simultaneously, Stephen Moore of the Hoover Institution (a think tank on the campus of Stanford University, dedicated to research in domestic policy and international affairs) put the figure at about $100 billion while the Boston Globe's Charles Sennott quoted $150 billion. Zepezauer and Naiman, on the other hand, felt that in 1996 the United States doled out at least $448 billion. (By contrast, only $130 billion was spent on "traditional" welfare that same year.)
Whatever the figure, it is a significant amount of money -- and one that is likely to go even higher, given the excessively friendly relations between George W. Bush and the corporate world.
Ronald Reagan galvanized the anti-welfare movement with his fictional creation of the "welfare queen" who drives a Cadillac to pick up her welfare checks. The world of corporate welfare is rife with true examples of such:
Defense giant Lockheed Martin was once allowed to bill the government $20,000 for golf balls, which it claimed as an "entertainment expense." (You try to do that on your personal 1040 and see what happens.) More damagingly, the government -- i.e., you and I -- paid the well-heeled executives of Lockheed $30 million in personal bonuses when it merged with Martin Marietta, a merger which resulted in substantial layoffs, lost jobs and higher prices for the goods the government buys from the company.
In 1995, the Walt Disney Corporation was given $300,000 for the important task of perfecting its fireworks display. (The company's profits for the year were a paltry $1 billion, so it could hardly have afforded this by itself.)
In order to help market Chicken McNuggets to Third World countries, the government gave a little fast food chain called McDonald's $2 million. (This is part of our Market Promotion Program, which gives a total of $90 million to help businesses market their wares overseas.)
Sugar growers get $1.4 billion per year -- with 40% of that money going to 1% of the owners -- as part of our sugar price support program. That program is only part of our agribusiness subsidy program, which Zepezauer and Naiman estimate costs $18 billion. Archer-Daniels-Midland is a major recipient of this money, so much so that an ABC News reporter dubbed ADM head Dwayne Andreas the nation's "No. 1 welfare mooch." The Cato Institute's James Bovard estimates that a full 43% of ADM profits result from products subsidized or protected by the federal government. "Moreover," Bovard states, "every $1 of profits earned by ADM╣s corn sweetener operations costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30."
The U.S. Forest Service has paid for over 360,000 miles of roadways (more than 8 times as long as the entire Interstate Highway System) at a price somewhere between $95 million and $140 million per year. Some 95% of these roads are solely for use by logging companies that are also given the right to cut trees from public lands at a price drastically below market rates ($2.85 for 1,000 board feet in 1995, about 1% of the going commercial rate).
In 1996, the federal government spent $7 billion on subsidies for the nuclear power industry, including $250 million merely for planning of long-term waste storage, $390 million to reprocess fuel roads, $468 million on nuclear research, and $3 billion in insurance subsidies. Nuclear power is probably the clearest example of an industry which is totally dependent upon corporate welfare. Without huge government support, it would disappear overnight.
According to the book Take The Rich Off Welfare (by Mark Zepezauer and Arthur Naiman, 1996) the government invests tens of billions of dollars in research and development, especially in the biomedical field, from which private corporations make a bundle while giving practically nothing back. For example, after spending $32 million (and fifteen years) to create Taxol, an important anti-cancer drug, the government gave it to Bristol-Myers-Squibb. The company, in turn, sells the drug at a wholesale (not retail) price that is twenty times what it costs Bristol-Myers-Squibb to make it. Moreover, the company does not pay royalties on its billion dollar annual sales from the drug. Many patients, meanwhile, suffer because they are unable to afford the $2,000 that a single injection costs.
And from 1990-1994, eight wealthy corporations, including GE, GM and AT&T, received $280 million in research grants to develop products which they then owned. (The combined profits of these companies in 1994 alone were $26.8 billion. Their political contributions that year, by the way, were close to $1 million.)
The Telecommunications Act of 1996 gave existing broadcasters a $70 billion windfall by granting them, totally free of charge and virtually without any requirements, access to broadcast digital programming on public airwaves. This Act passed after broadcasters gave $3 million in the 1995-96 election cycle. (It didn't hurt that the head of the broadcasters' lobby was a college friend of Senate Majority Leader Trent Lott.)
For almost 130 years, the government has given mining companies virtual carte blanche to destroy public lands in search of profit. The 1872 Mining Act allows any company to claim federal land for the whopping sum of $5 per acre (and sometimes less) and then take all of the minerals from that land for its private use - without paying a single penny in royalties from its sales. (These don't even have to be American companies. In 1994, Canada's American Barrick patented 2,000 acres of Nevada land for less than $10,000. That land contains some $10 billion in recoverable gold.) There is now a moratorium on patenting land, but claims filed before the moratorium are still being processed and already-patented land is still fair game -- and still royalty-free. An 8% royalty on existing mines would bring in at least $200 million per year. This would come in handy, as the Mineral Policy Center estimates that clean-up costs for abandoned mines on federal lands will eventually run between $30 billion and $70 billion.
And finally, what Nader considers the biggest corporate welfare expenditure of all time, the savings & loan debacle. As he writes, "the well-connected S&L industry successfully lobbied Congress for a deregulatory bill in the early 1980s, which freed the industry from historic constraints and paved the way for the speculative and corrupt failures that came soon after. Then more industry campaign contributions and lobbying led the Congress to delay addressing the problem -- resulting in more S&L failures and skyrocketing costs for corrective measures." The result was a bailout of $500 billion -- all of which the taxpayers will bear, not those financial institutions who brought about the disaster.
Horrifyingly, this list is just the tip of the iceberg. There are hundreds, if not thousands, of more instances of the federal government throwing money at businesses who neither need nor deserve it.
State and local governments do this as well. New York City Mayor Rudy Giuliani spent $900 million to "keep" the New York Stock Exchange in New York, although there was no real danger it would leave. That translates to approximately $200,000 for each job the Mayor "saved." He also struck huge deals with many other corporations, including the American Exchange, the Mercantile Exchange, ABC, NBC, CBS, Ziff-Davis and Conde Nast. Nader comments that Giuliani, who prides himself on his free market credentials, is practicing an "unrestrained form of corporate socialism."
And how many cities have either handed their citizens some form of a substantial tax increase or cut valuable public programs in order to pay for a new stadium for a sports team whose owner has threatened to relocate if he doesn't get one? Sometimes the cost to citizens goes beyond mere money, as when local governments exercise their right of eminent domain to evict citizens whose homes are on land needed for these stadiums. (Just ask George W. Bush. Although he claims to hold private property rights sacred, when he was an owner of the Texas Rangers, Bush was happy to force out some unhappy homeowners in order to get a new stadium built.)
How do politicians and business owners justify this massive misuse of public money? "Jobs!" they scream. "All of this money helps us create jobs!" But this isn't exactly true. For example, the $30 million given to Lockheed Martin executives for their merger created no new jobs; as previously stated, the merger resulted in jobs lost. The Export-Import Bank (which annually distributes about $1 billion in federal money to corporations) reports that the bank's five biggest beneficiaries (AT&T, Bechtel, Boeing, GE and McDonnell Douglas) have dropped over 300,000 jobs over a ten-year period.
Besides, if the rationale for spending this money is job creation, it could be much better spent according to Zepezauer and Naiman. In 1996, a study showed that spending $1 billion in the defense industry creates 25,000 jobs. But spending that same billion in education creates 41,000 jobs. Put it in health care and you have 47,000 jobs. And a 1992 study showed that shifting money from the Pentagon to state and local governments would create two jobs for every one that it eliminated.
Other arguments don't hold any more water. Some say that corporate welfare recirculates money back into the economy, but so does "traditional" welfare, which allows money to go from an individual to a landlord or a grocery store or a gas station.
Also, wealthfare tends to go to industries that pollute our air and water or destroy public lands, necessitating further expenditures of government dollars and affecting our quality of life and our health as well.
Wealthfare is an outrage, a system much more in need of reform than welfare ever was. So where's the tidal wave of congressional condemnation? Aside from a few voices -- Sen. John McCain, R-Az.; Sen. Russ Feingold, D-Wis., former Rep. Tom Andrews, D-Me.; and especially former Rep. John Kasich, R-Ohio -- very few people are willing to lead the charge. Oh, a few individuals will speak out on a particularly egregious piece of wealthfare, as long as it doesn't involve one of their major donors. But there is largely an absence of political will on this issue.
This means that we have to create it.
One of the biggest obstacles to ending wealthfare is our current campaign financing system. As long as wealthy corporations can pour money into candidates' and political parties' pockets, wealthfare will continue. So the most effective way of battling the problem is to push for meaningful campaign finance reform.
Zepezauer and Naiman also recommend fighting for tax fairness. Businesses pay almost one-third less in taxes today than they did in the 1950s. Correcting that figure so that they paid a more fair percentage would not do away with wealthfare, but it would make it less of a burden on individuals.
And, of course, anti-wealthfare legislation itself would have the greatest and most immediate impact. This could run the gamut from legislation which proposes that all corporate welfare be eliminated to more piecemeal approaches. The latter, of course, would stand a better chance of being introduced, let alone voted on or passed. Some examples of "piecemeal" approaches which Nader suggests include:
- Specifying conditions which must be met for recipients of wealthfare. (This could range from a set number of jobs to be added for a set period of time to measurable environmental improvements to public access to private land.)
- Sunsetting corporate welfare, so that every piece of wealthfare legislation would expire after four years. It could be renewed, of course, but only after being brought up again and reviewed by the legislative body.
- Requiring federal agencies to issue annual reports on corporate welfare.
- Requiring publicly-traded companies to list the type and amount of wealthfare they receive for public disclosure.
- Denying wealthfare to corporations whose executives receive more than a predetermined level of compensation (for example, a corporation where the CEO receives pay that is more than 30 times that of the lowest paid employee).
- Denying wealthfare to corporations which have committed a set number of felonies and/or misdemeanors.
Because of the nature of the beast, individual citizens can have a greater and more immediate effect by concentrating on state and local levels initially. But a massive movement against wealthfare on all levels is badly needed.
Remember, it's your money. Wouldn't you rather it be used to repair the infrastructure, clean up your drinking water or improve your child's education rather than to help a corporate CEO purchase a third Jaguar?
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