Confronting Contradictions

According to Senator Jim Bunning, the proposal to purchase $700bn of dodgydebt by the US government "is financial socialism, it is un-American"(1).The economics professor Nouriel Roubini calls George Bush, Henry Paulson and BenBernanke "a troika of Bolsheviks who turned the USA into the United SocialistState Republic of America"(2). Bill Perkins, the venture capitalist who tookout an advertisement in the New York Times attacking the deal, calls it"trickle-down communism"(3).

They are wrong. The banking subsidies Congress rejected last night are asAmerican as apple pie and obesity. The sums demanded by Bush and Paulson mightbe unprecedented, but there is nothing new about the principle: corporatewelfare is a consistent feature of advanced capitalism. Only one thing haschanged: Congress has been forced to confront its contradictions.

One of the best studies of corporate welfare in the United States is publishedby my old enemies at the Cato Institute. Its report, by Stephen Slivinski,estimates that in 2006 the federal government spent $92bn subsidisingbusiness(4). Much of it went to major corporations like Boeing, IBM and GeneralElectric.

The biggest money crop - $21bn - is harvested by Big Farmer. Slivinski showsthat the richest 10% of subsidised farmers took 66% of the pay-outs. Every fewyears Congress or the administration promises to stop this swindle, then handseven more state money to agribusiness. The Farm Bill passed by Congress in Mayguarantees farmers a minimum of 90% of the income they’ve received over thepast two years, which happen to be among the most profitable they’ve everhad(5). The middlemen do even better, especially the companies spreadingstarvation by turning maize into ethanol, which are guzzling billions ofdollars’ worth of tax credits.

Slivinski shows how the federal government’s Advanced Technology Program,which was supposed to support the development of technologies that are"pre-competitive" or "high risk" has instead been captured by bigbusinesses flogging proven products. Since 1991, companies like IBM, GeneralElectric, Dow Chemical, Caterpillar, Ford, DuPont, General Motors, Chevron andMonsanto have extracted hundreds of millions from this programme. Big businessis also underwritten by the Export-Import Bank: in 2006, for example, Boeingalone received four and half billion in loan guarantees(6).

The government runs something called the "Foreign Military FinancingProgram" which gives money to other countries to purchase weaponry from UScorporations. It doles out grants to airports for building new runways and tofishing companies to help them wipe out endangered stocks.

But the Cato Institute’s report has exposed only part of the corporate welfarescandal. A new paper by the US Institute for Policy Studies shows that, througha series of cunning tax and accounting loopholes, the US spends $20bn a yearsubsidising executive pay(7). By disguising their professional fees as capitalgains rather than income, for example, the managers of hedge funds and privateequity companies pay lower rates of tax than the people who clean their offices.A year ago, the House of Representatives tried to close this loophole, but thebill was blocked in the Senate after a lobbying campaign by some of the richestmen in America.

Another report, by a group called Good Jobs First, reveals that Wal-Mart hasreceived at least $1bn of public money(8). Over 90% of its distribution centresand many of its retail outlets have been subsidised by county and localgovernments. They give the chain free land, they pay for the roads, water andsewerage required to make that land usable, and they grant it property taxbreaks and subsidies (called tax increment financing) originally intended toregenerate depressed communities. Sometimes state governments give the firmstraight cash as well: in Virginia, for example, Wal-Mart’s distributioncentres receive handouts from the Governor’s Opportunity Fund.

Corporate welfare is arguably the core business of some government departments.Many of the Pentagon’s programmes deliver benefits only to its contractors.Ballistic missile defence, for example, which has no obvious strategic purposeand which is unlikely ever to work, has already cost the US between $120bn and$150bn. The Department of Defense wants another $62bn for the next fiveyears(9). The US is unique among major donors in insisting that the food itoffers in aid is produced on its own soil, rather than in the regions it ismeant to be helping. USAID used to boast on its website that "the principalbeneficiary of America’s foreign assistance programs has always been theUnited States. Close to 80 percent of the US Agency for InternationalDevelopment’s contracts and grants go directly to American firms."(10) Thereis not and has never been a free market in the United States.

Why not? Because the Congressmen and women now railing against financialsocialism depend for their re-election on the companies they subsidise. Thelegal bribes paid by these businesses deliver two short-term benefits. The firstis that they prevent proper regulation, which allows them to make spectacularprofits and to generate disasters of the kind that Congress is now confronting.The second is that public money which should be used to help the poorest andweakest is instead diverted into the pockets of the rich.

A report published last week by the advocacy group Common Cause shows howbankers and brokers stopped legislators from banning unsustainable lending(11).Over the past financial year, the big banks spent $49m on lobbying and $7m indirect campaign contributions. Fannie Mae and Freddie Mac have spent $180m inlobbying and campaign finance over the past eight years. Much of this money wasthrown at members of the House Financial Services Committee and the SenateBanking Committee.

Whenever congressmen tried to rein in the banks and mortgage lenders they wereblocked by the banks’ money. Dick Durbin’s 2005 amendment seeking to stoppredatory mortgage lending, for example, was defeated in the Senate by 58 to 40.The former representative Jim Leach proposed re-regulating Fannie Mae andFreddie Mac. Their lobbyists, he recalls, managed in "less than 48 hours toorchestrate both parties’ leadership" to crush his amendments(12).

The money these firms spend buys the socialisation of financial risk. The $700bnthe government was looking for is just one of the public costs of its repeatedfailure to regulate. Even now the lobbying power of the banks is making itselffelt: on Saturday the Democrats watered down their demand that the money earnedby executives of the companies the government is rescuing be capped(13).Campaign finance is the best investment a corporation can make. You give amillion dollars to the right man and reap a billion dollars’ worth of stateprotection, tax breaks and subsidies. When the same thing happens in Africa wecall it corruption.

European governments are no better. The free market economics they proclaim area con: they intervene repeatedly on behalf of the rich, while leaving everyoneelse to fend for themselves. Just as in the United States, the bosses of farmcompanies, oil drillers, supermarkets and banks capture the funds extracted bygovernment from the pockets of people much poorer than themselves. Taxpayerseverywhere should be asking the same question: why the hell should we besupporting them?

www.monbiot.com

References:

1. Jim Bunning, quoted by James Politi and Daniel Dombey, 24th September 2008.Republican anger at ‘financial socialism’. Financial Times.

2. Nouriel Roubini, 18th September 2008. Public losses for private gain. TheGuardian.

3. Andrew Clark, 24th September 2008. US trader attacks ‘trickle-downcommunism’ of markets bail-out. The Guardian.

4. Stephen Slivinski, 14th May 2007. The Corporate Welfare State: How theFederal Government Subsidizes US Businesses. Policy Analysis no. 592. cato.org

5. Subsidy Watch, June 2008. Ignoring WTO implications and a presidential veto,US Congress passes the new Farm Bill. GlobalSubsidies Initiative.

6. Stephen Slivinski, ibid.

7. Sarah Anderson et al, 25th August 2008. Executive Excess 2008
How Average Taxpayers Subsidize Runaway Pay. Institutefor Policy Studies.

8. Philip Mattera et al, May 2004. Shopping for Subsidies:
How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth. GoodJobs First.

9. I explain why it won’t work and costs so much at monbiot.com

10. USAID. Creating Opportunities for U.S. Small Business, viewed 5th January2004. usaid.gov

11. Common Cause, 24th September 2008. Ask Yourself Why… They Didn’t SeeThis Coming. commoncause.org 

12. James A. Leach, 16th July 2008. Fixing Fannie and Freddie. Institute ofPolitics,
John F. Kennedy School Of Government, Harvard University. harvard.edu

13. James Politi and Daniel Dombey, 28th September 2008. Long and exhaustingroad to compromise. Financial Times.