Corporate Welfare Is Neither Free Market nor Capitalism

 

Corporate welfare is the bestowal of money from a government to corporations. These bestowals may be to all corporations or just certain businesses, and the money may be in the form of tax breaks, guaranteed loans, grants or other types of preferential treatment. Corporate welfare is sometimes called cronyism or corporatism. Regardless of the term used, corporate welfare costs taxpayers money directly or indirectly, but only the corporations share in the profits.

In a Huffington Post article, Ralph Nader states that American taxpayers are fronting the costs for highly profitable corporations to such an extent that many large corporations should lobby to have April 15 declared “Taxpayer Appreciation Day” as a way of thanking individuals for their donations. Despite what some people believe, corporate welfare is not an integral part of a free market or capitalism; in fact, corporate welfare is in direct conflict with the principles of both of these systems.

Why Corporate Welfare Contradicts Free Market and Capitalism

To understand why corporatism violates the concepts of both capitalism and the free market, it might be helpful to define these two terms. Capitalism.org describes capitalism as a system in which property is privately owned and there is a separation of state and businesses similar to the separation of church and state. A free market is one in which businesses have an opportunity to compete without certain companies receiving an unfair advantage. InvestorWords.com defines a free market as a system in which businesses are not restrained by government subsidies, interference or regulation.

Corporate welfare violates the separation of business and state that is an important aspect of capitalism. It violates the principles of a free market by giving an uneven playing field, restraining certain industries through regulation or giving favored corporations a competitive advantage through subsidies. In short, corporate welfare is counterproductive to both capitalism and the free market.

Is America’s Market Truly Free?

Part of the definition offered for a free market is the lack of restraints placed on businesses through government regulations. Based on this definition, America does not have a free market, and in a post for The American Vision, Dr. Joel McDurmon argues that the market in this country has never been truly free. However, in earlier times, the market was certainly much freer than it is today. Dr. McDurmon points to the establishment of the Interstate Commerce Commission in 1887 as a crucial piece of legislation that has resulted in more than a century of ever-increasing government regulations on businesses.

What Activities Constitute Corporate Welfare?

There are many different ways that the government can subsidize corporations. Testifying before the Senate Subcommittee on Federal Spending Oversight and Emergency Management in 2015, Romina Boccia of The Heritage Foundation listed some of the most common. These include trade barriers, regulations on trade, narrowly defined tax credits benefiting just certain industries, loan guarantees and presidential and congressional earmarks used as rewards for friends or political supporters.

Who Benefits from Corporate Welfare?

The list of specific companies and industries benefiting from corporatism is extensive. In a blog posted on the Huffington Post, Robert Reich listed major pharmaceutical corporations, corporate agribusiness and the fossil-fuel industries. In her testimony before the Senate, Boccia listed Boeing, General Electric, Caterpillar and Bechtel as major recipients of corporate welfare, and she questioned why the government should guarantee loans for the construction of a Ritz-Carlton hotel and Papa John’s franchises in foreign countries.

One of the most alarming instances of corporate welfare that cost taxpayers a substantial amount of money is what many describe as the Solyndra scandal. Solyndra was a company that manufactured solar panels and one of several companies specializing in renewable energy that received federal loans. Many people remember Solyndra due to President Obama’s well-publicized appearance at the plant. Obama described how the government’s support of Solyndra was leading to the creation of several hundred jobs. Within a year, however, Solyndra was out of business. Over 1,000 employees lost their jobs, and American taxpayers were out more than $500 million.

According to the Washington Post, George Kaiser, an important fundraiser for Obama, was a major investor in Solyndra although the investments were made in an indirect manner. There are many who question whether the loans made to Solyndra exemplify cronyism at its worst.

Will Politicians Eliminate Corporate Welfare?

In an opinion piece published by Forbes, Doug Bandow notes that although most politicians claim that they want to trim the federal budget, few are willing to do so. Similarly, despite statements they may make condemning it, corporate welfare receives enthusiastic support from both Republicans and Democrats. So far, Congress has been resistant to the idea of slashing corporate welfare, and Bandow asserts that their resistance is due to the generous amounts that special interest groups contribute to political campaigns and the efforts of lobbyists. Whether politicians will muster the courage to eliminate corporate welfare remains to be seen.

In an election year, voters are faced with a variety of issues that they must evaluate. Familiarizing yourself with the issues can help you make your decisions regarding candidates and propositions. If you would like to learn more about corporate welfare, visit us at PersonalMoneyStore.com.

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