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A First Look at a New Report on Crony Capitalism – Trillions in Corporate Welfare | A Lightning War for Liberty
One of the primary topics on this website since it was launched has been the extremely destructive and explosive rise of crony capitalism throughout the USA. It is crony capitalism, as opposed to free markets, that has led to the gross inequality in American society we have today. Cronyism for the super wealthy starts at the very top with the Federal Reserve System, which consists of topdown economic central planners who manipulate the money supply and hence interest rates for the benefit of the financial oligarch class. It then trickles down through lobbyist money into the halls of Washington D.C., and ultimately filters down to local governments and then the average person on the street gaming welfare or disability.
As such, we now live in a culture of corruption and theft that is pervasive throughout society. One thing that bothers me to no end is when fake Republicans focus their criticism on struggling people who need welfare or food stamps to survive. They have this absurd notion that the whole welfare system doesn’t start with the multinational corporations and Central Banks at the top. In reality, it is at the top where the cancer starts, and that’s where we should focus in order to achieve real change.
That’s where a new report from Open the Books on corporate welfare comes in. In a preview of the publication, the organization notes:
If Republicans are going to get truly serious about cutting government spending, they are going to have to snip the umbilical cord from the Treasury to corporate America. You can’t reform welfare programs for the poor until you’ve gotten Daddy Warbucks off the dole. Voters will insist on that — as well they should.
So why hasn’t it happened? Why hasn’t the GOP pledged to end corporate welfare as we know it?
Part of the explanation is that too many have gotten confused about the difference between free-market capitalism and crony capitalism.
And part of the problem is corporate welfare that is so well hidden from public view in the budget that no one has really measured how big this mountain of giveaway cash to the Fortune 500 really is. Finding out is like trying to break into the CIA.
Until now. Open the Books, an Illinois-based watchdog group, has been scrupulously monitoring all federal grants, loans, direct payments and insurance subsidies flowing to individuals and companies.
It’s an attempt to force federal agencies to release information on where the $4 trillion budget is really spent — and Open the Books will release a new report on corporate welfare payments to the Fortune 100 companies from 2000 to 2012.
Over that period, the 100 received $1.2 trillion in payments from the federal government.
That number does not include the hundreds of billions of dollars in housing, bank and auto company bailouts in 2008 and 2009, because those payments and where they went are kept mostly invisible in the federal agency books.
As suspected, the biggest welfare queens in the U.S. are the super wealthy themselves, but they’d rather you focus on some single mother on welfare simply trying to survive.
The full report can be downloaded here.
In the land of government plenty — that vast landscape populated with the tax dollars of Canadians — there is no shortage of politicians willing to hand out and defend subsidies to business and no dearth of corporations willing to take the cash.
Bombardier Inc., which recently announced it would lay off 1,700 people, has been one chronic seeker and a regular recipient of such taxpayer assistance. The Montreal-based aerospace company is thus a useful example of corporate welfare in action, the tax dollars at stake, and the regular, inflated claims about the beneficial effects of such subsidies.
Bombardier’s corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department, Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.
Most of the money, excepting $55-million in grants, came in the form of “conditionally repayable contributions” — conditional loans where repayment depends on the performance of a particular project.
That $1.1 billion does not include tax dollars received from any other federal department or other governments, including in Ontario, Quebec and even Great Britain ($298 million in the latter case). But if taxpayers wish to know how much money has been repaid out of just the amounts above, they’re mostly out of luck.
Publicly, Bombardier claims it has repaid $275 million on two government loans originally worth $187 million. That ignores the dozens of other disbursements and much larger amounts loaned to the company.
Some other scraps of information are available though. In 2008, Industry Canada’s department performance report noted a $108.4 million loan guarantee write-off. The department did not specify which company benefitted when taxpayers covered the loan, but media reports noted it was for government guarantees connected to Bombardier’s turboprop aircraft.
Beyond such glimpses, my Access to Information requests to Industry Canada are regularly returned with the repayment records of most companies (not just Bombardier) blacked out. Under the federal Access to Information Act, the department must, legally, withhold such information if a company might suffer financial loss or have its competitive position undermined. In addition, Bombardier has also filed in Federal Court to prevent access to such numbers.
There are even larger corporate welfare recipients than Bombardier — for example, Pratt & Whitney has garnered $3.3 billion from Industry Canada since 1970. But if subsidies are so commercially sensitive, it should be obvious that governments potentially harm competitors when they interfere in an open market and at taxpayers’ expense. Then there is the fact that the money governments hand over is first taken from someone else, either a private citizen or another Canadian business. Corporate welfare is not a costless activity.
More generally, despite the multiple claims for subsidizing businesses with tax dollars — higher economic growth, more jobs and extra tax revenues — the justifications wilt when examined closely.
For instance, one of the world’s foremost experts on business subsidies, Professor Terry Buss, has noted how the various claims often result from correlation-causation errors. (That the rooster crows and the sun rises, does not mean the former caused the latter.)
Also, the government and industry studies that promulgate such myths fail to account for how “gains” to one region are necessarily offset by losses elsewhere.
The simplest example of this substitution effect occurred back in 1986 when Industry Canada helped pay for the construction of a new fish processing facility in Quebec at a cost of $2.2 million. The justification was that an additional 250 jobs would be created when the new plant opened its doors. However, as the Auditor General noted in 1995, the nearby existing fish-processing facility (which also received federal subsidies) soon closed with job losses equivalent to those created by the new market entrant. Net employment gains were zero because jobs were transferred — not created — at the cost of taxpayer subsidies.
Corporate welfare is not inevitable as policy. Back in the 1990s in Alberta, after a plethora of loans and loan guarantees signed during the Peter Lougheed years went south, leaving taxpayers with a $2.2 billion loss, the then government of Ralph Klein decided it was out of the business of being in business. It was a pledge and a legislature-approved policy to which the Klein government mostly stuck.
There is nothing contradictory about wanting Bombardier, Pratt & Whitney, or other businesses to thrive and yet opposing taxpayer subsidies based on the empirical evidence. Corporate welfare is costly and taxpayers don’t need to be continually dragged into corporate battles for market share.