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The Free Market Preachers Have Long Practised State Welfare for the Rich
According to Senator Jim Bunning, the proposal to purchase $700bn of dodgy debt by the US government was "financial socialism, it is un-American". The economics professor Nouriel Roubini called George Bush, Henry Paulson and Ben Bernanke "a troika of Bolsheviks who turned the USA into the United Socialist State Republic of America". Bill Perkins, the venture capitalist who took out an ad in the New York Times attacking the plan, called it "trickle-down communism".
They are wrong. Any subsidies eventually given to the monster banks of Wall Street will be as American as apple pie and obesity. The sums demanded may be unprecedented, but there is nothing new about the principle: corporate welfare is a consistent feature of advanced capitalism. Only one thing has changed: Congress has been forced to confront its contradictions.
One of the best studies of corporate welfare in the US is published by my old enemies at the Cato Institute. Its report, by Stephen Slivinski, estimates that in 2006 the federal government spent $92bn subsidising business. Much of it went to major corporations such as Boeing, IBM and General Electric.
The biggest money crop - $21bn - is harvested by Big Farmer. Slivinski shows that the richest 10% of subsidised farmers took 66% of the payouts. Every few years, Congress or the administration promises to stop this swindle, then hands even more state money to agribusiness. The farm bill passed by Congress in May guarantees farmers a minimum of 90% of the income they've received over the past two years, which happen to be among the most profitable they've ever had. The middlemen do even better, especially the companies spreading starvation by turning maize into ethanol, which are guzzling billions of dollars' 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 big businesses flogging proven products. Since 1991, companies such as IBM, General Electric, Dow Chemical, Caterpillar, Ford, DuPont, General Motors, Chevron and Monsanto have extracted hundreds of millions from this programme. Big business is also underwritten by the Export-Import Bank: in 2006, for example, Boeing alone received $4.5bn in loan guarantees.
The government runs something called the Foreign Military Financing programme, which gives money to other countries to purchase weaponry from US corporations. It doles out grants to airports for building runways and to fishing companies to help them wipe out endangered stocks.
But the Cato Institute's report has exposed only part of the corporate welfare scandal. A new paper by the US Institute for Policy Studies shows that, through a series of cunning tax and accounting loopholes, the US spends $20bn a year subsidising executive pay. By disguising their professional fees as capital gains rather than income, for example, the managers of hedge funds and private equity 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 the bill was blocked in the Senate after a lobbying campaign by some of the richest men in America.
Another report, by a group called Good Jobs First, reveals that Wal-Mart has received at least $1bn of public money. Over 90% of its distribution centres and many of its retail outlets have been subsidised by county and local governments. They give the chain free land, they pay for the roads, water and sewerage required to make that land usable, and they grant it property tax breaks and subsidies (called tax increment financing) originally intended to regenerate depressed communities. Sometimes state governments give the firm straight cash as well: in Virginia, for example, Wal-Mart's distribution centres 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 purpose and is unlikely ever to work, has already cost the US between $120bn and $150bn. The US is unique among major donors in insisting that the food it offers in aid is produced on its own soil, rather than in the regions it is meant to be helping. USAid used to boast on its website that "the principal beneficiary of America's foreign assistance programs has always been the United States. Close to 80% of the USAid's contracts and grants go directly to American firms." There is not and has never been a free market in the US.
Why not? Because the congressmen and women now railing against financial socialism depend for their re-election on the companies they subsidise. The legal bribes paid by these businesses deliver two short-term benefits for them. The first is that they prevent proper regulation, allowing them to make spectacular profits and to generate disasters of the kind Congress is now confronting. The second is that public money that should be used to help the poorest is instead diverted into the pockets of the rich.
A report published last week by the advocacy group Common Cause shows how bankers and brokers stopped legislators banning unsustainable lending. Over the past financial year, the big banks spent $49m on lobbying and $7m in direct campaign contributions. Fannie Mae and Freddie Mac spent $180m in lobbying and campaign finance over the past eight years. Much of this was thrown at members of the House financial services committee and the Senate banking committee.
Whenever congressmen tried to rein in the banks and mortgage lenders they were blocked by the banks' money. Dick Durbin's 2005 amendment seeking to stop predatory mortgage lending, for example, was defeated in the Senate by 58 to 40. The former representative Jim Leach proposed re-regulating Fannie Mae and Freddie Mac. Their lobbyists, he recalls, managed in "less than 48 hours to orchestrate both parties' leadership" to crush his amendments.
The money these firms spend buys the socialisation of financial risk. The $700bn the government was looking for was just one of the public costs of its repeated failure to regulate. Even now the lobbying power of the banks has been making itself felt: on Saturday the Democrats watered down their demand that the money earned by executives of companies rescued by the government be capped. Campaign finance is the best investment a corporation can make. You give a million dollars to the right man and reap a billion dollars' worth of state protection, tax breaks and subsidies. When the same thing happens in Africa we call it corruption.
European governments are no better. The free market economics they proclaim are a con: they intervene repeatedly on behalf of the rich, while leaving everyone else to fend for themselves. Just as in the US, the bosses of farm companies, oil drillers, supermarkets and banks capture the funds extracted by government from the pockets of people much poorer than themselves. Taxpayers everywhere should be asking the same question: why the hell should we be supporting them?
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14 Comments so far
Show AllWhile Congress may talk a good line about helping Main Street, Congress never forgets that they are owned by Wall Street, not Main Street.
While Congress may talk a good line about helping Main Street, Congress never forgets that they are owned by Wall Street, not Main Street.
EVERY so often some wackjob gets up on a box and suggests that the citizens round up all the "aristocrats" that have been exploiting them and chop their heads off.
It happens, england, france, russia, germany, china, mexico, hey maybe we get a revolution out of it...
"Because the congressmen and women now railing against financial socialism depend for their re-election on the companies they subsidize."
Which is why neither the Dems nor the "conservatives" have demanded budget cuts and shifts in order to actually pay for whatever Bank Robber Reward Act of 2008 will eventually come to pass.
On top of the previous list of cuts and shifts I've already presented (here, there and to many of our "representatives,") a few more: cancel missile defense once and for all - $150 billion; end the "war on drugs" - $50 billion; cease building the Mexico border fence - $50 billion.
Hell, at least Congress could have pretended to demand budget cuts and shifts to make us feel warm and fuzzy. Instead, all agree that the only answer is to print more money ($8,000 per taxpayer) and argue about how to spend it.
We haven't had free markets since the fifties...as such.
Free markets have never existed except in small rural villages.
This is why corporations should not be given the same rights that humans have. Humans don't have that much money, by and large, and money, regardless of what the SCOTUS has said, is NOT the same as speech. Speech is ideas, money is a vile and corrupting thing when allowed in politics.
What is required is a repudiation of the concept of corporations being the same as people. When a corporation can get tonsilitis, THEN I will accept such a concept.
We need to have a system that has PUBLICALLY financed elections. ALL elections. It will save us all far more money than you can imaqgine, and it will remove the corrupting influence of money.
Here is my vision of such a system.
1) A fund is established where each candidate for any given position is allowed a certain amount of money. For each job, that will be decided by the importance of the job.
2) NO outside money is allowed. NO self financed campaign funding, no corporate money, NO family or 527 money. Anyone caught breaking this part of the system goes to jail. PERIOD.
3) If you run out of money early, too bad. It's proof that you can't be trusted with public funds if you can't run a campaign within financial boundaries.
4) The press and the networks give free and equal airtime to each candidate. NO money changes hands over this, it is to be considered part of their public obligation for getting braodcast and cable licenses for nothing, which is what they actually cost.
5) ALL candidates are afforded the same treatment, the same funds, and the same outlets to the pubic. This is the only way for the elections to be based on ideas and substance, not on money and undue influence of corporations or the wealthy.
6) Corporations will be removed from the collection of those that are given human rights, which includes the ability to influence gov't. They will not be allowed to contribute to political campaigns, but they WILL be required to contribute to the fund at the same rate as their incomes allow. It's called taxes, and they would go back to being required to pay their share, since they DO benefit from the infrastructure that we all paid for.
It's a simple system, and one that, if followed, would give the public what they need to make actual and informed decisions. it will never happen, because it would break the stranglehold that big money has over everything, and would weaken the two party system, allowing other parties and even individuals to have a fair and equal shot at power. And so, of course, it has no chance in hell of being allowed. But I've put it out and will most likely go to my grave thinking that it is what would work to give this coutnry the best chance of living up to it's promise of gov't by, for, and of the actual citizenry.
The difference is that this bill as written would not just be Corporate Welfare but would instead lead to State Capitalism -the system more commonly confused with Socialism or Communism.
This is not just the Federal Government setting itself up as customer to military and high-tech manufacturers with a high chance of corruption.
And it is certainly not just the common practice of subsidies for farmers.
This bill sets up the U.S. Treasury as Guarantor for the profit of speculative finance.
This bill makes the U.S. Treasury the perpetual "greatest idiot" in any finacial bubble.
This bill allows private financial firms control of the distribution of public funds for the purose of private gain.
Mr. Monbiot is either out of his depth here or participating in a propaganda campaign.
The lumping of Federal and Local and State tax breaks, custom, and infrastrucure construction into simply "public funds" and then by way of another misleading lumping, connecting this bill giving extra-ordinary powers to the executive and private firms is particularly odious.
I can only hope that it is Mr. Monbiot's status as a foreigner and not something more sinister that is leading to all this.
Your dennigration of George is unwarranted. He did a fine job of relating just a little of what is known as "The American System" that's been in place for over 200 years. What exists in the USA today is a modified version of Hamilton's state support for manufacturers and Henry Clay's and JQ Adams's expansion of Hamilton from which the term "American System" originates.
Perhaps you might explian why the Democrats are so insistent on passing a bill that Bush claimed as "His Own," whereas it was defeated by Republicans.
George Monbiot is good. More people should read him.
And he's right. Americans have been subsidizing industries for decades. This notion of a free market is just bogus bloviations by conning conservatives. Taxpayer money flows easily to corporations and in return political contributions flow easily to the 2 parties. It's quid pro quo, a real scam.
Puttering with laws has not worked. It can't work until a cap is placed on personal net worth. Once done, money and power mongering will go out of fashion, people will dedicate themselves to art, sports, science, creativity and enjoying life, and the market, the government, society and everything else will take care of itself and provide for everyone.
Monbiot is correct, of course. Another resource for those trying to grasp the idea that U.S. taxpayers finance private enterprise (unwillingly) is "Take the Rich Off Welfare."
The book is a bit out of date, but I'm sure the same cash handouts to corporations described in it continue apace.
So next time your company downsizes or merges and you are out of work, it's thin gruel to think that the brutalities of capitalism apply to you, but not to the corporation that just shaved off a little profit by cutting your job.
Take the rich off welfare indeed!
-TIA
BEWARE BAILOUT RD 11, NEW SHADE OF LIPSTICK
By David Swanson
SNIP:
I want a bill immediately to ban predatory mortgage lending, ban states
from preventing cities from restricting predatory lending, and commit
the federal government to allowing states full freedom to restrict
predatory lending.
I want a bill establishing a maximum wage at 10 times the minimum wage,
and including all forms of income in that calculation (and raising the
minimum wage how ever much required to pass the bill). I want the tax
system created by that bill to pay for any necessary bailouts, and want
such bailouts enacted and overseen by Congress.
I also want a Tobin tax on all transactions in finance, insurance, and
real estate, including currency transactions.
I want Congress to haul fraudulent bankers into Washington and force
them to testify, fire them without compensation as part of any bailouts,
and refer them to the Justice Department for prosecution.
I want serious regulation of Wall Street.
I want a five-year moratorium on foreclosures, and a bailout of
homeowners equal to any bailout of bankers.
And, finally, I want $700 billion invested in green energy jobs
immediately, to be paid for by a tax on carbon emissions.
In fact, I would like to see all of these steps included in a single
bill called the "Honest Emergency Economic Stabilization Act of 2008."
Somebody explain to me why that wouldn't be a good move for our economy
and a smart political step for those who propose it.
The primary focus of the debate must be the issuance of credit, specifically, the question of whether the public should control the issuance of credit, the fact that only if credit supports the development of real production is it healthy, and, finally, the fact that private ownership of our credit mechanism has in the main been destructive of real production. To neglect this focus is to undermine constructive discussion.