Financial crisis State welfare for the rich
Little is new about the $700bn bail-out except its size. Governments in the US and Europe repeatedly subsidise big business. According to Senator Jim Bunning, the purchase of $700bn of dodgy debt by the US government “is financial socialism, it is un-American”. The economics professor Nouriel Roubini calls 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, calls the deal “trickle-down communism”.
They are wrong. The subsidies about to be given to the monster banks of Wall Street are as American as apple pie and obesity. Their size might 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. Slivinski shows how the federal government’s Advanced Technology Programme, 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.
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.
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.
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 $700bn the government must now find is just one of the public costs of its repeated failure to regulate. Even now the lobbying power of the banks is making itself felt: on Saturday the Democrats watered down their demand that the money earned by executives of the companies the government is rescuing 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. 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. The bosses of farm companies, oil drillers, supermarkets and banks capture the funds extracted by government from the pockets of people much poorer. Taxpayers everywhere should be asking the same question: why the hell should we be supporting them?