[R-G] [BillTottenWeblog] Congress Confronts Its Contradictions

[Bill Totten]

by George Monbiot

The Guardian (September 30 2008)


According to Senator Jim Bunning, the proposal to purchase $700 billion
of dodgy debt by the US government "is financial socialism, it is
un-American" {1}. 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" {2}. Bill
Perkins, the venture capitalist who took out 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
as American as apple pie and obesity. The sums demanded by Bush and
Paulson 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 United States is
published by my old enemies at the Cato Institute. Its report, by
Stephen Slivinski, estimates that in 2006 the federal government spent
$92 billion subsidising business {4}. Much of it went to major
corporations like Boeing, IBM and General Electric.

The biggest money crop - $21 billion - is harvested by Big Farmer.
Slivinski shows that the richest ten per cent of subsidised farmers took
66% of the pay-outs. 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 ninety per cent of the income they've received over the
past two years, which happen to be among the most profitable they've
ever had {5}. 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 like 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 four and half billion
in loan guarantees {6}.

The government runs something called the "Foreign Military Financing
Program" which gives money to other countries to purchase weaponry from
US corporations. It doles out grants to airports for building new
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 $20 billion a year subsidising executive pay {7}. 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 $1 billion of public money {8}. Over ninety per
cent 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 which is unlikely ever to work, has
already cost the US between $120 billiion and $150 billion. The
Department of Defense wants another $62 billion for the next five years
{9}. 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 eighty percent of the US Agency
for International Development's contracts and grants go directly to
American firms" {10}. There is not and has never been a free market in
the United States.

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. The first is that they prevent proper regulation, which allows
them to make spectacular profits 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 and weakest 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 from banning unsustainable
lending {11}. Over the past financial year, the big banks spent $49
million on lobbying and $7 million in direct campaign contributions.
Fannie Mae and Freddie Mac have spent $180 million in lobbying and
campaign finance over the past eight years. Much of this money 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 forty. 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 {12}.

The money these firms spend buys the socialisation of financial risk.
The $700 billion the government was looking for 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 {13}. 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
United States, 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?

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. The Guardian.

{3} Andrew Clark, 24th September 2008. US trader attacks ‘trickle-down
communism' of markets bail-out. The Guardian.

{4} Stephen Slivinski, 14th May 2007. The Corporate Welfare State: How
the Federal Government Subsidizes US Businesses. Policy Analysis number 592.
http://www.cato.org/pubs/pas/pa592.pdf

{5} Subsidy Watch, June 2008. Ignoring WTO implications and a
presidential veto, US Congress passes the new Farm Bill. Global
Subsidies Initiative.
http://www.globalsubsidies.org/en/subsidy-watch/news/ignoring-wto-implications-and-a-presidential-veto-us-congress-passes-new-farm-

{6} Stephen Slivinski, ibid.

{7} Sarah Anderson et al, 25th August 2008. Executive Excess 2008
How Average Taxpayers Subsidize Runaway Pay. Institute for Policy
Studies. http://www.ips-dc.org/reports/#623

{8} Philip Mattera et al, May 2004. Shopping for Subsidies:
How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth.
Good Jobs First. http://www.goodjobsfirst.org/pdf/wmtstudy.pdf

{9} I explain why it won't work and costs so much at
http://www.monbiot.com/archives/2008/08/19/the-magic-pudding/

{10} USAID. Creating Opportunities for U.S. Small Business, viewed 5th
January 2004.
http://www.usaid.gov/procurement_bus_opp/osdbu/book-information.htm

{11} Common Cause, 24th September 2008. Ask Yourself Why ... They Didn't
See This Coming.
http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=4542875

{12} James A Leach, 16th July 2008. Fixing Fannie and Freddie. Institute
of Politics, John F Kennedy School Of Government, Harvard University.
http://www.iop.harvard.edu/var/ezp_site/storage/fckeditor/file/Fannie%20and%20Freddie.pdf

{13} James Politi and Daniel Dombey, 28th September 2008. Long and
exhausting road to compromise. Financial Times.

http://www.monbiot.com/archives/2008/09/30/congress-confronts-its-contradictions/


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