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#422 - Big-Picture Organizing -- Part 4: Corporate Welfare, 28-Dec-1994

As we saw last week, the Democratic Party has recently discovered that
most Americans are "treading water" economically --barely avoiding
drowning. The old "middle class" is disappearing. The common bond that
once held the nation together --an expectation of a brighter future for
everyone who worked hard and played by the rules --has all but
disappeared. As a result, street crime, violence, drugs, white collar
crime, dubious practices on Wall Street, and a general attitude of "I
got mine" have been steadily growing.

The Secretary of Labor, Robert Reich, says that since the mid-1970s
members of the middle class have turned into the "anxious class,"
afraid of losing their jobs and their health insurance, fearful for
their children's future. The underclass has been steadily growing,
permanently mired in the inner cities, cut off from good jobs and hope.
In 1993, in the midst of an economic recovery with an expanding
economy, an additional one million Americans fell into poverty.[1]
Meanwhile, the overclass is scooping up most of the available benefits;
the wealthiest 2% of Americans saw their incomes rise by 75% during the
1980s.[2] Increasingly the overclass is questioning its connection to
the rest of society --moving to elite suburbs, living behind iron
gates, protected by private armed guards and Dobermans.

The Secretary of Labor says the main factors destroying the middle
class's jobs are high technology and global trade. He says we cannot
turn our back on these problems: we must confront them and overcome
them. He says that we cannot wish away technology --we must retrain
ourselves, prepare ourselves for "lifelong learning" as we constantly
adapt to a changing world.

Nor can we close our borders to trade and fall back into the
"protectionist" trading mode of years past when we kept foreign goods
out with tariffs and quotas. (Thus Mr. Reich embraces NAFTA and GATT,
the free trade accords passed by Congress in 1994.) If our economy is
to grow, we must learn to compete effectively in global markets, he

These two ideas --retraining the workforce to get the good jobs to
rebuild the middle class --and preparing our commercial organizations
to compete in world markets --come together in Secretary Reich's call
for an end to "corporate welfare."

As a political program, the idea of ending corporate welfare originated
last year inside the Democratic Party's Progressive Policy Institute,
or PPI (which the WASHINGTON POST describes as "moderate to
conservative"). The PPI argues that decades of free handouts from Uncle
Sam to wealthy corporations should be ended because (a) the money would
be more productive if it were invested in retraining the workforce, and
(b) free handouts to corporations shield them from competition in the
global market, ultimately weakening them.

The argument goes like this: In a world of global production, capital
and commerce, government subsidies to corporations eventually erode the
competitive position of both the industries that receive them AND those
that don't.[2, pg. 3] Unsubsidized companies find themselves at a
competitive disadvantage relative to subsidized companies. And, in a
global economy, companies at a competitive disadvantage will often move
some operations and jobs abroad, where labor and materials are cheaper
or subsidies are available. Thus corporate welfare harms the entire
U.S. economy.

Spending and tax subsidies, along with trade protections and certain
forms of economic regulation, all shield domestic industries from the
global competition that drives foreign rivals to upgrade their products
and production. Subsidies and protections, therefore, leave their
beneficiaries LESS able to succeed.[2, pg. 3]

Most of these subsidies and protections stem not from economic logic
but from political influence, says the PPI. From farm supports and tax
breaks for oil and gas firms, to textile quotas and telecommunications
regulation, these special industry entitlements force taxpayers,
consumers and businesses to transfer more resources to influential
sectors than markets alone would require. These subsidies are also
profoundly regressive, since the ultimate beneficiaries of these
spending and tax handouts are the shareholders of the subsidized
industries, who tend to be wealthy already.[2, pg. 3]

Corporate welfare has created a culture of dependency that has
encouraged certain industries to live off the taxpayers. Year after
year, these companies receive subsidies or handouts from the federal
government and never learn to fend for themselves in the competitive
marketplace. And, unlike the vast majority of individuals who receive
public assistance, most corporate welfare recipients are not
particularly needy.

A few examples:[3] The federal Bureau of Land Management rents out
public lands to ranchers for cattle grazing. In 1992, the BLM's annual
grazing fee was $1.92 per animal, according to the National Wildlife
Federation. But private landowners charge their grazing customers, on
average, $9.26 per animal. The low grazing fees amount to a food stamp
program for livestock belonging to wealthy ranchers. In 1992, the
government's below-market rates cost the taxpayers an estimated $55
million in revenues.

A typical beneficiary of this subsidy is J.R. Simplot of Grandview,
Idaho. He paid the government $87,430 for the privilege of grazing
cattle on public land, according to the National Wildlife Federation.
If the government had billed Simplot at free-market prices he would
have had to pay $410,524. And it's not as if Simplot is going to suffer
without public assistance. He is on the Forbes' 400 list of richest
Americans with an estimated net worth of just over $500 million.

Another federal handout to corporations is the Department of
Agriculture's Market Promotion Program. This year the program will give
American companies $100 million to advertise their goods and services
abroad. The corporations with outstretched palms include some of the
biggest names in American business. In 1991 and 1992 Sunkist Growers,
Inc. received $17.8 million to promote citrus products, according to
Agriculture Department figures. The Department gave the American
Soybean Association $10.4 million in 1992 to promote soybeans. In 1991,
Gallo Wines received $5.1 million to promote wine, M&M/Mars received
$1.1 million to promote candy bars, the Campbell's Soup Co. received
$450,000 to promote V-8 Juice and McDonald's took $465,000 to promote
Chicken McNuggets.

Another form of corporate welfare is the government's failure to charge
reasonable fees or sales prices for mining minerals on publicly-owned
land. Perhaps the biggest beneficiary is the American Barrick Resources
Corp., based in Toronto. Since 1987 the company has extracted $8.75
billion (yes, billion) worth of gold from a site in northern Nevada
that is the property of the American people. According to the Natural
Resources Committee, the federal government is now preparing to sell
the land to American Barrick for all of $15,000. By the way, the
company's founder paid himself $32 million in 1992.

Vince Borg, a vice-president of public affairs for American Barrick,
rejects the idea that Barrick has benefitted unduly. He says the
company has spent $11.5 million since 1987 to maintain its claims on
the land while awaiting final approval of ownership from the government
and has paid $80 million in corporate income taxes (a tax rate of less
than 1% on $8.75 billion, we note).

Deadbeat corporations also take advantage of the taxpayers. For
example, forestry companies that signed contracts to purchase
government timber at a set price in the mid-1980s and then defaulted
owe the U.S. treasury $135.6 million. The corporations claim that they
are justified in breaching the contracts because of falling lumber
prices. But there's no reason why taxpayers should have to protect
companies in pursuit of profits from normal business risks.

Major pharmaceutical companies are on the federal dole too. While the
government pays for a substantial portion of the research in developing
new drugs to fight disease, private drug makers are provided exclusive
rights to market and profit from them. U.S. taxpayers had spent $32
million over 15 years to develop Taxol, an anti-cancer drug. Bristol-
Myers Squibb was provided extensive government data and exclusive
commercial rights to Taxol in 1991 at which time it began charging
patients $986 for a three-week's supply.

This year, taxpayers will spend $51 billion in direct subsidies to
corporations and lose another $53.3 billion in tax breaks for
corporations, according to the Office of Management and Budget and
Congress's Joint Committee on Taxation. This $104.3 billion give-away
to businesses contrasts with the $75.1 billion total cost of all
federal welfare programs for individuals, including help for the blind
and deaf, drug and alcohol treatment, assistance to the handicapped and
elderly, care for the mentally retarded, children's vaccination and
immunization programs, food stamps (50% of which go to children[4]),
and so on.[5] Our federal welfare programs favor corporations more than

Not all subsidies are bad, says PPI. Some subsidies and regulations
serve compelling social purposes. PPI argues that the need for economic
growth does NOT dictate, as many so-called "conservatives" suggest,
that government should stop supporting childhood immunization, end tax
incentives for middle-class home ownership or suspend health and safety
regulation.[2, pg. 3] These are government programs intended to promote
social goals that benefit everyone, not a wealthy few. Such programs
are needed to compensate for market failures. There are other programs
in this category as well. For example, federal spending to protect bank
depositors, and tax incentives for basic research, compensate for
failures of the free market.

In January, Congress will immediately begin debating these issues,
which will have a profound influence on environmental policy. It seems
doubtful that either the Republicans or the Democrats will be willing
to cut corporate welfare. After all, the corporations ante up the
hundreds of millions of dollars needed to win elections. Until we get
corporations out of our elections entirely, we probably will not be
able to end corporate welfare. As citizen activists, we can achieve
clarity about one thing: our chief adversary is the corporate form,
which has poisoned much of our land and water, harmed our health,
polluted our politics, hijacked our democracy, and diminished our
common wealth. In times like these, when most news media rarely focus
on core issues, such clarity is a blessing. Happy New Year!

--Peter Montague


[1] Jason DeParle, "Census Sees Falling Income and More Poor," NEW YORK
TIMES October 7, 1994, pg. A16. A family of four is defined as "poor"
if their income falls below $14,763.

[2] Robert J. Shapiro, CUT-AND-INVEST TO COMPETE AND WIN [Policy Report
No. 18] (Washington, D.C.: Progressive Policy Institute, [518 C St.,
N.E., 20002; phone (202) 547-0001], 1994).

[3] Our examples are taken from James P. Donahue, "The Fat Cat
Freeloaders," WASHINGTON POST March 6, 1994, pg. C1.

[4] Associated Press, "U.S. Study Shows Half of Food-Stamp Recipients
Are Children," NEW YORK TIMES November 25, 1994, pg. A25.

(Washington, D.C.: Essential Information, 1994), lists and tallies up
federal welfare programs for corporations and for individuals.

Descriptor terms: robert reich; corporations; welfare; corporate
welfare; anxious class; economy; economic growth; education; poverty;
jobs; over class; progressive policy institute; democratic leadership
council; grazing fees; public lands; bureau of land management; usda;
market promotion program; logging; forestry; pharmaceuticals;
subsidies; elections; money in politics;