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Corporate welfare

From Academic Kids

Corporate welfare, also called wealthfare is a pejorative term first coined by Ralph Nader in 1956 to describe a government's bestowal of grants and/or tax breaks on one or more corporations or other "special favorable treatment" from the government. Usually these actions are seen to be at the expense of the citizens, although they might be seen as at the expense of other corporations as well. Both terms are meant to remind one of welfare payments to the poor, and perhaps imply that corporations are much less deserving than the poor. Corporate welfare is one of the most important forms of regulator capture.

Corporate welfare is applied in a number of different situations. A classic example is the granting of the use of broadcasting rights to TV stations at nominal fees, when other companies are willing to pay substantially more to use these frequencies. Increasingly common with the rise of globalization is offering incentives to locate in an area. For instance a company intending to build an manufacturing plant will frequently declare interest in two areas, and then let their respective governments attempt to "outbid" each other with promises of tax breaks, free land, and infrastructure developments. Critics charge that this skews the free market, giving a competitive advantage to large corporations, and shifts tax burdens away from these large companies to smaller ones and to individuals.

Another common example often derided as "corporate welfare" is when a large company is nearing collapse, and is given substantial breaks or financial support by the government to keep it in business. While free market theory views the bankruptcy of companies as essential to the process, the specter of lost jobs and unhappy voters often means the government will step in to help a faltering behemoth, to an extent that would not happen with a small business. For example, the airline industry has survived ongoing losses through government aid.

Critics of corporate welfare charge that many cases are nothing more than "pork barreling" and even examples of corruption. Examples might include defense contracts given to inefficient businesses in a politician's district, or giving assistance to a major campaign donor.

Some forms of corporate welfare are less widely criticised because of their positive externalities. For instance, most countries heavily support their domestic film companies, arguing that the perservation of national culture would not be ensured by an unfettered market. A number of countries have used corporate welfare as a form of investment, to get industries started that would go on to pay great dividends for both the government and society in the long run.

Burton W. Folsom, Jr. identifies businesspersons who seek corporate welfare as "political entrepreneurs" in his book, The Myth of the Robber Barons as distinguished from what he calls "market entrepreneurs."

References:

  • Nader, Ralph. Cutting corporate welfare (Seven Stories Press, NY, 2001).
  • Jansson, Bruce S. The $16 trillion mistake: How the U.S. bungled its national priorities from the New Deal to the present (Columbia University Press (http://www.columbia.edu/cu/cup/catalog/data/023111/023111432X.HTM), 2001)
  • Mandell, Nikki. The corporation as family : the gendering of corporate welfare, 1890-1930 (University of North Carolina Press (http://uncpress.unc.edu/books/T-5286.html), 2002).
  • Glasberg, Davita Silfen. Corporate welfare policy and the welfare state: Bank deregulation and the savings and loan bailout (Aldine de Gruyter, NY, 1997).
  • Lewish, David. Louder voices: The corporate welfare bums (Lewis & Samuel, 1972).
  • Whitfield, Dexter. Public services or corporate welfare: Rethinking the nation state in the global economy (Pluto Press, Sterling, Va., 2001.)
  • Folsom Jr, Burton W. The Myth of the Robber Barrons (Young America)

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