Quotations and Excerpts 2

from the book

Corporation Nation

by Charles Derber

St. Martin's Griffin, 1998

p156
Corporate Welfare

Ralph Nader notes that "corporations collect more government handouts than all of the nation's poor people combined." If the new attack on corporate welfare were confined to liberals such as Nader and Reich, it would hardly be news. But libertarian rightwing groups like the Cato Institute as well as conservative "new Democrats" like the Progressive Policy Institute are waging their own crusade against corporate welfare. Leading Republicans like House Budget Committee Chair John Kasich have said that as we reform welfare for the poor, "the time has also come to reform welfare for the people who have power."

"The term welfare is not accurate," responds Johanna Schneider, speaking for the Business Roundtable, the most powerful association of Fortune 500 corporation executives. "Nobody's subsidizing companies to do nothing. These programs generate revenue and business and jobs." Many Americans, nonetheless, see a glaring contradiction in pulling the plug on welfare for millions of mothers and their children while continuing to keep an open pipeline for multibillion-dollar corporations.

Nader has recently pointed out that when mining corporations find gold beneath public land, they can buy it for no more than five dollars an acre; as he quips, this is "taking inflation fighting too far." The Cato Institute notes that the gold giveaway is just par for the course. "Over the past 20 years, the Forest Service has built 340,000 miles of roads-more than eight times the length of the interstate highway system-primarily for the benefit of the logging companies." The Cato analysts also describe the ways in which Uncle Sam pays for corporate advertisement of products abroad: "In 1991 American taxpayers spent $2.9 million advertising Pillsbury muffins and pies, $10 million promoting Sunkist oranges, $465,000 advertising McDonald's Chicken McNuggets, $1.2 million boosting the international sales of American Legend mink coats, and $2.5 million extolling the virtues of Dole pineapples, nuts, and prunes."

Common Cause has pointed out that $50 million of taxpayer money has gone to help market California wines abroad. Two hundred fifty million dollars in public subsidies over the last five years has gone to Getty Oil, Pacific Power, and other private oil companies through below-market fees for using public lands. The tobacco industry gets millions for its price support system, and defense contractors such as Martin Marietta got $27,000 just for "golf balls and an office Christmas Party."

The issue is rich with irony; the corporations cheerleading privatization are the very ones rushing to gorge themselves on public funds. Policy analysts in Washington have identified at least 127 separate government programs that include "active" forms of corporate welfare: agribusiness subsidies, military-contractor subsidies, loan guarantees, and other direct giveaways to business. Above and beyond these are the "passive" forms-the ethanol tax credit, capital-gains tax loopholes, and other tax breaks-which Nader argues make up half the federal tax code.

The total sums involved are staggering. The Cato Institute, one of the few militantly conservative groups to be consistent about its commitment to shrinking government, writes: "The federal welfare state for low-income families (before welfare reform) now costs taxpayers between $250 billion and $300 billion a year. But through an amalgamation of trade policies, selective tax breaks and spending programs, the federal corporate welfare state is nearing that size. Both of these failed welfare empires should be toppled." The Institute probably underestimates corporate welfare and inflates the cost of public welfare, which-including AFDC, student aid, housing, food, and nutrition, and all direct public assistance other than Social Security and medical care-came to about $150 billion in 1996.

***

The Iceberg of Dependency

Corporate welfare, for all its size, is just the visible tip of the huge submerged iceberg of corporate dependency. The fact is that corporations are wards of the state whose overwhelming dependency has rendered them undeniably public creatures with unacknowledged public responsibilities and accountability.

The massive reality of the iceberg crushes the illusion of the private corporation. The iceberg is made up of the many billions of dollars spent by governments on schools to educate the workforce, on roads, railways, and ports that allow corporations to transport their goods, on research and development that funds corporate technology, on military and foreign-policy spending that protect and promote exports and foreign markets-to name only some of the building blocks. At first glance, these seem like public expenditures in the service of the public good-which some of them are. But a closer look also shows that these are critical government investments or subsidies essential to the operation of business and indispensable to corporate profitability. While many yield benefits to the public, such subsidies disproportionately reward the corporations themselves. And since they are paid for by government, they should, logically and ethically, render corporations accountable to the taxpaying public.

About twenty-five years ago the American economist James O'Connor, a specialist on fiscal and budgetary affairs, argued that a vast and growing percentage of the entire federal budget was made up of expenses paid by the government to help ensure the profitability of corporations. O'Connor called this the "socialization" of the costs of private production. Prodded by increasingly powerful corporations, government historically picked up more and more of the business costs necessary to operate profitably in a complex high-technology global economy. Such government spending, O'Connor argues, is a kind of social capital: social or public funds going to underwrite "private" business. These expenses include both benefits for specific corporations or industries (some of which qualify as what we now call corporate welfare) and generalized spending that benefits the corporate community as a whole.

In earlier periods, the federal budget remained small because corporate needs were less costly and corporations covered most of the costs of production themselves. In the nineteenth century, he writes, government budgets remained small: "transportation investments were chiefly private, and natural resource, conservation, public health, education and related outlays were insignificant . . . State subsidies to capital as a whole were confined to the state government and local level."

In the twentieth century, however, corporations began to turn to the state to cover risky and rapidly growing production costs. Many changes drove the corporation into the bosom of the state. "The most expensive economic needs of corporate capital as a whole," writes O'Connor, "are the costs of research, development of new products, new productive processes, and so on, and, above all, the costs of training and retraining the labor force, in particular technical, administrative, and nonmanual workers." Also of crucial importance was the massive new cost of infrastructure, from electric or nuclear power stations and world-class airports to a global satellite network.

Government increasingly footed the bill. After World War II, through both military and civilian agencies, the federal government sank billions into the nation's infrastructural foundation- and into the research and technological base of the modern corporation. "It's hard to find a major industry today whose principal investments were not first made by the government-in aerospace, telecommunications, biotechnology and agribusiness. Government research and development money funds the drug and pharmaceutical industry. Government research and development funds are given freely to corporations, but they don't announce it in ads the next day."

O'Connor's analysis suggests a new way of thinking about everything from the interstate highway system to commercially exploitable government research and development projects. These are properly seen as sound public investments, but they also constitute a transfer of resources from the government to the corporation. Such socialization of corporate costs gives the public a largely unacknowledged stake in private production-and a legitimate claim on its return.

Ralph Nader makes clear both the nature of the claim and how it is received. He points out, for instance, that Taxol, a new cancerfighting drug, "was produced by a grant of $31 million of taxpayer money through the National Institutes of Health, right through the clinical testing process. The formula was then given away to the Bristol-Myers Squibb company. No royalties were paid to the taxpayer. There was no restraint on the price. Charges now run $10,000 to $15,000 per patient for a series of treatments. If the patients can't pay, they go on Medicaid, and the taxpayer pays at the other end of the cycle too."

Socialized production costs represent only one of several kinds of public spending that go largely unacknowledged as forms of corporate subsidy. Spending on the American military and on the development of the United States as a global superpower has decisively cleared the path for corporation expansion and production abroad. Spending on the environment has cleaned up pollution which, if untreated, would have destroyed the ecological conditions for sustainable production. Spending on social programs continues to help dissipate the kind of social unrest that could ultimately lead to populist revolts against corporate power.

The government engages in a wide variety of other corporate services that don't necessarily involve spending money but are no less crucial to the success of American business. These range from trade policies that shape international commerce on American terms to tax policies that massively favor corporate priorities. On taxes alone, corporations have seen their own percentage of the national tax burden fall from 35 percent in 1945 to a projected 11 percent in 2000. Most important, the government and the Federal Reserve System help to manage, coordinate, and stabilize the national and global economy in ways that sustain demand, control inflation, and regulate interest rates in the service of corporate profitability.

None of this suggests that the government should not be engaged in such aid to corporations, or that the acceptance of this assistance makes corporations nothing but wards of the state. Much of the integration of government and corporation contributes both to the corporate and the public interest, and could not be eliminated without unacceptable damage to both business and society. The scandal here is not so much the intertwining of public and private arenas as the widespread denial of such interdependence and its implications. America is long overdue to discard the notion of the purely private corporation and start insisting that the public get its fair return on its corporate investment-as well as a system of public accountability proportional to the contribution it has made.

And perhaps the greatest irony in this scandal has been the extent to which corporate interests have turned the issue on its head. The government assumption of corporate costs has been a major source of the rise in the federal budget, the ballooning of the federal deficit, and the rise in taxes; yet these are all now attacked by the corporations themselves as the evil result of big government, socialist thinking, the irresponsibility of the poor, and the overentitled middle classes. In fact it is the government-sanctioned entitlement of the American corporation and its own irresponsible willingness to shift costs onto the taxpayer, that accounts for much of the problem.

Private Corporations, Public Powers

During the 1996 elections, public outrage over the role of big money in politics exploded. More than two billion dollars were spent on campaigns-the greatest sum in American history. The resulting demand for campaign-finance reform became a symbol of the new concern about the prostitution of democracy to those who can pay.

As the biggest contributors, corporations bought by far the greatest share of political influence. As in the Gilded Age, such spending has allowed them to help set the agenda for both politi cal parties. Gaining such influence over government itself is another one of the ways in which corporations are gaining political and public power. Like their increasing public dependency, this massive purchase of government influence is another way in which corporations are becoming public institutions that should by all rights be accountable to the people.

There is scarcely any pretense now about the corrupting influences of political money, even from those who shell it out. Don Tyson, chairman of the board of Tyson Foods Inc., said in 1995 that the business of politics "consists of a series of unsentimental transactions between those who need votes and those who have money . . . {it is} a world where every quid has its quo." Robert D. Brown, VP for government affairs at AT&T, one of America's biggest corporate donors in an era of epochal telecommunications legislation, unapologetically summed up AT&T's money-giving approach: "We look to where the power is." Reviewing the influence of corporate contributions on health care, tobacco, and agribusiness legislation, Archibald Cox, former Solicitor General of the United States, wrote in 1996 that the "dependence of our elected representatives in Washington on the flow of specialinterest money is corrupting our democratic process . . . lawmakers are not beholden to the voters who elected them, but to the political action committees (PACs) and other special interests which finance their elections."

President Clinton ran for office in 1996 promising to end the "cliques of $100,000 donors" who can buy access to Congress and the White House. Instead he became a virtuoso at the game, the first Democratic president in a generation to rival Republicans in raising huge sums from corporations. On his birthday in 1995 he took in $10 million at one event. In 1991, during Clinton's first race, corporate donations to the Democrats had been only four times that of labor, but by 1995 corporate contributions to the Democratic party had skyrocketed to nine times those of unions. The number of corporations who joined the Democratic Business Council, which requires contributions of at least $15,000 per company, jumped from 200 in 1992 to 1,900 in 1995. The corporate financial embrace of the Democrats paid handsome dividends in the most pro-business Democratic agenda of the twentieth century, with Clinton claiming that the most important objective of his second term would be to prove that the era of big government is over and bring the deficit down to zero.

The cascade of rhetoric about the role of "special interests" in politics is a polite mask for the overwhelming influence of corporate money on campaigns at all levels of government. While much was made about the $35 million spent by unions in the 1996 presidential and congressional campaigns, corporations spent at least seven times as much, dwarfing all other contributors. The biggest single "special interest" contributor in the 1996 elections was Philip Morris, a paragon of unabashed corporate immersion in politics. Darlenne Dennis, director of communications for the huge food and tobacco company, said: "Philip Morris supports those who share our thoughts. We have a responsibility to our employees and shareholders to be in the political process and we are happy to do so." The tobacco companies and the wider corporate community helped to reelect a conservative pro-business Republican Congress in 1996, even as they were covering their bases by donating vast sums to President Clinton at the same time.

The right of corporations to engage in such expansive funding of elections is gradually being written into the Constitution. In the 1976 case Buckley v. Valeo the Supreme Court defined money given to parties, candidates, or ballot issues as a form of free speech protected under the First Amendment of the Constitution. The Court ruled that "A restriction on the amount of money a person or group can spend on political communication during a campaign necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration, and the size of the audience reached." Explicitly protecting corporate as well as individual contributions for the first time, the Court thus used democratic logic to justify a decision that might obviously impair the democratic process. In the process, it began a major new judicial offensive to constitutionalize a new broad package of corporate political and public powers-the most consequential legal aggrandizement of corporate power since the Gilded Age.

In another important case, 1978's First National Bank v. Bellotti, the Court underscored its view of corporate giving as protected free speech. The Court declared that corporate contribution designed to influence a ballot referendum "is the type of speech indispensable to decision-making in a democracy, and this is no less true because the speech comes from a corporation rather than an individual." The Court rejected the notion that vast inequality could distort the democratic process, since "the people in our democracy are entrusted with the responsibility for judging and evaluating the relative merits of conflicting arguments."

It was by no means a unanimous ruling. Justice Byron White, along with Justices William Brennan and Thurgood Marshall, expressed a profound dissenting opinion: "Corporations are artificial entities created by law . . . the special status of corporations has placed them in a position to control vast amounts of economic power which may, if not regulated, dominate not only the economy but also the very heart of our democracy, the electoral process.... The State need not permit its own creation to consume it . . . Such expenditure may be viewed as seriously threatening the role of the First Amendment as a guarantor of a free marketplace of ideas."

This was one of several times that dissenting justices or even a Court majority have expressed qualms about the new Constitutional protections they were generously awarding. In a 1986 decision Justice Brennan wrote that "Direct corporate spending on political activity raises the prospect that resources possessed in the economic marketplace may be used to provide an unfair advantage n the political marketplace." In 1990, in Austin v. Michigan State Chamber of Commerce, the Supreme Court for the first time upheld state laws limiting the amount of money that corporations could spend for candidates in state elections. Justice Marshall wrote that the state could limit the corporation's right to free speech, since there was a compelling public interest to prevent "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public's support for the corporation's political ideas."

The Court did not justify this infringement on the ground that great wealth inequalities made democracy impossible, nor did it seek to equalize the relative financial influence of different political actors. Rather, it argued that the special status of the corporation as a creation of the state provided it with special qualities enabling it to amass vast wealth-and that it thereby owed the public some accountability to prevent it from using this "publicly created advantage to undermine the public's own political expressions."

The Austin case is significant not only because it imposes real limits on corporate political money, but because it does so in ways that recognize the corporation as a state-created artificial entity that should rightfully be publicly accountable. However, it does not fundamentally change the trend established in the Buckley and Bellotti cases. As Scott Bowman points out, the Austin case does not place any limits on corporate contributions in federal or local elections, or on other kinds of political advocacy. No meaningful constraints on corporate lobbies, PACs, or soft money have been enacted in over two decades. Bowman concludes that the corporation's new political rights are not in jeopardy; the privatization and personification of the corporation established in the Gilded Age thus continue to haunt us. When corporate freedom is equated with the freedom of individuals, any restriction on corporations becomes an attack on individual rights. In the name of protecting the constitutional rights of the citizen, the Court has given its backing to full-blown corporate political rights that endanger citizens themselves. Given the enormous wealth controlled by corporations, such political rights ensure them a level of governmental influence, or public power, that is hard to reconcile with the notion of a private entity. Its supposedly private status privatization would spread. Since 1988, giant for-profit hospital corporations have established a major niche in medicine, while the Republican congressional majority has proposed to privatize the heart of Medicare. Governments have contracted out a huge chunk of their services-from garbage collection to prisons to welfare. Corporations are buying schools and supplying them with curricula-complete with commercials in the classroom-while governments distribute vouchers to make them viable. Huge parcels of federal land, as well as public airways and satellite bands, are being handed over, free or at bargain prices, to corporate giants.

This turns much of the public good of any society-whether caring for the sick, teaching wisdom to the young, or preserving the environmental commons-into simply another arena for generating corporate profits. In this sense, privatization is anything but fictional, tearing apart the public quilt that binds people together and turning it into the raw material of capital for the already wealthy. The economic result is not only evident in the bottom lines of the media, mining, agribusiness, and hospital corporations that have already plucked their public plums, but in the Wall Street firms now spending millions to promote Social Security privatization in anticipation of plums to come-the stupefying profits to be made from investing billions of privatized 401K and other retirement funds.

The new privatization would redistribute not only wealth but public authority as well. The powers to educate, jail, rehabilitate, heal, care for the poor, and manage nature itself are all being turned over to corporations. And as these functions are sold off, government itself is transformed, if not dismantled, into a creature of private enterprise.

Finally, it would be negligent to ignore the most expansive of public or quasi-public powers that corporations have been accumulating long before the current waves of privatization and corporate political influence. These are the core market powers at the heart of their being, including the power to determine who will work and at what reward, to decide what products will be produced at what quality and price, to determine how land and natural resources will be used, squandered, polluted, or saved, and to determine the form, content, and distribution of ideas and images that shape culture through the mass media. These are the decisions that shape our everyday lives and broadly define our culture and way of life.

Even if one accepts that governments should stay out of such decisions, the power to make them nevertheless remains a public or quasi-public power. Such decisions have more impact on our own lives as citizens than virtually any other. They not only help shape each of us personally, but in large measure mold our collective identity and shared values.

Such publicly influential market powers are neither new nor necessarily illegitimate. But their concentration in an increasingly small number of giant global corporations foreshadows important social changes. As the public impact of such market powers keeps growing, inevitably coming to touch populations all over the world, the circle of corporate decision makers is also shrinking, becoming less accountable every day to any public authority. Since multinational corporations now increasingly take action without any parochial loyalty to a particular nation, decisions that can make or break whole societies are being made by those without either loyalty or accountability to them.

This brings us back to Abe Lincoln. In an age defined by almost universal belief in the fiction of the private corporation, the corporation itself has become ever more public-in its growing role as both public dependent and prime public mover.

Even Lincoln at his most cynical might have hoped that the American public would see through the bill of goods we've been sold under the brand name "private enterprise." Seeing how the corporate mystique is created and sustained, however, is one thing; knowing how to change the illusions it sustains and the power it bolsters is another.

Corporation Nation

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