Monday, July 18, 2016

Those Corporate Welfare Bums

In one respect, it’s true there’s an awful lot of hypocrisy about welfare from big business, since wasteful corporate welfare is pervasive in our societies.

On the other hand, some aspects of business welfare are actually sensible and justifiable, even in a social democratic nation. E.g., agricultural protectionism.

It is well known that you simply cannot have a productive, stable agricultural sector in a true free market, because wild and violent swings in the prices of commodities destroy agriculture and send farmers bankrupt, a process which smashes up and ruins your agricultural sector and forces you to rely on imports.

The truth is: a real free market in agriculture for most nations is stark, raving mad – and everybody sensible knows this perfectly well (even conservatives).

So what you generally need for agriculture is: sensible protectionism (when needed), commodity stabilisation programs, and production quotas and so on, in order to stabilise markets, supply and profits. Perhaps even subsidies if things get bad for farmers.

Bottom line: not all business welfare is bad. Some of it is actually OK, e.g., like agricultural protection, certain industrial subsidies, and a large stock of government debt that is actually a good thing that stabilises the financial sector and provides a safe asset for banks and corporations to buy.

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Lord Keynes @Lord_Keynes2


  1. As you point out, what angers people about corporate welfare is the hypocrisy. Corporate leaders and their political allies will attack social welfare provisions for working people but insist on keeping subsidies and other goodies for business.

    Ideally corporate welfare and other benefits given to business would come with the assumption that these companies submit to the public good when appropriate, for example, in the form of regulation.

    The problem today is that corporate welfare is a one-way street. The business community wants all of the benefits of operating in an advanced, industrial economy but with none of the responsibilities that should come with those benefits. Indeed, the language of the “public good” seems to have declined since the 1980s.

  2. One rejoinder would be that farmers today can (and do) hedge against swings in agricultural prices by using futures contracts. What's the social democratic case against this?

  3. Doesn't New Zealand's agriculture sector cope quite well without subsidies?

  4. LK

    subsidizing modernization of factories lets say is good as well.

    And i am thinking that subsidizing and protecting agriculture and manufcaturing including subsidizing and helping it its really important.

    But the problem is that corporate welfare is not going to agriculture or manufacturing (when i say mabufacturing i am not speaking about "american" companies which have 99% percent of factories in china) or high tech industry or even small buisnesses which need help.

    The corporate welfare is going to the mother of all rentiers and unproductive activities the financial sector and to companies which outsourcing jobs abroad which dont help much either.

    Thats the real problem.

  5. Personally, the only time I can really get behind the government subsidizing private enterprise are for the purposes of promoting scientific research through research contracts or grants. I'm sure you could find other instances where I would be supportive, but, as a rule of thumb I think hard budget constraints are better than soft ones.

    1. Guy

      Development of industry is not less important than the development of science and research.

      But what is important here is not to subsidize unproductive rentiers (financial sector real estate speculators and companies which outsourced their factories or R&D centres).

      Of course that its should be in exchange for example of higher income tax on the rich.

      But as a rule of thumb subsidizing productive industries and small bis is helping the economy making it more productive and help to sustain ythe well being of a country (if its have just taxation system of course).

  6. I am not really sure modern day agricultural subsidies in rich countries are a great thing. In the U.S., we waste about two fifths of what we produce, suffer from obesity unheard of in the history of the species, and we produce much of this in states suffering from severe drought. We provide farmers with subsidies for the purpose of ethanol production, even though it has no hope of ever replacing conventional fuels(conservatively it would take something like 3 times the amount of U.S. agricultural land to do this), raises world food prices, and is responsible for major pollution in the Gulf of Mexico. No one wants to change any of this though because it is politically unpopular thanks to special interest groups. Also, for large political entities like the U.S. or the EU, agricultural competition from the outside is marginal. They are both net exporters after all, despite large sectors of the people not practicing moderation in eating habits.

    Incidentally, in Latin America, the problem of land-owners corrupting the political system is even worse.

    1. They are net exporters because of this subsidies which helping their agriculture to develop.

      Now you are right in a lot of things you are saying the subsidies go to bad purposes but its dont habe to be like that for example if the subsidies will go to small farms if the subsidies will go to less polluting agriculture techniques if it will go to agricultural r&d and most importantly the u.s government will subsidize healthy food instead of unhealthy it will be really benefitcial for the american people.