Corporate Welfare and Neoliberalism
For centuries economists have derided the inefficiency and impropriety of government intervention in the economy. Today's nations continually interrupt the "natural" workings of the market and the public does not seem to mind. The question is: who benefits?
During a recent appearance on the Sunday news programs Sen. Bernie Sanders made a rather startling statement about socialism in America. While defending himself against the label of “socialist,” Sanders claimed that socialism is alive and well in the United States, but instead of benefitting the working class, American socialism props up billionaires and the largest corporations. In particular, Sanders is referring to the special tax breaks and subsidies that are provided to pharmaceutical companies, the oil and gas industry and many others. There are a large number of recipients of what has been cheekily labeled “corporate welfare.”
Sanders’ point highlights a curious puzzle. Socialism has never had much success in the United States and among the most plausible explanations been the American individualist ethos. Or as Roger Wright (mis)quoting John Steinbeck said, "socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." Rhetorically all Americans are on the cusp of wealth, so why should we submit to high taxation and social services we won't need?
The American, in his or her own image, is self-reliant, self-made and does not need the assistance of inefficient government run programs to achieve “equality.” In fact, equality in the American sense, has never meant an equality of material goods, but equal opportunity. So that each person should be allowed to try their best to achieve financial independence or success as they define it. The irony of “corporate welfare” then is that in this hyper-individualistic society, in which opportunities should be equally distributed, the government is tipping the scales of the market in favor of some industries over others.
Senator Sanders is throwing the “socialist” monicker back at America’s billionaires as a clever rhetorical flourish. However, it brings attention to the total defeat of neo-liberalism and laissez-faire. Though the Washington Consensus and the Tea Party movement, the Heritage Foundation, the Cato Institute and other pillars of conservative thought were supposedly resting on both of these aforementioned ideas, they never even came close. In point of fact, it was often the same conservative politicians who were responsible for the defeat of their own stated goals.
The liberal economic ideal about the free (global) market has been preaching the gospel that the market solves all problems. This process is so all-encompassing that the government does not need to step in to resolve people’s issues. If you have health problems, you’ll go out onto the free market and find help. And you’ll pay whatever you are willing to pay for that help, or whatever is deemed a "fair price" based on costs and reasonable profits. In an ideal world, according to classical liberal principles, the state will remain scarce because any intervention has the potential to shift the scales of the market thereby distorting it. In other words, if the government becomes involved in the market, then prices will no longer find their “natural” equilibrium. Economic purists argued continuously in the 19th century that any type of intervention can have ripple effects throughout the entire economy. Any advantage meted out to one company or industry is also a disadvantage to competitors, and a distortion of the position of one company in relation to all others it interacts with. Of course that is the simple theory, and none of this is how it works in practice. Governments everywhere and always have been involved in the economy.
Whether it is through taxation, or the fact that governments tend to buy things on a large scale, all kinds of unavoidable things about the functioning of a state mean that it is simply impossible to avoid some kind of “interruption” in the natural mechanisms of the market.
We know this intuitively, we see it all the time, and yet the neo-liberal, laissez-faire principles have not disappeared. If anything, on an international scale, we have come to fetishize their achievement and equate neo-liberalism with the arrival of modernity and the end of "backwardness." The Index of Economic Freedom compiled by the Heritage Institute is a good illustration of this. Developing countries would love to improve their standing on this list in order to attract business investment. In order to do so they need to surrender certain benefits for their citizens. What can be good for multi-national corporations is not always best for the people who live in a certain country. The speed with which places like Taiwan and South Korea arrived at developed capitalism in the second half of the 20th century was thanks mainly to a market-oriented authoritarianism. It was great for business, but terrible for the working masses who lived through it. Personal freedom and quality of life were abysmal, while large corporations flourished.
In developed countries, quietly and over a period of more than a century, the state has continued to take on more and more roles in the economy. In the 1920s the most prominent economists in the world looked upon any encroachment of government into the economy as tantamount to Bolshevism. Instead of fighting a large battle to get all sorts of “socialist” policies, the evolution that has been undertaken over the past century. This transformation is visible in the following graph that shows the meteoric rise of government spending that starts in the 1930s and explodes after World War II.
The activist state ballooned mostly because of the Great Depression and the Second World War. The free market failed so horribly in 1929 that many people lost faith in its ability to solve all problems, even as they continued to say so in public. The 1930s had many governments doubling down on the idea of the free market, but it could not be achieved in practice as countries retreated into protectionism, deepening the effects of the Depression. Movements of fascism in socialism were in many ways a reaction to years of this policy that placed the individual interests in opposition to group interests. Governments the world over have certainly reacted to many of the fundamental problems of advanced society in order to avoid a descent into extremism.
Now we are well aware that governments today are much more involved in the lives of citizens than they were in the 1930s. The above graph is illustrative in one way, about the amount of spending as a share of GDP, but it does not tell us about what that money is spent on. We can take Sweden as an example. The country is a prime example of a social democratic success story, with its famously generous social welfare programs. We can compare that with the United States, which has hardly anything close to the kind of financial and social safety net of Scandinavian countries, but spends almost as much as a share of GDP (and has the largest GDP on the planet). So for whom does the American system work? Sen. Bernie Sanders would say that this spending has been to the benefit of large corporations, and not individuals. The upcoming presidential election may tell us something about what the rest of the country thinks.