• Some segment of the population of poor--some will get off of welfare, acquire job skills, etc.
• politicians--how might they benefit?
  • public image--they voted to clean up the 'welfare mess,' and this is designed to save taxpayer money, reduce fraud;
• Employers, corporations--the earned income tax credit (EITC), while described by Schiller as a subsidy for low-wage employees, to encourage them to work (you only get it if you work), could also be seen as a subsidy for employers who pay low wages, to keep them from having to pay out a living wage. Here is some info on minimum wage:
  
  
  1. in Oregon, minimum wage is $8.80, and adjusted annually for inflation;
  2. federal minimum wage law--$5.15/hr until 2007, now up to $7.25--applies to employees in firms doing at least $500,000 in business/yr.
  3. There is a subminimum wage for workers under 20, for the first 90 days (what does this McSound like??)
  4. an annual income of about $22,000 is the current federal poverty level for a family of four and requires a wage rate of about $10.60 an hour (assuming a 2,080 hour work year) to lift a worker's income to this level (no wonder Congress is trying to promote marriage and two income-earning households!).

Corporate welfare?

We've talked about two welfare models in here: the social insurance and means-tested models. Social insurance goes to those who've somehow earned it--they've worked (and are entitled to social security or unemployment compensation), they're over 65 (throw in Medicare), been injured on the job (workers' compensation), are disabled, etc. Means-tested programs have to be qualified for--they represent the 'undeserving' population, those who are able-bodied and should be out working. Interestingly, there has been debate recently about turning the insurance programs into means-tested programs (e.g., making higher-income elderly pay more for health coverage or prescription drugs, or reducing social security benefits among those with higher incomes). This would surely erode their popular support among the public.

Of course there are other sources of welfare as well--non-profit and private organizations and institutions of all kinds provide services, and informal support networks that don't get counted at all are probably necessary for many people to survive on the mix of services that are available locally (or at least to attempt to pull out of poverty).

But there's a third model to discuss: corporate welfare. If we think of welfare as a public transfer of wealth or income, it doesn't necessarily follow that it has to go to the truly economically disadvantaged. In fact, billions go to large corporations and wealthy individuals, in various forms, that help grease the wheels of our political system and campaign cycles. Amazing how successful mainstream commercial media have been at 'framing' welfare debates around those at the low end of the socioeconomic spectrum. Imagine if sleazy corporate CEOs were stigmatized in the same ritual way society often treats those who are recipients of public assistance programs.

We'll discuss three basic ways in which corporations and wealthy individuals receive large transfers of income, through relatively minor investments in politicians: through 1) Legislation and pork; 2) Direct assistance, and; 3) 'relief,' 'reform,' and protection.

Legislation and pork

Congress is the branch of the government that passes the laws, and there are myriad groups that can be hurt or helped by certain laws and the ways they are written. Pork is a bit different--it usually refers to 'earmarked' money--for instance a highway project that a representative might get funding for that benefits his/her Congressional district. Maybe EOU could have the Gordon Smith Center for Research on Satellite Ranching--that would be an example of a pork project (this is a hypothetical ...). Let's look at a couple of bills from the past decade, first the Medicare drug prescription bill that recently passed by a narrow margin in Congress, the other the Energy bill that was blocked by a filibuster in the Senate. These bills are both tributes to paying back major campaign fundraisers. Again, the specific legsilation or welfare program is less important than the means by which corporations and industries use their money and influence and lobbying resources to curry favor with the executive and legislative branches of government.

Medicare legislation and pharmaceuticals:

• Price fixing--the law prevents the government from negotiating with drugmakers for discounted rates on prescription drugs. (15% on prescription drugs this year; 50% savings if purchased from Canada)
• pork: $12 billion subsidy to help private sector insurance companies compete with Medicare. If the private sector is so efficient at delivering services, why would it need $12 billion in subsidies to compete and develop managed care options? Medicare HMO (health maintenance organizations) programs have been tried and failed before, mainly because the private sector wasn't making sufficient profit to interest investors. Rural hospitals are also getting higher Medicare reimbursement rates, which is good for states with lots of rural hospitals, or at least where rural hospitals are important to the state's health care system (especially in the American West).
• Other 'gifts' to pharmaceuticals: The U.S. uses leverage in trade negotiations to force poor countries to buy brand name drugs from American pharmaceutical companies, rather than purchase cheap generics that would save and prolong the lives of thousands more people with HIV. At issue is the patent protection for large pharmaceutical companies (what you sometimes hear referred to as 'intellectual property rights'--similar to the music industry going after people using Napster to download music).This is worth billions of dollars to the industry.
• AIDS in Africa--the President Bush in 2003 called for spending $15 billion dollars to fight AIDs in Africa. Much of the funding was to be used to subsidize the cost of anti-retroviral drugs, and much of the rest to fund abstinence-only sex education programs. There was lively debate about whether these subsidies were designed to benefit the pharmaceuticals at the long-term expense of countries seeking supplies of less expensive generic alternatives.

Energy, energy task force:

• Energy policy in the first decade of this century was crafted in secrecy over two years. Vice President Dick Cheney met with energy and utility company executives -- six times alone with former Enron CEO Kenneth Lay.
• Cheney refused to divulge the people or groups he met with, citing 'executive privilege.' Environmental groups, after six months of meetings with energy and utility executives, were given 24 hours to review a draft document that was over 1,000 pages long.
• The (General Accounting Office) GAO, an independent investigative body of Congress, sued to gain access to the files (unsuccessfully). The judge ruling agains the GAO had been appointed by President Bush the previous year. And if that weren't enough, powerful republican members of Congress threatened the GAO budget.
• The energy bill didn't have enough support to pass through the House of Representatives. The party in power met in secret and added various projects and 'earmarks' to benefit members of Congress (allow them to bring home pork projects to their districts). The bill's price tag increased from $46 billion to $72 billion after those negotiations. Some of the pork included:
  • Subsidies for ethanol production (in corn producing states with dem senators)
  • Protection from lawsuits against MTBE, a gas additive that is cancer-causing. There had been several lawsuits related to MTBE, and evidence that the oil companies knew as far back as the mid 1980s that it was carcinogenic (Louisiana and Texas are big producers).
  • Money to build a nuclear reactor in Idaho ($1 billion) to produce hydrogen (for hydrogen fuel cell technology) and electricity
  • $20 billion natural gas pipeline from Alaska (a gift to Alaska Senator Murkowski and his state)
  • $23 billion in tax breaks to oil and gas and coal industries
• Closer to home, we have the Hanford Nuclear Reservation in Richland, Washington. The site is so contaminated from years of plutonium production and management of radioactive waste that it will be the recipient of billions of dollars, theoretically, forever, to mitigate the environmental disasters.
• Coal-fired power plants
  • Revised 'new source review' policies meant that power plants don't have to upgrade their emissions systems to meet current standards if they invest less than 20% of the value of the plant. So they could continue to expand without meeting clean air regulations. This sort of 'regulatory relief' leads to more premature deaths and higher illness rates due to respiratory distress, as well as greater likelihood of acid rain in other regions downwind.
  • Because of the change in the rules, the Bush Administration and Department of Justice directed the EPA (environmental protection agency) to drop pending lawsuits against over 50 plants that had been in violation of federal law. Several states decided to pursue these lawsuits in the absence of support from the federal government, but the point here is the federal government was working with an industry to sidestep costly regulations, potentially saving billions of dollars in upgrades (designed, remember, to protect the public from environmental hazards).
  • Just a note: utility companies spent over $100 million to influence the energy bill (Bush/Cheney's campaign in 2000 received $4.8 million). So, more generally, industries use their cash to either get breaks, pay less taxes, avoid costly regulations--it is a means of investing in politicians who can influence legislation and policy favorable to these industries.
  • One more thing--much of this debate had to do with how to use public lands (e.g., BLM, Forest Service, Dept. of Interior). Apparently for the benefit of powerful, influential energy and utility lobbies.
    

top of page

There are lots of motives behind funding campaigns for political favors. Drug companies support candidates in hopes they will go easy on drug approval processes, exclusive patent rights (extending the time generic drugmakers must wait to produce a drug), etc. Accounting firms might donate money hoping that Congress will pass lax regulations on the industry. This is a relevant issue these days, with the corporate scandals that have occurred in the recebt years. Energy companies were heavy donors to the Bush campaign, hoping for increased rights to explore for oil and gas, opening up of the Arctic National Wildlife Refuge to drilling, etc. Power companies have benefited from relaxed standards on older, coal-fired power plants. The timber industry has used the fires of last summer to lobby hard for less environmental regulations on logging. Coal mining companies won relaxed standards for hilltop mining. Government contracts for corporations that base themselves outside the U.S. to avoid paying taxes (estimated to cost $50 billion). While some of these were executive decisions of the Bush Administration, Congress plays a role with respect to legislation and regulation. Pay money, get favors. In many cases, industry lobbies those that it is pretty sure would vote in its favor anyway (i.e., they might philosophically put industry ahead of constituents, with a rationale that supporting industry has trickle-down benefits), but the money certainly provides added pressure. Increased military budgets greatly benefit defense contractors. 'Tort reform' is essentially a corporate movement designed to decrease product liability for certain industries (especially tobacco), and has also been well-funded by the insurance industry.

Direct assistance:

Here are a few examples:

• Air Force and Boeing (a defense contractor): The Air Force proposed leasing air refueling tankers from Boeing, instead of buying them. This will cost U.S. taxpayers an extra $6 billion (an extra $30 million per plane), but will extend production of 767s into the future--i.e., it's a gift to Boeing for being such a good customer to the department of Defense.
• Cotton subsidies-American agribusiness firms received $1.7 billion to purchase cotton whose cultivation has already been subsidized to the tune of $10 billion over the last 7 years. Some of the largest corporations in the world are being paid by the government to buy cotton that is already overpriced and heavily subsidized (rather than purchase it more cheaply on the world market from growers in other countries).
• Public Citizen has a couple of reports describing some of the shades of corporate welfare. The government annually shells out as much as $125 billion in assistance to corporations.
• The Bush tax cuts: These go to individuals. The White House has used 'average' figures to make it look like they will benefit Americans across the board. Closer scrutiny suggests otherwise.

'Relief' and captive agencies:

Many federal agencies have been 'captured' by industry--that is, they are serving the corporate funders of political campaigns, rather than the people who they were created to protect. They may be looking for relaxed regulations, for instance, or lax enforcement of existing regulations. Here are a few examples:

SEC (Securities and Exchange Commission):

• Mutual funds fraud: top executives are accused of trading rapidly in and out of their own funds to reap profits at a cost to other fund investors.
  • Many brokers failed to give appropriate discounts to customers.
  • A large percentage of funds appear to have provided confidential and potentially lucrative portfolio information to large customers, possibly in exchange for their business.
• Stock market fraud-for several years many corporations have been submitting fraudulent corporate earnings statements. Earnings statements help investors decide where to put their money. Eventually the fraud becomes public knowledge, by which time the executives have likely sold their stock options at inflated prices. In the worst cases like Enron, Tyco, and WorldCom, investors lost everything, and employees' lost their pensions when these companies filed for bankruptcy protection. The White House and Congress received millions in campaign contributions. Enron was one of the White House's biggest contributors, and George Bush used CEO Ken Lay's private Lear Jet to make campaign stops during the election campaign. Compare this to the way we fund local law enforcement, to crimes against people versus crimes of property ('white collar' or corporate crime). The SEC is grossly underfunded relative to the amount of money corporations and their executives have stolen over time. But ... these corporations are generous with the campaign donations.

IRS (Internal Revenue Service):

• $50 - $70 billion in revenue is lost annually because of corporate tax shelters in Caribbean (firms trying to avoid paying taxes). Corporations have asked for a break on taxes so that they can bring profits back to the states (in other words, they won't do it unless the government agrees to charge them only pennies on the dollar for avoiding paying their corporate taxes).
• People with incomes under $30,000 had in this time period a 4 times greater chance of being audited than people with incomes over $100,000

EPA (Environmental Protection Agency)

• Practiced self-censorship on global warming, deciding not to include a section in an annual report that would have concluded that global warming is occurring (which would be bad for the oil and gas and automotive industries);
• Has refused to prosecute coal plant polluters under the Clean Air Act (worth billions in saved upgrade costs for these power plants and utility companies);
• Relaxing mountaintop removal standards--this was a gift to the coal mining industry, allowing companies to avoid cleaning up the mess from 'mountaintop removal' techniques and instead letting them dump it into the valleys.

Another way to think of this is in terms of law enforcement. We've talked in here about the welfare police, and one of the 'brushes' articles actually discusses a pretty blatant case of this. While welfare offices prosecute these cases, usually for small amounts of money, where they suspect fraud (and the standards of proof are irrelevant in many cases because the 'defendents' don't have the resources to legally defend themselves). In the case of the accounting fraud that has hurt Wall Street in the last year, the corporate reform bill that was passed will have little effect, largely because it was watered down. The accounting industry spent heavily in the last election. Coincidence? Who is enforcing laws designed to curb criminal corporate activity? The Securities and Exchange Commission (SEC), whose Chairman resigned after failing to reveal that his hand-picked chair of an auditing oversight committee was himself involved in a possible accounting fraud case (NY Times article). It may be a bit of a stretch--in many of these cases we're not talking about a direct transfer of wealth--but it's the payment of a 'fee' for services. In the case of a lack of regulation, it could mean the generation of a great deal of wealth for large corporations. Is it much different than providing services to people to help them get into the work force?

Captive agencies are in many cases run by political appointees, leading to what can be referred to as 'cronyism.' In other words, hiring people based not on job qualifications that serve the mission of the agency, but for other reasons (e.g., generous campaign donors, or people with a negative view of the agency who are essentially appointed to subvert its mission). Here are some examples from the previous administration, but the practice is a time-honored one. Oh, and remember the bird flu?

Investment in individuals:

Former Vice President Dick Cheney, who was asked to be George W. Bush's running mate in the 2000 Presidential Election, left Halliburton Industries (he was their CEO at the time), and received a $36 million severance package. Halliburton subsequently 'won' over $1.7 billion in non-competitive contracts for 'reconstruction' projects in Iraq.

The mechanics and campaign politics of corporate welfare

Corporate welfare is an investment in politicians (republicans and democrats). Basically, companies invest millions in campaign donations for billions in tax breaks, subsidies, protection from lawsuits, etc. How is the money spent? Either in direct campaign contributions, or in lobbying members of Congress on bills of interest to specific industries (essentially hiring lawyers to gain access to politicians and influence their votes). What do politicians get? They get money to run campaigns. Sometimes they may make arrangements upon retirement to sit on boards, use their own connections to lobby once they're out of public office. The Abramoff scandal unfoleding in late 2005 is probably the biggest example of corruption and how the lobbying system works that has been exposed in many decades. Lobbyists essentially peddle influence--they represent well-funded private and corporate interests that are trying to influence government to get favors, less regulation (e.g., of pollution, or of working conditions, or minimum wage laws), tax breaks, direct subsidies, relief from lawsuits). Lobbying may take the form of providing indirect aid to politicians--maybe they're sent on 'fact finding missions,' given access to a restaurant to entertain wealthy donors (one of Abramoff's specialties), maybe their lawyers even draft legislation for members of Congress so they don't have to (as in the energy policy case)! What do the lobbyists and their clients get in return? Favorable legislation, elected politicians who are sympathetic to their interests, etc.

Politicians need the money because running campaigns is expensive. Much of the money is spent on television advertising, and on organizing at the grassroots level (e.g., pulling together local or state-level campaign committees, funding 'get out the vote' drives). Corporate media benefits from this because they charge the candidates to air their commercials. It's big business for all concerned, including the campaign consultants. Bush and Kerry both opted out of public financing in the 2004 presidential campaign because they could raise more money privately. Most of Bush's money came from a few key industries--oil and gas, pharmaceutical, insurance, financial, resource extraction (timber, mining, etc.). Kerry's money comes mostly from lawyers, labor unions, and surprisingly quite a few smaller individual contributions through web donations. How many can afford to pay large sums? And why? There must have been something pretty big at stake--over $1 billion was spent in direct and indirect costs on these two candidates. And for what? And Obama set new records for fundraising in 2008.

So again, what do donors get in return? Money in one form or another. Tax breaks, tax credits, tax shelters, regulatory 'relief' (for example, from pollution laws), protection from lawsuits, etc. Who suffers? People who breathe, people who depend on pensions, overtime pay, safe working conditions, etc. Individuals may also be eligible for appointments to administrative posts, ambassadorships, etc. Is there anything wrong with this--isn't this just democracy in action? Can't people vote the corrupt politicians out of office? Well, if more people voted, yes. And if they were aware of the levels of corruption, yes. We're back to media coverage here, in a country where corporations dominate mass news media.

How does money influence the outcome of elections? Here's a look at campaign financing in the 2002 elections (data from Common Cause):

• Of the 390 incumbents running in the House of Representatives this year, 383 of them-98 percent-were reelected on November 5.
• In the Senate, 24 of the 29 incumbents won their reelection bids-a reelection rate of 83 percent.

(These data were through Sept. 30--so there were still 5 + weeks left until election day):

• In the House (of representatives) winners had a 4-to-1 advantage in average spending ($1 million + to $250,000)
• Incumbents (those currently serving and running for re-election): 382 won; 8 lost (losers spent avg $500,000 more than winners)
• Challengers: 4 won (spending on avg $1 million); 297 lost (spending on avg $165,000)
• Open seats (where incumbents weren't running for re-election): winners spent on average $1 million, losers $600,000.
• Through Sept. 30, house candidates from two major parties spent $391.5 million.

• In the Senate: incumbent losers (4) outspent winners (24) by $8.5 million to $5 million. Why?
• Challengers: winners (4) spent average of $5.6 million; losers $1.8 million.
• Open seats: Winners spent on average $6.2 million, losers $5.3 million.
• Through September 30, senate candidates from the two major parties spent a total of $226 million.

top of page

What does this suggest? That the office, in most cases, is bought by the person who raises the most money. Or is it being sold? Does it matter how we view it? Whether politicians change their votes because they've been bought off, or whether the politicians that make it from the primaries into the general elections are the ones whose views are consistent with a pro-business philosophy, the money flows.

Now, let's rewind. Think back to welfare reform. One thing about welfare reform seems pretty straightforward. It was designed to reform welfare, not the underlying conditions that create the need for welfare programs. Thus the problems that it addresses are perceived problems with welfare, not with inequality and persistent poverty. And in the early results, it would appear that those at the very bottom of the socioeconomic ladder are the ones least helped by welfare reform. It isn't clear what percentage of those back in the workforce are better off than they were on welfare. They may have lost benefits in the transition to low-wage employment. Those with the most human capital and job skills will likely to best. It also seems clear that welfare reform--just check out the name, 'personal responsibility and work opportunity reconciliation act--is consistent with the human capital philosophy we've discussed in class. People on welfare by implication are irresponsible, and don't want to work (maybe it is true that they don't want to work for minimum wage . . . ). Irresponsibility and criminal behavior in the corporate world has not created a groundswell of support for corporate welfare reform. Why not?

Now think about minimum wage. Why doesn't it increase, even though when adjusted for cost of living it is at its lowest point in over 35 years? How about working conditions? Why don't we have rules in place to cover things like repetitive motion injuries, even though the science is accepted? What did Fox Piven and Cloward have to say about when the government intervenes and why?

When we expand the definition of welfare reform beyond the social insurance and means-tested models, we might want to ask reform for who? Reform from what?