Saturday, 5 April 2014

CORPORATE WELFARE vs. SOCIAL WELFARE

Introduction: A Question of Societal Values

In this very brief essay, I will compare and contrast corporate welfare and social welfare, focusing on some current trends that reflect fundamental values of a society. Analyzing how the mass media, politicians and institutions view corporate welfare vs. social welfare, the essay also examines the historical roots of both. In the end, there are only questions remaining about this topic, because ultimately a society’s value system is reflected in its choice whether to strengthen corporate welfare at the expense of social welfare. Each individual must decide what does it mean for a society when there is wide acceptance of corporate welfare and a rejection of social welfare?

Given that social welfare in the Western World emerged from within a culture of capitalism and individualistic values that are antithetic to secular collectivism or even Christian communitarianism, it is not at all surprising to see the degree of easiness with which Westerners reject social welfare, but readily accept corporate welfare. Socioeconomic hierarchy so readily accepted in the Western mindset, while egalitarianism so readily dismissed makes it easy for the mass media and politicians to stigmatize social welfare as parasitic while promoting corporate welfare as an integral part of economic progress.

The repugnance many in the West feel toward a social welfare system and the acceptance they have for corporate welfare is partly rooted in Social Darwinism that decried any institutional assistance for the weak and poor that must accept the fate accorded to them by the social evolutionary process. Therefore, the helpless child and her mother, the elderly man and his mentally ill son too poor to care for themselves must be punished for they contribute nothing to economic productivity. Whereas corporate welfare is identified with capitalism and that is widely viewed as a virtue, social welfare is seen as institutionalizing a Socialist-inspired program.

According to Social Darwinist thinking behind the opposition to social welfare, any intervention by the state to care for those unable to care for themselves would only reward parasitic elements lacking the Calvinist work ethic, individualistic values of material success, and the ambition it takes to become self-sufficient. Because a segment of those benefiting from social welfare are minorities in the modern Western World, opponents of social welfare could be motivated by ideological animosity toward Socialism, or perhaps by crypto- racism, ethnocentrism, and xenophobia.   

How humane, how compassionate, how democratic, and how civilized is a society that opts to shift resources to the wealthy from lower income groups, impoverished mothers and children, the elderly, and the mentally ill unable to care for themselves, while permitting the wretched of the earth to die of starvation, lack of medical care, housing, and the basic necessities of life, while at the same time celebrating the “success” of the rich becoming even richer because of corporate welfare? Beyond the question of societal values, there are the practical issues of the degree to which social welfare helps to maintain balance and harmony in a pluralistic society while corporate welfare upsets such institutional balances and precipitates polarization, antagonisms and instability.  

The legitimacy of corporate welfare vs. the stigma of social welfare

Most people are dismayed and shocked when they hear on TV or read about some welfare recipient cheating the system of a few thousand dollars or euro. By contrast, they easily brush aside news that hundreds of billions are given to bail out large banks and subsidies to corporations, or tax breaks as part of a corporate welfare system designed to support a capitalist economy insisting that it is still a “free enterprise” system, presumably standing on its own without government handouts. If one reads about or listens to political debates regarding the topic of social welfare in the advanced and semi-developed capitalist countries, the impression is that the economic ills and public debt problems have been caused by handouts to the poor who ought to go out and find work and become self sufficient. This means that in the minds of most people there is a lack of legitimacy for social welfare, indeed a stigma. By contrast, there is a sense of rightful ownership and legitimacy to public funds distributed to banks and corporations. When it comes time to reduce budgetary deficits, therefore, the target is not corporate welfare but social welfare.

If social welfare is the set of institutional activities resulting from government policies intended to address social problems of the lower strata of society, corporate welfare is a set of government policies intended to strengthen companies. In both cases public funds are needed to support the intended welfare program. Whereas in social welfare the goal is to provide the poor with a social safety net that included housing, food and medicine so that people do not die in the streets or turn to crime or contribute to social problems, the goal in corporate welfare is to strengthen the private sector by buttressing the strongest companies in their fields.

According to the opponents of social welfare, the same groups and individuals who are advocates of corporate welfare, the welfare state must reduce the social safety net for the poor who have sunk to the lower strata of society solely owing to their character flaws and not because the political economy is deficient. Because welfare recipients happen to be women and minorities in much of the Western World, there is inherent sexism, xenophobia, ethnocentrism and racism in the anti-social welfare debate that stigmatizes the lower classes on the margins of society and blames them for the problems of the economy and government budgets.  In the US the problem is the unwed black woman with children; in Germany it is the large Turkish family of nine milking the system; in the UK it is the Africans and more recently Bulgarians and Romanians.

Structural economic and political causes for slow growth and development, declining government revenues and rising public debt are defaulted to the poor, mostly women, children and minorities collecting welfare. The image that many politicians and media project regarding welfare has an underlying racist and xenophobic agenda. Behind the anti-social welfare politicians, media and other groups rests a deliberate effort to justify sharply curtailing social benefits and transferring funds to corporate welfare. This view emerged in the Reagan-Thatcher conservative decade of the 1980s when neoliberals and neoconservatives forged their views to argue for the gradual downsizing of social safety net, while transferring funds to corporate welfare that would presumably be productive for the economy instead of parasitic. By stigmatizing the social welfare system as parasitic, there was no longer a need to focus on the core issue of maintaining the social safety net and social justice or feel guilty about embracing a crypto-racist and crypto-xenophobic agenda that bordered on anti-democratic tendencies.

Markets over People: Neoliberal Demonization of Social Welfare and Advocacy for Corporate Welfare

Some may argue that the proponents of corporate welfare hiding behind neoliberalism and the market economy are in essence advocates of markets over people because they want a very weak social welfare system and social safety net. As the sentinel of international finance capitalism, the International Monetary Fund (IMF) subscribes to neoliberal anti-social welfare position when it goes around the world introducing austerity measures - monetary and fiscal reform policies - intended to lessen the role of the public sector and strengthen the strongest domestic and foreign capitalist elements where capital is concentrated. Most recently, this happened in Ireland, across Southern and Eastern Europe where the social safety net has shrunk substantially while corporate welfare expanded. Backed by neoliberal policies of the German and other EU governments, the IMF had no problem with tax breaks and subsidy policies to sustain the regime of corporate welfare, while strongly advocating reducing social welfare as contrary to free enterprise and economic growth, raising consumption taxes paid by the masses and reducing wages and benefits.

The IMF as well as neoliberals inside and outside of government want to leave the public with the impression that the cause for balance of payments problems and high public debt that diminishes the role of the private sector is not the parasitic corporate welfare system, but the social welfare state draining the budgets of governments that borrow in order to finance such programs for the poor who should be working and/or working more for lower wages and benefits to support all of their basic needs. Demonizing the social safety net under a welfare state is easy because neoliberals have the mainstream media to spread the word.

Reinforcing the neoliberal/neoconservative agenda, the mainstream media pursues isolated stories of some welfare mother that has been defrauding the government by collecting an additional paycheck on behalf of her dead husband, or for children she does not have - the welfare queen stereotype that is equated with the evils of the welfare state. The stereotypical story of the welfare queen or similar stories become the pretext to sharply downsize the demonized social welfare and permit the poor to stand on their own two feet in the iconic “free marketplace”, which is anything but free given the role of the state behind it. This is not to argue that there are no abuses in social welfare programs or that they are inherently good for chronic recipients who may have become fatalistic about never getting off welfare. However, this is a question of scale regarding the cost of the demonized social welfare system vs. the iconic corporate welfare system.

As damaging as social welfare abuses may be for the budget, depending on the country and specific programs that it categorizes as social welfare, statistically speaking social welfare costs are hardly a match for the immense costs of corporate welfare and tax dodging by the wealthy. Not only does government spend far greater amounts for corporate welfare, thus adding to budgetary deficits, but the wealthiest individuals benefiting transfer trillions of dollars in offshore accounts to escape paying taxes in their countries, thus contributing to the public debt problem and weakening the economy. This is a problem that both the US and EU have recognized as a serious problem that must be addressed.

Not just the mainstream media in the US, but in Europe as well as in Australia and Canada the focus is rarely on tax evasion and fraud combined with a fiscal policy and subsidies that redistribute wealth to the richest people in society, but rather on the single mother cheating the system of food stamps, on the illegal immigrants receiving free health care and possibly food and housing assistance, on the small farmer declaring losses where there are none so he can receive a government rebate. In short, the focus is always on the "small fish" in the social welfare pond, which do indeed cheat the system without question, but do not come even close to the levels of the corporate welfare sharks eating away at large chunks of the economic pie and massively bleeding government budgets.

Historical Roots of Corporate Welfare vs. the Social Welfare State


Long before government became involved in social welfare, the church and private charitable organizations helped the poor to the degree they did. The transformation of society from rural-agrarian to urban industrial necessarily entailed a large segment of uneducated and unskilled laborer finding themselves In the streets begging, stealing, prostituting, committing crimes, and making up the lowest echelons of society that disrupted harmony in urban centers. England tried to deal with this issue by passing the Poor Law reforms of 1834, intended to place otherwise wretched people of the street into workhouses. This form of semi-slavery criticized by many in the 19th century underwent changes so that the state appeared more humane toward the poor, and not as Charles Dickens and Henry Mayhew described it in their works.

The era of Progressivism in the US formally institutionalized the seeds of the social welfare state, although it would take another four decades before it would have an much of an impact. This is not to say that the manner social welfare has been administered provides any sense of hope, given that it only marginalized the poor permanently and kept them in a chronic state of dependence without offering opportunities for upward social mobility. As bad as those programs were in the housing and medical sectors where social welfare created ghettos, their total absence would have meant no medical care or housing for the recipients.

While it is true that social welfare does not foster personal responsibility values to recipients, neither does corporate welfare. Besides the tax system designed to favor wealth concentration, government giveaways can be traced to the Commercial Revolution in Europe when monarchies gave trading monopolies and route to certain companies. In the US, we have massive giveaways of land for railroads and mining operations in the 19th century as well logging companies, to mention a few of the early corporate welfare beneficiaries. Long before there was such a thing as social welfare (most coming with FDR’s New Deal and then with LBJ’s Great Society), the US government as well as all governments in Europe and Latin America as well persecuted trade unionists and deemed them a threat to business and society.

Can multinational corporations thrive without corporate welfare?
One area where governments spend to sustain corporate welfare is research and development in everything from pharmaceuticals to weapons systems. The taxpayer picks up the bill for research and development costs, while a large corporation reaps the profits by manufacturing and distributing the products. Even foreign aid - both civilian and military - uses taxpayer money to fund products given to aid recipients who in turn have an obligation to trade with the companies of the aid recipient. Similarly, direct subsidies go to the large agribusiness that easily out compete small and medium-sized farmers, given that the top ten percent receive the lion's share of government subsidies. This is at the expense of the taxpayer whether in the US or other parts of the world and the great farce about the so-called "free enterprise".

Also at the expense of the taxpayer are the massive bailouts for financial institutions and other private companies. There is nothing wrong with the state trying to save the financial structure, but to permit criminal activities such as money laundering and rate fixing, and to permit taxpayer funds for scandalous salaries for its executives and larger investors is a form of corporate welfare. The corporate welfare safety net simply means that financial institutions make money in good times in the marketplace and in bad times because the government uses taxpayer funds to bail them out. If this is what free enterprise is all about, then anyone can go into business because the government would assume all the risk and the financial institution would keep the profits in good times and bad.

When we consider the massive tax breaks and infrastructural development costs provided at the state and local levels to companies that state and local government tries to attract then we must add yet another layer of handouts to the many layered corporate welfare cake government provides to business. State and local governments compete to provide the most lucrative subsidies, justifying their actions on the basis that it is good for job creation. While there is no doubt that some jobs are created, it is at a massive cost to the taxpayer and not the company hiring the workers.

If US corporations actually paid the legally designated 35%, they would in fact be at the top of OECD countries in terms of tax liability. Because of endless loopholes, however, the effective rate is very low and most corporations including Boeing, General Electric, and Wells Fargo pay nothing while receiving federal funds in various forms. This is the essence of corporate welfare thanks to tax laws that the government has in the books with the kind and generous assistance of corporate lobbies.

How can GE that generates $10 billion in pretax income pay nothing in taxes and in addition receive a $1.1 billion in tax benefit? GE Capital writes off a paper loss in the US while it shows a huge overseas profit for which it defers paying taxes indefinitely to the IRS, and it receives a tax benefit for depreciation deductions for its capital assets as well as loan losses in the US. Making matters worse, GE along with other corporations keep a great deal of their cash outside the US where they earn much higher rates than American banks pay.

Depending what one includes in social welfare and in corporate welfare programs, the US government spends at least 50% more on corporate welfare benefiting the rich than it does on the social welfare benefiting the poor. State and local government spending on corporate welfare amounted to $110 billion, of which three-fourths went to the 1000 largest corporations such as General Electric, Dow Chemical, Ford, Boeing, etc. In 2013, the Joint Committee on Taxation estimates that $154 billion in special corporate tax breaks were part of the government giveback to the corporations as part of a generous package intended to keep them healthy. It costs the average American family $6870 per year for corporate welfare in the form of subsidies and tax breaks. It costs the average American family $42 per year to fund social welfare. If one includes unemployment benefits, health care and education among other items that are not in the domain of social welfare, then the cost goes higher. However, if one also considers the tax loopholes for corporations and the top ten percent of the income earners the net amount in the corporate welfare category also goes higher.

Conclusions
1.      Should a modern society under the existing state-supported market political economy have a credible social safety net to avoid cases of extreme poverty and people dying in the street benches where the homeless sleep, or should it simply focus on strengthening the corporate welfare system using taxpayer money with the hope that this will take care of all problems in society?
2.      Is greater economic growth and development achieved under the corporate welfare state vs. a weakened social welfare system, or does the trend of massive capital concentration with the state’s help lead to economic contractions that create deep structural economic problems?
3.      What engenders greater social and political harmony in society? A very strong corporate welfare system coexisting with a weak social welfare system, or a mix where the social safety net balances the massive capital concentration?
4.      Has the advocacy of corporate welfare and opposition to social welfare entailed that centrist and center left political parties and groups embraced the right wing (Social Darwinist)  agenda, elements of which include racism, ethnocentrism and xenophobia?  

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