The truth about corporate subsidies

Large American corporations shouldn’t need government subsidies to do what’s right for America.

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Why won’t big American corporations do what’s right for America unless the government practically bribes them?

And why is the government so reluctant to regulate them?

Prior to the 1980’s, the U.S. government demanded that corporations act in the public interest.

For example, the Clean Air Act of 1970 stopped companies from polluting our air by regulating them.

Fast forward to 2022, when the biggest piece of legislation aimed at combating the climate crisis allocates billions of dollars in subsidies to clean energy producers.

Notice the difference?

Both are important steps to combating climate change.

But they illustrate the nation’s shift away from regulating businesses to subsidizing them.

It’s a trend that’s characterized every recent administration.

The CHIPS Act –– another major initiative of the Biden administration –– shelled out $52 billion in subsidies to semiconductor firms.

Donald Trump’s “Operation Warp Speed” delivered over $10 billion in subsidies to COVID vaccine manufacturers.

Barack Obama’s Affordable Care Act subsidized the health care and pharmaceutical industries.

George W. Bush and Obama bailed out Wall Street following the 2008 economic crash while providing about $80 billion in rescue funds for GM and Chrysler.

And the federal government has been subsidizing big oil and gas companies for decades, to the tune of hundreds of billions of dollars.

Before the Reagan era, it was usually the case that America regulated rather than subsidized big business to ensure the wellbeing of the American public.

The Great Depression and FDR’s Administration created an alphabet soup of regulatory agencies — the SEC, FCC, FHA, and so on — that regulated businesses.

Corporations were required to produce public goods, or avoid public “bads” like a financial meltdown, as conditions for staying in business.

If this regulatory alternative seems far-fetched today, that’s because of how far we’ve come from a regulatory state to a subsidy state.

Today it’s politically difficult, if not impossible, for government to demand that corporations bear the costs of public goods. The government still regulates businesses, of course –– but one of the biggest things it does is subsidize them. Just look at the growth of government subsidies to business over the past half century.

The reason for this shift is corporations now have more political clout than ever before.

Industries that spend the most on lobbying and campaign contributions have often benefited greatly from this shift from regulation to subsidy.

Now, subsidies aren’t inherently bad. Important technological advances have been made because of government funding.

But subsidies are a problem when few, if any, conditions are attached — so there’s no guarantee that benefits reach the American people.

What good is subsidizing the healthcare industry when millions of Americans have medical debt and can’t afford insurance? What good are subsidies for oil companies when they price gouge at the pump and destroy the planet? What good are subsidies for profitable semiconductor manufacturers when they’re global companies with no allegiance to America?

We’re left with a system where costs are socialized, profits are privatized.  

Now, fixing this might seem daunting — but we’re not powerless. Here’s what we can do to make sure our government actually works for the people, not just the powerful.

First, make all subsidies conditional, so that any company getting money from the government must clearly specify what it will be spent on – so we can ensure the funds actually help the public.

Second, ban stock buybacks so companies can’t use the subsidies to pump up their profits and stock prices.

Third, empower regulatory agencies to do the jobs they once did — forcing companies to act in the public interest.

Finally, we need campaign finance reform to get big corporate money out of politics.

Large American corporations shouldn’t need government subsidies to do what’s right for America.

It’s time for our leaders in Washington to get this message, and reverse this disturbing trend.

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Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fourteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "Saving Capitalism." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, co-founder of the nonprofit Inequality Media and co-creator of the award-winning documentary, Inequality for All.

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