And with some more ‘deserving’ population …

• Some segment of the population of poor–some will get off of welfare (in a good way), 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 often considered by economists 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 raising workers’ wages. Here is some info on minimum wage:
  
  
  1. In Oregon, minimum wage is $12.00, and adjusted annually for inflation;
  2. Federal minimum wage law–$7.25/hr–applies to employees in firms doing at least $500,000 in business/yr varies wildly by state).
  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 $26,000 is the current federal poverty level for a family of four and requires a wage rate of about $12.50 an hour (assuming a 2,080 hour work year, and that’s gross pay) 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: 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 (e.g., 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. There is periodic debate about turning social 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: 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 economic and political systems 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 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 their Congressional district. Maybe EOU could have the Greg Smith Center for Research on Satellite Ranching–that would be an example of a pork project (this is a hypothetical …). The Medicare drug prescription bill from the early 2000s passed by a narrow margin in Congress.

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 does 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 any money. 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 benefits 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).
• AIDS in Africa–President Bush in 2003 called for spending $15 billion dollars to fight HIV and AIDs in Africa. Much of the funding was to be used for 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 cheap generic drugs (not that anti-retroviral drugs don’t have value in extending people’s lives, mind you).
• The epilogue: Congress, as part of the Inflation Reduction Act of 2022, gave the Centers for Medicare and Medicaid Services authority to negotiate drug prices on behalf of the over 80 million subscribers. It only took 20 years. The fight over this is likely just beginning, however. 

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 recent years. Energy companies were heavy donors to several campaigns and White Houses, hoping for increased rights to explore for oil and gas, opening up public lands to drilling and exploration, avoiding royalty payments, 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

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.
• Public Citizen (a non-profit) reports periodically on the ways in which private corporations wield influence over government and politicians. Most poor people don’t have lobbyists and lawyers on retainer, alas. 

‘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.
• Stock market fraud–it is not uncommon for corporations to submit 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 (for instance, from the 2000s, 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. 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):

• Overseas tax shelters (to avoid taxation) rob the US Treasury of billions. 
• People with incomes under $25,000 have a better chance of being audited than people with higher incomes.

EPA (Environmental Protection Agency)

• Depends on who is in the White House and controls cabinet-level appointments. But in the past, pro fossil fuel industry administrations have practiced self-censorship on global warming, decided not to publish research that might harm the industry’s profitability;
• Has at times refused to prosecute coal-fired plant polluters under the Clean Air Act (worth billions in saved upgrade costs for these power plants and utility companies);
• Relaxed 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. While welfare offices prosecute these cases, usually for small amounts of money (often less than the cost of the investigation), where they suspect fraud. The standards of proof are irrelevant in many cases because the ‘defendants’ don’t have the resources to legally defend themselves. 

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). Occasionally an agency is headed by someone from an industry it was created to regulate (this has happened with the FDA, EPA, DOE, SEC, etc.).

Investment in individuals

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 received billions 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 from late 2005 was probably the highest profile examples of corruption and how the lobbying system works. 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 news media benefit from this because they charge the candidates to air their commercials. It’s big business for all concerned, including the campaign consultants. All major candidates opt out of public financing in  presidential campaigns because they can raise so much more money privately (but with strings attached). 

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, dated but the practice still continues and the ratios hold):

• 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.

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 consider minimum wage. Why doesn’t it increase, even though when adjusted for cost of living in many states it is at its lowest point in over 45 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?