Archive for Thursday, June 28, 2001

Cutting corporate welfare

June 28, 2001


— If you were a bust in the marketplace and couldn't persuade an investor to risk a dime on you, you wouldn't look to the government as a likely sugar daddy, would you? But then, you're not a corporation.

One of President Bush's more appealing positions has been his denunciation of what he forthrightly labels "corporate welfare." In his budget message to Congress earlier this year, he vowed to cut back on these corporate subsidy programs which according to the Cato Institute here in Washington suck about $65 billion out of the federal budget. Now attempting to act on that vow, Bush finds himself toe to toe with Senate Minority Leader Trent Lott.

Lott is the champion of a shipbuilding venture with the assuming name Project America. It's based in a Gulf Coast town called Pascagoula, which happens to be in Lott's home state, Mississippi. Under the guise of maintaining America's shipbuilding skills for military purposes, Lott has enlisted government support for the Ingalls Shipbuilding plant there to produce two cruise ships that will take tourists around Hawaii.

Lott has long been generous to Ingalls, which benefited from the same government loan-guarantee program previously for something called the Sea Rex Project. This entailed the production of four offshore drilling rigs which due to delays, cost overruns and shoddy construction methods were ultimately chopped up for scrap, according to The New York Times. The government was among those left holding the bag.

Bush has correctly spied a bad idea in keeping this shipbuilding operation going. He is making a test case of Project America, placing it first on his list of corporate welfare targets and proposing that federal backing cease. Lott, and an impressive array of backers he has assembled for the fight, wants not just a continuation but a tripling of the government loan guarantees to $100 million.

Experts say it costs twice as much to build ships in the United States thanks to higher labor costs, less-developed technologies and inefficiencies in manufacturing as in Japan, South Korea and the European Union, where most of the world's ships are made today. Given these facts, and the record at Ingalls, the natural conservative response would be to keep the heavy hand of government off the scale.

But Lott's conservative instincts fail him on these corporate-welfare matters. The watchdog group Public Citizen has called him "casino gambling's most powerful congressional friend" because of the many ways he has supported that other important southern Mississippi industry, gambling by preserving and expanding tax breaks and weakening environmental restrictions on casino development.

Indeed, with both Democrats and Republicans on the corporate dole, it takes a libertarian organization like Cato to tell it like it is. Corporate welfare is not only a big drain on the U.S. Treasury, says Cato, but it creates an unlevel playing field, it's anti-consumer, anti-capitalist and unconstitutional. Besides, the federal government is bad at picking industrial winners.

Cato may be clearer on what spells corporate welfare than most. Many have considered farm subsidies, for example, not pro-industry but pro-consumer, ensuring an abundance of inexpensive food for American tables. But, as farming has changed, so has the strength of that argument. Now that less than 10 percent of America's farms are producing more than 70 percent of its harvest, these multibillion-dollar payments are largely subsidizing huge commercial farms.

"Let's not make a mistake that these subsidies are pro-consumer; they are pro-producer," says Sen. Richard Lugar, ranking minority member of the Senate Agriculture Committee. "There would be extraordinarily adequate supplies of food in America if you had no control and no subsidies."

However one comes down on the particulars, the overall impact of the growth of corporate welfare payments on the nation is evident. Last year, according to the Internal Revenue Service, corporate tax revenues fell by 2 percent; individual tax revenues increased by 7 percent. A huge network of corporate tax shelters and tax breaks and the high-powered lobbyists that keep it all going has become a national staple.

Bush isn't the first president to try to get the system under control. But he may be among the most promising. In a contest with Lott, Bush has all the rhetoric the two usually share on his side. As Cato puts it, "The best thing government can do to promote economic growth is to simply get its clumsy hand out of the way and let private entrepreneurs with their own capital at risk determine how the economy's resources will be directed."

A victory for Bush would be a long-overdue signal that what was good for welfare mothers is good for welfare corporations, too especially if they're going to call themselves Project America.

Geneva Overholser is a columnist for Washington Post Writers Group.

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