The American Mind

Corporate welfare and the Hunger Games

William Hillman

(12/2018) This week, Amazon announced it is moving their East Coast headquarters to New York and Northern Virginia. The State of Maryland offered $8 billion in incentives, but it was not enough to get Amazon to move a few miles north from Crystal City VA. Newark NJ offered $7 billion and could not get Amazon to move across the river from New York. The final costs to New York $61,000 per job compared to $23,000 each in Virginia.

This is crony capitalism at its worse, public risk for private profits. Corporations using their size to extort public funds is bad for capitalism and the future of our country. Politicians that permit this are shortsighted at best and outright dangerous at worst. It’s been going on since the Gilded age of the late 19th century, but the risks today are greater than ever before and threaten the future of our nation.

The Sherman Act and the Anti-Trust Laws of the 1890’s protected the American consumers and small business from Corporate monopolies.

Who will protect consumers, tax payers, and the free market when those that make the rules are partners in these monopolies?

Businesses and corporations must be able allowed to fail. The cleansing power of failure is the fundamental difference between a free market economy and a controlled economy. Growth, strength, and anti-fragility only come from failure and the fear of failure. For growth, old orders must yield to new. Success and robustness come from fighting in an open market and constantly preparing for a challenge to the company’s market share.

Businesses with financial ties to the government will use their government partner to enact regulations that protect their interests against competitors and the seemingly bottomless pocket of the taxpayer as a hedge against bad management and inefficiency.

When politicians give tax breaks to the likes of Amazon and Comcast, someone has to pay for the public services for these corporations. Trash does not pick itself up for free and criminals do not lock themselves in jail. The politicians can pay for tax giveaways in one of three ways: decrease services and funding to the citizens and other business, increase taxes on existing businesses, or float bonds and let some future generation figure out how to pay for it all.

New York City and Arlington Virginia have just made a sizable investment in Amazon, yet have no rights or hold no shares. These municipalities have a financial interest in Amazon succeeding, but Amazon has little to no responsibility to these municipalities. Amazon can pack its bags and walk away from the mess it creates with no responsibility.

The Politicians who have bet on Amazon, have tied their own future to the success of Amazon. And they will do anything, or give away anything to make sure they don’t lose that bet.

Amazon is not alone in the field of hunting taxpayers’ money. Foxconn, a Taiwan based electronics firm, agreed to build a factory in Wisconsin, where it received $3 – 4 billion in incentives. The 13,000 jobs created cost more than $200,000 per job.

Politicians are happy with this arrangement because they get to pretend to be a hero. They will cut the ribbon at the corporate opening, and claim responsibility for bringing in X-number of jobs. But they will never talk about the costs.

I don’t blame the corporations for taking the money if the politicians are willing to sell out their citizens.

In Philadelphia, a ten-year property tax abatement program for Comcast and developers cost the city over $26 million, most of which would have gone to the city’s failing school district. Comcast gets a new building, in exchange for classes without textbooks and schools with leaking roofs and mold problems. In fact, 7 of the largest "corporations" in Philadelphia receive some sort of government subsidy or property tax break. The largest land owner in the city is the University of Pennsylvania, with an $11-billion endowment and a President payed $3.5 million per year. Yet it does not pay a dime in real-estate taxes to the city. Each year, the University of Pennsylvania and its self-described progressive leadership passes "Its fair share" of its Multi-Million dollar bill for city services onto the poor and middle class of the city, and does not pay a dime into the city school system, like every other property taxpayer in the city does. So much for the wealthy "Paying Its Fair Share".

This repeats in every city. "The real estate firm developing the University of Maryland Baltimore BioPark is seeking $17.5 million in public financing and a special designation that would eliminate property taxes for at least five years to build its next building on the West Baltimore campus. The subsidy for the roughly $110 million project is designed to help BioPark developer, Wexford Science & Technology, lure a branch of the Cambridge Innovation Center to Baltimore. The Massachusetts-based firm provides co-working space to start-ups and would lease about 40 percent of the 250,000-square foot building." – Baltimore Sun , November 2, 2015

Remember those banks that were "Too Big to Fail", that we taxpayers bailed out back in 2007? They are back and bigger than ever. Back in the 2000’s, their executives made millions while we picked up the tab for their fraud. Our government was so heavily invested in the banking industry, there was no way the government could let them fail. They were never worried about repercussions from the fraud they were committing. They made billions from a fake market they created, and when that bubble burst, we paid the price to clean it up. Every American taxpayer should be up in arms over the fact that no one went to jail. Contrary to what we were told, I’ve never seen a bank commit fraud! Banks are inanimate brick buildings. People commit fraud and thanks to "Crony Capitalism", the men who committed one of the largest frauds in our history, walked away free and rich men.

And we didn’t learn a darn thing. The banks that were "Too Big to Fail" are even bigger. JP Morgan sits atop the list of banks that could threaten global stability. It has amassed an incredible $2.56 trillion in assets, twice as big as it was in 2006. Most of its growth is thanks to the government-backed takeover of failed Bear Stearns and Washington Mutual. Wells Fargo is sitting on $1.93 trillion, up nearly 300% since 2006.

Of the 30 "Too Big to Fail" banks three quarters are significantly bigger today than ten years ago. When they fail, and they will, who will pay the price? Certainly not the banks.

During the Obama and Bush administration we saw agencies like the EPA and DOE pass regulations to protect and favor politicly connected companies. In 2014, the now bankrupt Solyndra corporation received a $535 million investment from the DOE at the Direction of then President Obama. During his administration, Obama enacted almost 4000 EPA regulations. Most of these regulations were designed to eliminate small manufacturing, and in some cases, entire industries such as coal. The EPA regulations put American manufacturing at a great disadvantage in favor of China’s manufacturing. And if Obama had his way, those jobs would have never come back.

Government should be in the business of making sure the playing field is fair. New, innovative businesses should have equal opportunity to develop and grow. When it gets into the business of picking winners and losers, hold on to your wallet because politicians are really bad at picking winners, but really good at finding ways of making themselves rich.