Subsidizing people instead of corporations
Reaganomics is so well established that state officials, both Republican and Democratic, don’t call it that anymore. They simply call it smart policy.
Even so, the idea of boosting supply to raise demand, instead of the other way around, is hardly uncontroversial. States spend billions annually on economic development subsidies to try and create jobs. But recent evidence suggests tax breaks, “forgivable loans,” and the like don’t work as well as hoped.
Up to now the thinking went like this: Devoting public funds to pull companies into the state will eventually yield returns, which is to say, yield jobs. Those jobs stimulate spending, which raises demand for the very products and services of the corporation that brought the jobs in the first place. And thus the virtuous cycle is sent into overdrive. That, at least, has been the theory.
But let’s entertain another theory. What if we took those same billions and reversed the equation? That is, what if we just gave the money away. We know what people would do with it. They’d spend it. Consider the efficacy of unemployment checks. Every dollar spent on unemployment checks saw $1.61 in return, according to a 2010 report by Moody’s Analytics. It’s safe to say the same would happen if you gave those billions away.
Which brings us back to a bizarro version of our virtuous cycle. Giving away the money might raise demand, which would increase job creation, which would lead to more demand. Theoretically speaking, that strategy could do more to revive states’ zombie economies than would giving tax dollars to private interests.
So, give the money we were going to give to the corporations to the people! I know, I know. It sounds crazy — and a little immoral. After all, we Americans feel there is something wrong with giving money to people who haven’t earned it. It undermines one of our defining national narratives: that anyone can succeed in the land of opportunity. All you have to do is work for it.
The flip-side of that belief is that giving money to corporations — in the form of tax breaks, “forgivable loans,” etc. — is morally justifiable, because they are investing the money. They’re taking the risk. Sure, they might profit a little, but that’s all right as long as profit leads to growth and shared prosperity.
In terms of policy, we trust corporations more than people. But maybe we shouldn’t, and maybe we should reconsider at the very least the basic utility, not to mention morality, of corporate welfare.
That’s because, according to a December study, states are getting a raw deal from their treasured job-generators. That study, from Good Jobs First, a nonprofit that advocates for more responsible corporate subsidies, says state governments spend more on corporate subsidies than they get in return from corporations. The study looked at 238 economic development programs in 50 states. Some highlights:
- Less than half impose wage requirements on the companies that receive tax breaks; minimum wage jobs are equal to high-wage jobs.
- Just over half require companies to provide health insurance, but only 31 development programs demand employers contribute to the cost of healthcare premiums.
- Many states subsidize companies that would have created jobs anyway or that are job-shuffling — not creating new jobs but repurposing old ones.
The report’s researcher, Philip Mattera, wrote: “If subsidies do not result in real public benefits, they are no better than corporate giveaways.”
In Connecticut, companies failed to meet job quotas 44 percent of the time in 2010. In Ohio, $82 million went to creating only half the jobs agreed on. Five of six deals in Missouri had not met job goals. Sears got a huge tax break in Illinois to stay headquartered in Chicago right before it announced it would close 100 stores nationwide.
The study goes on and on, and the takeaway is pretty obvious: States are at the mercy of these huge corporations. But what are states to do?
We live in a society that in many ways believes there is no such thing as society. There are only men, women and families, as Margaret Thatcher put it, who must look to themselves first. Ronald Reagan agreed, as he argued against high marginal tax rates and the then-accepted notion of wealth redistribution.
Self-reliance is the classically American ideology that envisions a world of competing self-interests. States are no exception, and in their haste to offer ever-sweeter deals, they end up racing to the bottom.
So why not pursue self-interest through collectivization? That’s what labor does. With business holding all the capital, labor’s only power is collective power.
According to a 2010 report in Remapping Debates, states can forge alliances similar to those in the European Union, where cross-border raids on businesses are largely unheard off. Former Massachusetts state legislator Steven D’Amico, a Democrat, told Remapping Debates that promises not to lowball neighbors would in theory allow states to recoup revenues, fill budget deficits, improve education and modernize infrastructure.
As it is, D’Amico said, the minute one cash-strapped state dares to raise taxes, another state rushes to pick the jobs landscape clean. Such is the paradox of our neoliberal world and its habit of generating vicious cycles: Vulture capitalism leads to corporate welfare, which leads to more vulture capitalism.
It’s time to question an ideology that minimizes the value of individuals but maximizes the value of corporations. The argument against individual welfare is that individuals then won’t want to work. Given the evidence thus far, it appears states are doing the same for corporations. Handing out billions may sound crazy and immoral, but it’s not much crazier or more immoral than what we’re already doing.