Government subsidizes business in myriad ways, direct and indirect. These subsidies are known as corporate welfare. Like other government interventions, they are often spawned by crisis. Corporate welfare takes many forms: government pays farmers to grow certain crops and not to grow others. It makes and guarantees loans. It funds research. It helps companies advertise their products in other countries. It insures their foreign investments against civil unrest. Corporate welfare can be indirect. The Export-Import Bank and foreign aid provide financial help to foreign governments so they can contract with American firms for many goods and services. The common denominator in all these schemes is the forcing of taxpayers to funnel benefitsby one estimate $87 billion a yearto favored businesses. The scope for influence peddling and corruption is vast. The U.S. Department of Commerce is little more than a sophisticated operation for carrying out such schemes.
Another constellation of corporate welfare subsidies comes in the form of direct U.S. government contracts with companies which sell all manner of products and services to the multitude of bureaus and departments. This might not sound like welfare because the government, and therefore theoretically the people, get apparently useful things in return. But this is misleading. In the marketplace, when goods and money change hands in voluntary exchange, the parties involved expect to benefit, or else they would not engage in trade. In this sense, both parties earn the benefits received, and investment and production are directed, via entrepreneurs, by consumers spending their own money.
But that is not so with government contracts. In that case, not all parties have consented. The companies and the government departments surely have. But the key participantsthose who provide the money, the taxpayershave not. Thus, with government contracts, political personnel direct investment and production by taking money from the taxpayers and passing it along to private-sector vendors. Consumers, who would have spent their money on their own preferences, are overruled by political operatives who do not face the normal incentives and constraints of the marketplace. Since this is not true voluntary exchange, both the government personnel and the vendor get a form of welfare.
That is why the hundreds of billions of dollars that the U.S. government spends buying things from private firmsfrom paper clips to missilesconstitute corporate welfare, which misdirects scarce resources to purposes selected by officials who spend other peoples money. This massive diversion of resources distorts production and investment, leaving society poorer than it otherwise would have been. The spending of huge sums on weapons systems unrelated to the defense of the American people is just the most flagrant example. The defense industry is sheltered from market forces by the U.S. Department of Defense and is consequently rife with socialism, national industrial policy, and excessive regulation. It is one of the dangers inherent in what the late President Dwight Eisenhower, in his Farewell Address of January 17, 1961, called the military-industrial complex (later renamed by Robert Higgs the military-industrial-congressional complex).
Once again, the exploitation of crises comes into play. While crises typically increase government control over business (including the farm business), they also are excuses for subsidies and other favors to well-connected corporate interests. (Favors always have conditions.) During the Great Depression the federal government went to great lengths to raise agricultural prices to help farmers. Beginning in the Hoover administration, favored banks and railroads were bailed out. In wartime, businesses are contracted to deliver a variety of goods and services, becoming virtual wards of the state. Expanded government influence in the economy remains when the crisis passes. Government-business partnerships become common, and previous attitudes about separating business and state weaken. Thus crisis spawns the corporate state.
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