Science Fair Project Encyclopedia
Corporate welfare, also called wealthfare is a pejorative term first coined by Ralph Nader in 1956 to describe a government's bestowal of grants and/or tax breaks on one or more corporations or other "special favorable treatment" from the government. Usually these actions are seen to be at the expense of the citizens, although they might be seen as at the expense of other corporations as well. Both terms are meant to remind one of welfare payments to the poor, and perhaps imply that corporations are much less deserving than the poor.
Corporate welfare is applied in a number of different situations. A classic example of corporate welfare is the granting of the use of broadcasting rights to TV stations at nominal fees-when other companies would gladly pay handsomely to use this spectrum. Increasingly common with the rise of globalization is offering incentives to locate in an area. For instance an auto-plant is never built today without the company declaring interest in two areas, e.g. Alabama and Ontario and then letting those two governments race to outbid each other with promises of tax breaks, free land, and infrastructure developments. This skews the free market, it gives an important competitive advantage to large multinationals, who might not otherwise be more efficient than a local producer. It also shifts tax burdens away from these large companies to smaller ones and to individuals.
Another common cause of corporate welfare is a large company nearing collapse. While free market liberalism views the bankruptcy of companies as essential to the process, the specter of lost jobs and unhappy voters often means the government will step in to help a faltering behemoth, but rarely a small business. An example of this is the airline industry, recently, a perennially money losing industry that has only survived through continuous government aid.
Much corporate welfare has even less justification than the above two cases and is pure pork barreling. Defence contracts given inefficient businesses in a politician’s district, or giving funding to a major campaign donor are both instances of pure corruption.
There are some cases where corporate welfare is arguably justifiable. Many companies produce positive externalities that would not be accounted for by a pure free market. For instance most countries heavily support their domestic film companies, arguing that preserving national culture would not be ensured by an unfettered market. Funding that can be seen as an investment can also be justifiable. A number of countries have used corporate welfare to get industries started that would go on to pay great dividends for both the government and society in the long run.
Corporate welfare can be viewed as one of many forms of regulator capture.
Burton W. Folsom, Jr. identifies businesspersons who seek corporate welfare as "political entrepreneurs" in his book, The Myth of the Robber Barons as distinguished from what he calls "market entrepreneurs."
- Nader, Ralph. Cutting corporate welfare (Seven Stories Press, NY, 2001).
- Jansson, Bruce S. The $16 trillion mistake: How the U.S. bungled its national priorities from the New Deal to the present (Columbia University Press, 2001)
- Mandell, Nikki. The corporation as family : the gendering of corporate welfare, 1890-1930 (University of North Carolina Press, 2002).
- Glasberg, Davita Silfen. Corporate welfare policy and the welfare state: Bank deregulation and the savings and loan bailout (Aldine de Gruyter, NY, 1997).
- Lewish, David. Louder voices: The corporate welfare bums (Lewis & Samuel, 1972).
- Whitfield, Dexter. Public services or corporate welfare: Rethinking the nation state in the global economy (Pluto Press, Sterling, Va., 2001.)
- Folsom Jr, Burton W. The Myth of the Robber Barrons (Young America)
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