Thursday, October 15, 2015

The Best Way to Eliminate Corporate Power and Influence Over Government

By Andrew Syrios
There appears to be a mistaken belief on the Left that any government action is either done in the interest of “the people” or in the interest of corporations and rich oligarchs. So the naked corporate welfare to Archer Daniels Midlands is called out, as are thesports stadiums being paid for by taxpayers and of course the banker bailouts as well. (Although, it should be noted that congressional Democrats voted in support of TARP by a rate of three to one whereas a slight majority of Republicans opposed it.)
In general, however, the Left seems to see tax cuts as corporate welfare while ignoring or outright supporting corporate welfare in many of its guises. The reason is because corporate welfare is rarely sold to the public as a way to help millionaires become billionaires at the taxpayer’s expense. It’s much more insidious than that. Usually this cronyism comes wrapped in a bill of goods that makes it much easier to swallow.


While the Right yells about how the so-called Obamacare is socialized medicine, it would actually best be described as a corporatist scheme. Or in other words, it’s corporate welfare.
Indeed, if it were some socialist scheme to destroy private enterprise, one would suspect that these companies’ stock prices would plummet before the passing of the bill (March 23, 2010). Here’s what actually happened in the year prior to the bill’s passing for the five largest health insurance companies (the Dow Jones is in red):
Chart from (WLP = Anthem; CI = Cigna; HUM = Humana; AET = Aetna; UNH = United Healthcare)
The average return for these five companies over the year was 72.85 percent, almost twice that of the Dow Jones Industrial average. Cigna lead the group with a 98.5 percent increase. Now, it’s important to understand how stock prices are valued. They are not derived from the value of the assets a company holds or even what the company has done recently. Instead they are valued by how much a company is expected to make in the future and how much those future cash flows are worth today.
In other words, investors seemed to be uniformly of the opinion that Obamacare was good for business. And they were right. Here are those same companies last five year’s performance:
It shouldn’t be hard to see why an individual mandate and billions in subsidies for people to buy insurance from these companies could increase profits. This is especially true given all of the rate increases. The law’s poor conception has pushed health insurance companies to seek rate increases of 20 to 40 percent for 2016 because the “new customers … turned out to be sicker than expected.”
How about the pharmaceutical companies? In March of 2009, Billy Tauzin, head of PhARMA (the main lobbying group for the pharmaceutical industry) was asked whether investors should be worried about the upcoming healthcare reform. He responded as follows,

Think about what this plan does: This plan talks about providing comprehensive health insurance to people who don’t have it. That means to patients who can’t take our medicines because they can’t afford it: $650 billion spent to better insure Americans for the products we make. That ought to be a very optimistic and positive message for everyone [who] is interested in our sector of the economy.
They continued,
Mike Huckman: “… if there is some kind of universal healthcare plan where prescription drugs are more broadly available and they’re available at a cheaper price, [is it possible] that your sector may make up in a higher prescription volume and sales what it might lose on price?”
Billy Tauzin: “Absolutely, think about this: almost half of the prescriptions that get written today go unfilled … primarily because people don’t have adequate insurance.”
The LA Times reported that “Tauzin has morphed into the president’s partner. He has been invited to the White House half a dozen times in recent months.” Tim Carney lists some of the blatant corporate welfare in the bill,
1. Complex drugs known as biologics will receive a 12 year monopoly patent instead of the standard 5 years.
2. The individual mandate will require everyone to buy prescription drug insurance.
3. $196 billion in annual subsidies will be given to poor and middle class Americans to buy health insurance.
4. It preserves the 2003 Medicare Part D stipulation that prohibits Medicare from negotiating down prices for drugs it subsidizes.
5. It continues to prevent re-importation of drugs from Canada.
Given this, it’s not surprising that the drug industry paid $150 million to support Obamacare with things such as this delightful ad.

Cap and Trade

Early in Obama’s presidency (and John McCain’s platform) he pushed for “cap and trade”; a market-driven method to fight global warming. Or more accurately, a corporate welfare laden plan that wouldn’t do much of anything.
Paul Krugman accused opponents of the bill of committing “treason against the planet” and most of the left seemed to agree. But to give credit where credit is due; Dennis Kucinich actually hit the nail on the head,
[H.R. 2454, the cap-and-trade bill] is regressive. Free allocations doled out with the intent of blunting the effects on those of modest means will pale in comparison to the allocations that go to polluters and special interests. The financial benefits of offsets and unlimited banking also tend to accrue to large corporations. And of course, the trillion dollar carbon derivatives market will help Wall Street investors. Much of the benefits designed to assist consumers are passed through coal companies and other large corporations, on whom we will rely to pass on the savings.
Indeed, Al Gore makes an interesting observation in some of the bonus material to his documentary An Inconvenient Truth,
A lot of business leaders are changing their positions. New businesses and CEO’s and corporations every week are now joining this new bandwagon saying “we want to be part of the solution and not part of the problem.”
Or perhaps they just saw gobs of money available to be made by getting in line with the government. After all, there was the Solyndra scandal and then GE reduced its tax burden to zero primarily with green energy tax credits. Al Gore has even gotten in on the government dole for green technology and made a fortune. And then of course there was Ken Lay.
In 1997, then-Enron CEO Ken Lay wrote an op-ed entitled “For Prevention’s Sake: Focus on Climate Solutions.” In it he strongly advocated the Kyoto Protocol, which would cap carbon emissions worldwide. On August 4, 1997, Ken Lay met with Bill Clinton, Al Gore, and others at the White House to discuss Kyoto. Ken Lay was an enthusiastic supporter. In 2001, Lay sent an emissary to the Bush administration to lobby for Kyoto. Surprisingly, his old friend turned him down (other interests to appease perhaps?). And of course, the reason Enron wanted cap and trade was the same as Goldman Sachs: to create a new energy market for them to trade in.

Cigarette Cronyism

Interestingly enough, the government actually makes more money off of tobacco than the tobacco industry (about $48 billion to $35 billion). And oddly (and morbidly) smoking probably saves the government money as it just means people die when they’re 50 or 60 instead of when they are 70 or 80 (and thus collect less Social Security and Medicare).
Cigarettes are still the most preventable cause of death around. So many would think the 1998 government lawsuit that lead to the Master Settlement Agreement would be a good thing. Not so fast. Here’s how Tim Carney describes it,
In exchange for settling all the state lawsuits filed in the 1990’s, the companies promised huge annual payments to state governments. To safeguard the new revenue stream, the states passed laws protecting Big Tobacco [the four largest retailers] from smaller competitors. Critics have called the MSA, “one of the most effective and destructive cartels in the history of the Nation.”
Many states are now extremely reliant on this tobacco money making, the government and tobacco industry are two peas in a pod.
What the Master Settlement Agreement did was simply cartelize the market. The settlement banned most advertising, which of course favored the big companies with well-known brands. But it also made sure “… that tobacco companies that were never sued, were never accused of wrongdoing, and in some cases didn’t exist when the alleged deception and wrongdoing occurred, and certainly never participated in the settlement would pay the same damages as the Big Tobacco companies…” The economies of scale for larger companies make these costs easier to swallow.
Small companies could get out of these payments if they “… joined the settlement within 90 days of its completion. …” But of course, there was a catch, “… small companies signing on to the MSA were not allowed to grow by more than 25 percent.”
Indeed, it’s hard to think of a better way to cartelize a market.


Big government is not a hedge against big corporations. Generally speaking, they work together against the consumer. While government intervention in healthcare reform, greenhouse emissions, and tobacco could be attempted in a way that didn’t line the pockets of big corporations, it rarely turns out that way. Entrenched interests are the ones with influence after all. The best way to reduce the power and influence of corporations is to reduce the power and influence of government. Such a reduction would force firms to compete without special favors on the free market. Price and quality would be what set companies apart, not their ability to influence politicians.

1 comment:

  1. Great article. Shows why government and politics will never go away. Too many people love the idea of getting away with stealing and even killing in order to enrich themselves. Politics is all about getting away with it.