CUTTING CORPORATE WELFARE
OTHER FORMS OF CORPORATE WELFARE
LOANS AND LOAN GUARANTEES
As anyone who has been bombarded with credit card solicitations knows, there is no credit shortage in the United States. So why does the U.S. government enter into the business of making loans and issuing loan guarantees to large corporations? Corporations generally want loans from the government either because the loans are made at below-market rates, or because the loans include some sort of implicit subsidy (including de facto government insurance). This is a form of credit allocation that some legislators decry when applied to ordinary Americans.
Consider a loan recently approved by the World Bank, in which the United States is the largest country shareholder with an approximate 16 percent share. The $180 million loan package will help finance an oil pipeline that would transgress Chad and Cameroon, in Central Africa. The corporate beneficiaries of the loans include Exxon and Chevron. The companies' consortium says that it plans to use the World Bank financing as the foundation for additional private financing. In other words, private lenders will be more willing to support the project knowing that the power of the World Bank stands behind demands for repayment. But if some of the world's largest oil companies do not feel comfortable financing an oil development scheme on their own, or if they are unable to attract private financing without government or multilateral lending agency support, perhaps that is a sign that the project should not go forward. (Critics point out that the project poses threats to rainforests, endangered gorilla-inhabited conservation areas and drinking water; and is likely to exacerbate ethnic conflicts with consequences potentially similar to those in Nigeria's Niger Delta or worse -- political violence, some connected to prospective oil revenues, is already rife in Chad. )
Loans and loan guarantees are another corporate welfare category deserving a high degree of skepticism. For healthy companies, these kinds of government supports should be unnecessary. For cases where a political decision has been made that special circumstances merit some company or industry receiving loans or loan guarantees, Congress should adopt legislation that establishes a presumption of full repayment, at market rates. (For comment on bailout loans, see the remarks above.)
The government maintains a variety of agricultural subsidies, ranging from irrigation subsidies to crop insurance and price supports for certain commodities. Many of these benefits accrue to corporate agribusiness, and often support environmentally harmful farm practices (such as overuse of water). The original purpose of farm supports was to support family farmers and enhance stability in agricultural markets, and it is doubtful whether the programs still fill this function. At the same time, many farm supports were eliminated by the 1996 Farm Bill, with the general effect of promoting agribusiness consolidation and increased power for grain traders. Food prices have not declined. All of this suggests the need for a serious and open-minded reassessment of farm programs, so that the public interest in protecting family farms and sustainable agriculture is advanced, while subsidies for large agribusiness are curtailed.