69.
Corporate Welfare
Publicly Funded
Corporate profit is exaggerated by what is effectively publicly funded corporate welfare. The package of corporate welfare begins with governments who offer incentives to corporations in order to attract their business, increase their GDP and compete with other nations. National resources that rightfully belong to the public are the first carrots on the stick, and are offered at highly discounted prices to corporations without public consent. Governments even give away valuable common assets at no cost to corporations, such as oil and mineral rights, saving corporations billions of dollars in costs.
In addition, affluent governments pay out huge subsidies to the largest corporations. Government support to farmers in OECD countries totalled $283 billion in 2005, representing 29% of total farm income. Unfortunately, the majority of farmers who own small to medium sized farms do not benefit from these subsidies. 30% of farmers in the US do not receive any of the $26 billion of US subsidies, and over 85% go to only 20% of the largest farms, a pattern repeated in the EU.
Industrialized countries also subsidize corporate exports and agri-business inputs such as energy, pesticides and chemical fertilizers. This encourages energy and chemical intensive production methods that only large scale agri-business can sustain. As a direct result, the number of small farms in the US has decreased from 6.8 million in 1935 to 1.5 million in 1998. In global commodity markets these subsidies mean that producers in developing countries, many of whom produce their goods with more efficiency and less cost than the US and EU, cannot compete with agri-business suppliers. Their livelihoods are destroyed. Market competition is cut throat, valued higher than life itself. Individual cows in Japan receive $8 a day in subsidies alone, whilst half of India's 1.2 billion people live on less than $2 a day. These actions strengthen the market dominance of corporations, whilst marginalizing smaller, community based producers.
In addition, corporations pay much less tax than ordinary people, often registering their headquarters in tax havens. According to the Centre for American Progress "At a time of rising corporate profits, the US Government Accountability Office (GAO) reports that 95 percent of corporations paid less than 5 percent of their income in taxes, and 6 in 10 paid nothing at all in federal taxes from 1996 through to 2000". The corporate share of taxes paid fell from 33 percent in the 1940's to 15 percent in the 1990's. The individual's share of taxes has risen from 44 to 73 percent. At a time of record corporate revenues, the American public is making up the loss in tax revenue through the government's biased tax regime.
The effect of corporate welfare upon the poorest nations is most disastrous. When local resources and basic goods are controlled by corporations and absentee owners, local industry is curbed, essential services are often unaffordable and profits are repatriated in wealthy countries, bypassing the local economy. Although privatization in developing countries does prove beneficial in certain cases, overall the process resembles economic mercantilism as it is ultimately fuelled by selfish, commercial interest. What is needed is a significant transfer of resources to the global south, not to multinational corporations.
When governments give away public resources, subsidize the largest industries and provide tax incentives to corporations, it usually occurs without the public's knowledge and proves detrimental to their local communities. The price we pay for goods does not include the cost we have already paid through our taxes, the cost to the poorest producers around the world, or the cost to the environment.
In addition, affluent governments pay out huge subsidies to the largest corporations. Government support to farmers in OECD countries totalled $283 billion in 2005, representing 29% of total farm income. Unfortunately, the majority of farmers who own small to medium sized farms do not benefit from these subsidies. 30% of farmers in the US do not receive any of the $26 billion of US subsidies, and over 85% go to only 20% of the largest farms, a pattern repeated in the EU.
Industrialized countries also subsidize corporate exports and agri-business inputs such as energy, pesticides and chemical fertilizers. This encourages energy and chemical intensive production methods that only large scale agri-business can sustain. As a direct result, the number of small farms in the US has decreased from 6.8 million in 1935 to 1.5 million in 1998. In global commodity markets these subsidies mean that producers in developing countries, many of whom produce their goods with more efficiency and less cost than the US and EU, cannot compete with agri-business suppliers. Their livelihoods are destroyed. Market competition is cut throat, valued higher than life itself. Individual cows in Japan receive $8 a day in subsidies alone, whilst half of India's 1.2 billion people live on less than $2 a day. These actions strengthen the market dominance of corporations, whilst marginalizing smaller, community based producers.
In addition, corporations pay much less tax than ordinary people, often registering their headquarters in tax havens. According to the Centre for American Progress "At a time of rising corporate profits, the US Government Accountability Office (GAO) reports that 95 percent of corporations paid less than 5 percent of their income in taxes, and 6 in 10 paid nothing at all in federal taxes from 1996 through to 2000". The corporate share of taxes paid fell from 33 percent in the 1940's to 15 percent in the 1990's. The individual's share of taxes has risen from 44 to 73 percent. At a time of record corporate revenues, the American public is making up the loss in tax revenue through the government's biased tax regime.
The effect of corporate welfare upon the poorest nations is most disastrous. When local resources and basic goods are controlled by corporations and absentee owners, local industry is curbed, essential services are often unaffordable and profits are repatriated in wealthy countries, bypassing the local economy. Although privatization in developing countries does prove beneficial in certain cases, overall the process resembles economic mercantilism as it is ultimately fuelled by selfish, commercial interest. What is needed is a significant transfer of resources to the global south, not to multinational corporations.
When governments give away public resources, subsidize the largest industries and provide tax incentives to corporations, it usually occurs without the public's knowledge and proves detrimental to their local communities. The price we pay for goods does not include the cost we have already paid through our taxes, the cost to the poorest producers around the world, or the cost to the environment.
Cost Externalization
Classical economic thinking and accounting procedures are heavily biased against local communities and the environment, as they only reflect financial profit and loss. Maximizing profit means passing more immaterial or long-term costs on to society for them to deal with. This process is known as externalization, and externalities are typically negative social or environmental costs to a community, region or the planet which corporations do not have to account for in anyway. Corporations are compelled to externalize costs wherever possible so that they can increase their profits.
For example, export-oriented industrial agriculture is a major contributor to climate change. Agricultural externalities poison our soil, waterways and atmosphere. And corporations are learning to externalize more efficiently - they may, for example, relocate to countries with lower labour or environmental standards. The negative effect upon society and the environment of these externalities and lower standards are unaccounted for in the cost of their products or their financial reports. In the meantime, consumers are taken in by the illusion of low cost goods and services and they seek out ever cheaper suppliers. However, as the true environmental and social costs of corporate activity are becoming apparent, consumers must realize that they cannot avoid paying for them in one way or another. For example, these costs are paid through aid sent to developing countries (often after climate-change aggravated disasters); through the public money spent on tackling climate change; through the millions spent nationally tackling poverty, inequality, unemployment and other social issues; and through the detrimental effect upon quality of life that results from lower working standards and conditions.
Every year corporations are fined hundreds of millions of dollars as their externalities create serious environmental catastrophes, neglect employee rights and even cause deaths. Examples are plentiful and well documented by countless NGO and civil society groups, and usually concern the most well known and largest corporations. However, mainstream media coverage of these issues is virtually non existent. Take for example Chevron. The majority are unaware that it is guilty of some of the worst environmental and human rights abuses in the world such as the dumping of 18 billion gallons of toxic waste into rivers used for bathing water in the Amazon, devastating the health of the local community.
However, fines for these corporate crimes are negligible in relation to a company's turnover. The likelihood of being fined is often accounted for well before the event. Given the potential financial savings to be gained by violating environmental protection laws and workers rights, the decision to ignore these laws constitute a simple cost-benefit calculation. Worryingly, shareholders cannot be held accountable for these violations as they are protected by their limited liability, and directors and executives successfully plea that they have no direct involvement with the corporate crime committed. Thus the corporate ‘entity' itself is fined, and little incentive to change irresponsible corporate behaviour is provided.
Taking the cost of these externalities into account, Ralph Estes estimated that the public cost of private corporations was over $3 trillion in 1995. His externalities included "workplace injuries, pollution, employment discrimination, consumer ripoffs, corporate white collar crime, tax abatements and all the other instances of corporate welfare, government contracting fraud and creative accounting" all of which have carry an equivalent financial cost to the public. Estes calculations reveal that the corporate claim to efficiency is clearly false - most corporations would not be able to continue without major changes if they bore the full costs of their of their product or service.
For example, export-oriented industrial agriculture is a major contributor to climate change. Agricultural externalities poison our soil, waterways and atmosphere. And corporations are learning to externalize more efficiently - they may, for example, relocate to countries with lower labour or environmental standards. The negative effect upon society and the environment of these externalities and lower standards are unaccounted for in the cost of their products or their financial reports. In the meantime, consumers are taken in by the illusion of low cost goods and services and they seek out ever cheaper suppliers. However, as the true environmental and social costs of corporate activity are becoming apparent, consumers must realize that they cannot avoid paying for them in one way or another. For example, these costs are paid through aid sent to developing countries (often after climate-change aggravated disasters); through the public money spent on tackling climate change; through the millions spent nationally tackling poverty, inequality, unemployment and other social issues; and through the detrimental effect upon quality of life that results from lower working standards and conditions.
Every year corporations are fined hundreds of millions of dollars as their externalities create serious environmental catastrophes, neglect employee rights and even cause deaths. Examples are plentiful and well documented by countless NGO and civil society groups, and usually concern the most well known and largest corporations. However, mainstream media coverage of these issues is virtually non existent. Take for example Chevron. The majority are unaware that it is guilty of some of the worst environmental and human rights abuses in the world such as the dumping of 18 billion gallons of toxic waste into rivers used for bathing water in the Amazon, devastating the health of the local community.
However, fines for these corporate crimes are negligible in relation to a company's turnover. The likelihood of being fined is often accounted for well before the event. Given the potential financial savings to be gained by violating environmental protection laws and workers rights, the decision to ignore these laws constitute a simple cost-benefit calculation. Worryingly, shareholders cannot be held accountable for these violations as they are protected by their limited liability, and directors and executives successfully plea that they have no direct involvement with the corporate crime committed. Thus the corporate ‘entity' itself is fined, and little incentive to change irresponsible corporate behaviour is provided.
Taking the cost of these externalities into account, Ralph Estes estimated that the public cost of private corporations was over $3 trillion in 1995. His externalities included "workplace injuries, pollution, employment discrimination, consumer ripoffs, corporate white collar crime, tax abatements and all the other instances of corporate welfare, government contracting fraud and creative accounting" all of which have carry an equivalent financial cost to the public. Estes calculations reveal that the corporate claim to efficiency is clearly false - most corporations would not be able to continue without major changes if they bore the full costs of their of their product or service.
Conclusion
Clearly a corporation’s pressing need for increased profits comes at too high a cost to the global public. When corporate welfare and the public cost of externalities are taken into account, corporate profit is a meaningless term. Within the current framework, corporate profit must be viewed alongside the social and environmental consequences of corporate activity. This more balanced approach calls into question the global economic system that perpetuates this state of affairs.
(Source: Multinational Corporations, STWR)
(Source: Multinational Corporations, STWR)
