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Mary Barker: What crony capitalism really looks like

Published: Thursday, Aug. 14 2014 9:44 a.m. MDT

Updated: Thursday, Aug. 14 2014 9:44 a.m. MDT

A contributor to Forbes recently wrote, “The largest, wealthiest, most powerful organizations in the world [American corporations] are on the public dole. Where is the outrage?”

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A contributor to Forbes recently wrote, “The largest, wealthiest, most powerful organizations in the world [American corporations] are on the public dole. Where is the outrage?” He was referring to corporate welfare, a subset of crony capitalism, which is the use of government favors to advance in business.

The government largesse he may have had in mind includes billions for oil companies; for Boeing, GM, Ford, Nike and other corporate giants, as well as the big pharmaceutical companies, whose profits average several times those of the Fortune 500; and the five largest banks.

Moreover, communities across America further subsidize billion-dollar corporations to encourage their location there. Competing town against town, and sometimes against the developing world, they offer incredible sums.

What does all this mean for the small businessman and the free enterprise system?

In his book, "Free Lunch," David Cay Johnston tells of a mom and pop sporting goods store in Pennsylvania that was ruined by Cabela’s. The package deal Cabela’s demanded for its presence in the town included property tax exemptions, the pocketing of sales taxes and subsidies to help cover the cost of construction. All of this meant, of course, that local taxes, including from the mom and pop store, subsidized its competition.

Cabela’s follows a model perfected by Sam Walton, who practiced corporate socialism. “[H]e put the public’s money to work for his benefit. Free land, long-term leases at below-market rates, pocketing sales taxes, even getting workers trained at government expense,” were all exploited. Walton, Johnston explains, had a knack for manipulating “the powers of government” and “thwarting the market.” Following the Walton model, local merchants “pay for their own demise” and sales taxes don’t go to support the local schools.

Moreover, among the companies America courts are those like GM that would have gone bankrupt if not for the public purse. Yet billions of dollars worth of previous incentives from state and local governments couldn’t prevent it from closing up shop and leaving town when the crisis hit. So, the bankruptcy cost them. It also cost the federal government, of course, $11.2 billion. GM profits since have totaled $22.6 billion.

Never in modern times have the very rich owned so much of the country’s wealth, taken in so much of the country’s income, paid so low a tax rate, benefitted from such government largesse in good times and from a safety net in bad.

A recent study found that between 2008 and 2010, 30 of the largest American companies paid more to lobby Congress (about $400,000 per day, including weekends) than they did in federal taxes. In fact, only one of them actually paid federal taxes, despite the groups’ combined profits of $164 billion. Not surprisingly, they also financed federal campaigns.

Outside the world of crony capitalism, bankruptcy and criminal behavior are punished. Not so within. After being bailed out in 2008, bankers paid themselves record bonuses rather than rebuilding their balance sheets. Yves Smith called this “a slap in the face to the public.”

Whereas hundreds of bankers went to jail after the 1980s savings and loan crisis, in 2008 they weren’t even prosecuted. The Government Accountability Office calculates that the crash cost the U.S. economy $22 trillion. That doesn’t include the human cost in terms of lives ruined, jobs lost, homes repossessed, pensions slashed, services cut, hospitals closed, countries destabilized, etc., across the globe.

The bailout of JPMorgan Chase came to $25 billion, and it has been fined almost that amount for a myriad of illegal activities. To pay the fine, it recently laid off 7,500 employees. Yet, it rewarded CEO Jamie Dimon with a 74 percent raise. He now takes home $20 million.

When banks are fined for criminal activity, the fines often amount to a slap on the wrist that makes criminality profitable. HBSC admitted to laundering billions of dollars for the biggest, dirtiest drug cartels and once again no one was prosecuted. It was decided that HBSC was “too big to jail,” suggesting a two-tiered legal system – one for the average citizen and one for the rich and powerful. The bank paid a fine equivalent to 8.6 percent of its $22 billion profit of the previous year. Its chief executive, however, said that the bank was “profoundly sorry.”

This is but a handful of the many stories that likely exasperate the Forbes contributor. David Stockman, David Cay Johnston, Matt Taibbi, Chrystia Freeland and Yves Smith, among others, can tell many more.

Mary Barker teaches political science in Salt Lake City and Madrid, Spain.

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