Tag Archives: corporate welfare

“Because That’s Where the Money Is.”

In one of those too-good-to-be-true urban legends, a man once asked the famous criminal Willie Sutton why he robbed banks. “Because that’s where the money is,” he replied. Fast forward eighty years or so, and one sees that the business world has learned from Sutton’s wisdom.

LightSquared is a technology company that is going through chapter 11 bankruptcy despite receiving a $267 million government loan. Its satellite-based high speed wireless network has a fatal flaw: it interferes with GPS devices, making it useless. The FCC is blocking it, leaving the company with essentially zero business until they can solve the problem.

The company has laid off about half of its workforce so far. But The Hill’s Brendan Sasso and Kevin Bogardus found out that LightSquared is making sure to retain its most lucrative employees. Those would be its lobbyists, not its engineers:

Despite the financial troubles and staff cutbacks, LightSquared has yet to disband its lobbying army — an implicit acknowledgment that the company’s future is contingent upon what happens in Washington.

In other words LightSquared, just like Willie Sutton, knows where the money is. And it isn’t in the marketplace.

Businesses fail all the time. If they don’t create value for their customers, they don’t deserve to stay in business. Capital that is being wasted by these companies is then freed up for more valuable uses. Schumpeterian creative destruction doesn’t work without that destructive part. When Washington puts its thumbs on the competitive scales as it has with the LightSquared loan, it should surprise no one that companies suddenly swarm Capitol Hill for a piece of the action.

The result is less destruction, but also less creation. Corporate welfare means less innovation and less economic growth. It creates plenty of jobs for lobbyists and lawyers, but at the expense of other jobs that create actual value for consumers – such as many of LightSquared’s layoffs, who could be finding a technical solution for its GPS interference problem.

CEI Podcast for April 5, 2012: The Export-Import Bank


Have a listen here.

Every year, Washington spends more than $90 billion on corporate welfare – giving taxpayer dollars to private businesses. The Export-Import Bank is one of the most flagrant corporate welfare programs. A vote to reauthorize it recently failed both Houses of Congress, but will likely come up again soon. Vice President for Strategy Iain Murray thinks the Export-Import Bank should become an ex-bank.

Corporate Welfare Has Opportunity Costs

A recent Washington Times editorial quotes me saying as much:

“Washington spends about $92 billion each year on corporate welfare,” Ryan Young of the Competitive Enterprise Institute told The Washington Times. “Imagine if that money was left in the economy instead of squandered on companies that couldn’t make it in the marketplace.”

Read the whole thing here.

 

More Corporate Welfare on the Way?

Politico headline from today: “Qualcomm exec calls for small-business research funding.”

Alternative headline: “Businessman asks government to give money to businesses.”

Government should not give money to private businesses, period. Businesses should compete in the marketplace, not Washington. There is a lot of money to be made by selling people things they want. Companies that do a good job of that deserve every cent they earn.

Subsidies are not earned. Nor are they given to companies make things people want. Companies already doing that don’t need handouts. In short, corporate welfare is allocated by politics instead of economics.

What Mr. Jacobs is asking for would be a boon for lobbyists and politically favored businesses. But it would be a drag on everyone else. And not only because they would be paying for the handouts. Lost innovations are part of the price. The money spent on corporate welfare is money not spent on more worthy projects.

See also Wayne Crews and I on corporate welfare in the new edition of CEI’s Agenda for Congress.

Antitrust as Corporate Welfare for Aggrieved Competitors

Wayne Crews and I have an article in today’s American Spectator about the antitrust crusade against Intel. Our key points:

-An FTC picking winners and losers is not capitalism. It is crony capitalism.

-Chips in “Wintel” desktop computers increasingly constitute just one subset of a vast semiconductor market. Only a small fraction of the chips in non-PC devices are Intel’s — and these devices are where the future lies.

-Regulators’ charges against Intel have changed over the years, but their verdict always remains the same: guilty. Suspicious.

-We’d be better off prosecuting the DOJ and the FTC for colluding against free enterprise.