Regulatory policy

Corporate Socialism: How Federal Policy Moved From Regulating Big Business to Heavy Subsidies

The Clean Air Act of 1970 authorized the government to regulate air pollution. The Cut Inflation Act, which Joe Biden signed into law last week, allocates more than $300 billion for energy and climate reform, including $30 billion in subsidies to solar panel and wind turbine makers.

Notice the difference? The Cut Inflation Act is an important step towards slowing or reversing the climate crisis. It also illustrates the nation’s shift from regulating business to subsidizing business.

From 1932 until the late 1970s, the government mainly regulated businesses. It was the era of the alphabet soup of regulatory agencies begun under Franklin D. Roosevelt – the SEC, ICC, FCC, CAB, etc. – culminating with the 1970 EPA.

The government still regulates corporations, of course, but the most important thing the federal government does now with corporations is subsidize them.

Consider Joe Biden’s greatest first-term accomplishments: The Chip Act and Science – with $52 billion in subsidies to semiconductor companies, plus another $24 billion in manufacturing tax credits) ; the Infrastructure Investment and Jobs Act – $550 billion in new spending on railroads, broadband, and the power grid, among others; and now the Inflation Reduction Act.

This shift from regulation to subsidy has characterized all recent administrations. Trump’s Operation Warp Speed ​​provided $10 billion in subsidies to Covid vaccine makers.

Obama’s Affordable Care Act subsidized the health and pharmacy industries – indirectly, through massive subsidies to purchasers of health care and pharmaceuticals. And Obama spent an estimated $489 billion to bail out the financial sector — and, notably, never fully reinstated financial regulations that previous administrations had repealed, as well as GM and Chrysler.

Before the 1980s, the United States would have done all of this differently. Instead of subsidizing broadband, semiconductors, energy companies, vaccine makers, healthcare and pharmaceutical companies, and the financial industry, we would have regulated them — forcing them to act in various ways.

If this regulatory alternative seems far-fetched today, it is because of the path traveled from the regulatory state of the 1930s to the 1970s, to the granting state of the 1980s.

Why the big change? Due to the shift in the balance of power between big business and government.

Today, it is politically difficult, if not impossible, for government to require corporations (and their shareholders) to bear the costs of public goods. The government should bribe them instead.

I saw this first hand. Bill Clinton’s health plan was blocked by the pharmaceutical and health industries, which should have sacrificed some benefits.

In contrast, Obama got the Affordable Care Act by paying these industries — while guaranteeing them bigger profits through a massive influx of newly subsidized customers. Corporate spending on lobbying has grown from $1.44 billion in 1999 to $3.77 billion in 2021 and is expected to exceed $4 billion this year.

This tidal wave of corporate money has come at the same time that America’s big business has gone global, to the point that many are able to pit the United States against other nations – demanding government subsidies in exchange of job creation and their cutting-edge research. in America.

The new chip law shows how powerful and highly profitable semiconductor makers such as US-based Intel can squeeze billions of dollars out of a global crisis over where they will manufacture semiconductor chips. drivers.

In the 1980s, yours truly was embroiled in a national debate over “industrial policy”. The question, put simply, was whether the government should subsidize certain industries that generate important social benefits in the form of new technologies.

I argued that the government was already engaged in hidden industrial policy, disguised, for example, as subsidies to the aerospace and telecommunications industries by the Department of Defense and to the pharmaceutical industry by the National Institutes of Health. It would be much better to do industrial policy in the open, so that the public can assess what it is paying for and what it is getting in return.

Opponents, which included just about every Republican, were outraged at the very idea that the government should “meddle” in their blessed free market.

Today’s grants are much larger and even supported by Republicans. Republican Senator John Cornyn, advocating for the Chip Act, said, “What we’re doing is industrial policy unlike what people in my liberal background have done before.”

In truth, the three-decade-long shift of power to big business has turned industrial policy into a system to bribe them to do the kinds of things the government once demanded they do as a price for being part of the American system. .