Americans don’t like when the government tips the scales for a favored person or corporation.
At The American Conservative, Alison Acosta Winters, a Senior Research Fellow in Economic Freedom at the Charles Koch Institute, reminds Americans that the Boston Tea Party was a response not to a tax hike on tea, but to a tax cut for only one favored company, the East India Company. The British government wanted the East India Company to succeed, so it gave the company an exclusive tax break.
Needless to say, other tea importers were not pleased.
Acosta Winters writes that crony capitalism, also known as corporate welfare, is alive and well. She lists the three most common ways such policies are implemented.
- Financial Support, which includes direct subsidies, loans, loan guarantees, and tax incentives.
- Regulatory Preference, including various regulatory protections against competition.
- Protectionism, which includes tariffs and regulatory barriers.
Acosta Winters gives examples of how each of these techniques is used in America today.
The unavoidable reality in all this is that, while this preferential treatment helps the wealthy and well-connected, it harms everyone else. That’s why Trump’s fiery declaration that the system is rigged generated so much resonance among so many voters in 2016. But the tendency for the well-connected to seek government privilege, and for politicians to grant it, has deep roots. As technological innovation continues to drive tremendous and exciting change, some firms and industries will falter in the innovation challenge and will inevitably fail. There is already significant pressure on lawmakers for more corporate welfare to both protect existing industries from disruptive competition and to create jobs in emerging industries. Perhaps this means the cozy crony relationship will grow in our political culture.
But perhaps not. Just as the colonists rejected special treatment for the East India Company’s tea imports, Congress and the American public have rejected other harmful corporate welfare schemes throughout history. Today’s public sentiment that the system is rigged provides a big opportunity for a broad assault on corporate welfare. Failure to capitalize on that opportunity would constitute a fundamental loss for America’s economy and its citizens.
Read more here.