How Corporate Welfare Undermines Real Free Enterprise

The expiration and subsequent renewal of the Export-Import Bank’s charter last year served as a reminder that cronyism can take many forms, and the fight is far from over. While those on the right typically oppose the pro-union, anti-business sentiments of the left, some prioritize shortsighted policies that appear to undermine free-market principles and long-term reform. Such complexities beg the question: Is being pro-business the same as being pro-market? To find an answer, the Charles Koch Institute brought together economic experts for a special episode of Bill Frezza’s RealClear Radio Hour at CPAC.

Matthew Mitchell, director of the Project for the Study of American Capitalism at the Mercatus Center, started the discussion by taking practitioners of corporate welfare to task. “The strongest enemies [of] free-market capitalists are crony capitalists,” he said. Entrepreneurs and businesses inherently want to succeed, and once they do, they want to reduce competition, which often comes from government handouts, Mitchell argued.

Mitchell’s fellow panelists agreed. Alison Fraser, managing director of research and policy at the Charles Koch Institute, explained that local governments often compete for new businesses by offering tax credits and other subsidies rather than by working towards making the economic climate more market-friendly for all participants. For those looking to succeed in the marketplace, “it’s one of the most frustrating things,” Fraser noted.

While such government intervention may look appealing in the short term, it carries large economic implications in the long term, added Tim Carney, columnist for the Washington Examiner: “The biggest expansions of government were done at the request of big business.” As for why corporate welfare often goes unaddressed in the national economic conversation, Carney pointed to the difficulty in recognizing it. “The costs are in the distortions,” he said, “and it’s almost impossible to see.”

 

“When the government makes a mistake or bets wrong, we have to clean it up. Where is the constituency to deal with crony capitalism? Has anyone paid a political price?” asked Peter Schweizer, president of the Government Accountability Institute. “I think this is an enormous problem. The 2008 bailout is not an anomaly that had never occurred before. The financial system [is] a situation where you really don’t have a free market.”

Many of the panelists had similar takes on the 2008 bailout. Mitchell argued that when the government interferes in the market, businesses have an “incentive to make decisions that make bailouts a self-fulfilling prophecy.” Added Fraser, “And then [the federal government] bailed out the auto industry. What does that have to do with banking?”

The panelists were not just there to criticize, though. They came prepared with potential solutions to the pervasiveness of cronyism in America. For Tim Carney, one path is to “maximize the reputational cost of being a crony capitalist. … The worst thing for a lobbyist is someone who stands on principle.” Carney also noted that occupational licensing regulations could be reformed to remove barriers to economic opportunity, arguing that many licensing requirements acutely limit consumer choice and provide obstacles for those seeking to enter a variety of professions.

“We could use a lot more sunshine and a lot more transparency” about these local “economic development” deals, Fraser added.

Do your research interests include studying the effects of cronyism and corporate welfare on economic opportunity? The Charles Koch Foundation has an ongoing Request for Proposals to support such research via grant opportunities.

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