Monday, September 27

Do crony handouts have a stranglehold on the GOP?

From Burt Folsom: Where history, money, and politics collide.

Do Crony Handouts Have a Stranglehold on the GOP?

By Burton Folsom & Blaine McCormick

Guess which American president said this: “We must continue changing the way America generates electric power by even greater use of clean-coal technology; solar and wind energy; and clean, safe nuclear power. We need to press on with battery research for plug-in and hybrid vehicles and expand the use of clean-diesel vehicles and biodiesel fuel. We must continue investing in new methods of producing ethanol. …”

Not Barack Obama, but George W. Bush in his 2007 State of the Union Address. In that speech, Bush went on to recommend cutting the use of gasoline and also setting “mandatory fuel standards to require 35 billion gallons of renewable and alternate fuels in 2017.” What message did this send to corporations? Line up for government subsidies if you produce this “new” energy.

From 2000-2012, according to Heritage Foundation, Fortune’s top 100 corporations splurged at the trough for $1.2 trillion in federal subsidies. According to economist Stephen Moore, “If Republicans are going to get truly serious about cutting government spending, they are going to have to snip the umbilical cord from the Treasury to corporate America.”

That will be a challenge because the Republican Party, from its beginning, has been a party of corporate welfare. In the 1850s, Republicans, led by Senator William Seward, backed huge steamship subsidies to Edward Collins, who misused them and went broke by the end of the decade.

When Abraham Lincoln became the first Republican president, he proved to be brilliant on natural rights, but disastrous on corporate subsidies. He promoted what was then the largest corporate subsidy in U.S. history for the Union Pacific and Central Pacific Railroads. A transcontinental railroad, Lincoln (and his Secretary of State William Seward) argued, had to be built, and could only be done by massive federal aid. “If the subsidies provided are not enough to build the railroad,” Lincoln told the Union Pacific, “ask double, and you shall have it.” The Union Pacific, however, joined Collins’s steamship company in a flurry of waste, scandal, and eventual bankruptcy.

Shortly after the failure of the Union Pacific, James J. Hill, with no federal aid, built the Great Northern Railroad from St. Paul to Seattle. Hill’s was the only transcontinental to receive no federal aid, and the only one to be consistently profitable.

From after the Civil War until the Great Depression, the Republicans were the party of high tariffs, which were, in effect, corporate subsidies for national producers. Then, in 1932, in the midst of the Great Depression, President Herbert Hoover prolonged this economic crisis by establishing the Reconstruction Finance Corporation (RFC), which set up a board to bail out select corporations with massive federal subsidies. Those corporations deemed “too big to fail” were often run by Republicans.

Turnabout was fair play when the Democrats won the White House. Republicans were aghast when FDR and Truman used the RFC to help Democrats. So when Eisenhower became president in 1953, the Republicans abolished the RFC, and instead created the Small Business Administration–which funneled federal subsidies mainly to Republican small businessmen.

In the last forty years, Republican presidents from Richard Nixon to George W. Bush have opened the federal Treasury to their corporate friends. In one of the worst cases, Dwayne Andreas, president of Archer Daniels Midland, showered Republicans and Democrats alike with campaign contributions in return for federal aid for ethanol. In 1972, for example, Andreas secretly gave 1000 $100 bills to Richard Nixon to help him get re-elected. Even after that, Senator Bob Dole, the Republican nominee in 1996, labelled himself “Senator Ethanol.”

Here’s the big news: the Tea Party influence on the Republican Party may be challenging its direction. More Republicans than ever before are opposing corporate subsidies. In 2011, Senator Tom Coburn (R-Oklahoma) led a successful Republican attack that ended the ethanol tax credit and tariff.

Republican Mitch McConnell, Senate minority leader, has not only fought against ethanol subsidies, but in 2012 he led twenty other courageous Republicans to oppose renewing funding for he Export-Import Bank, perhaps the greatest source of corporate subsidies (through guaranteed loans) in America today. McConnell lost, but the Export-Import Bank is up for renewal in 2014. If Republicans can abolish the Export-Import Bank in 2014, they will be on their way to transforming their party’s history–and maybe beginning the process of saving their country from drowning in debt.

Burton Folsom is professor of history at Hillsdale College and author (with his wife Anita Folsom) of Uncle Sam Can’t Count: A History of Failed Government Investments, from Beaver Pelts to Green Energy. Blaine McCormick is management professor at the Hankamer School of Business at Baylor University.