The New Deal’s Legacy of Corporate Welfare

The Export-Import Bank’s charter finally expired on June 30th. Ever since it was created during the New Deal, the Ex-Im Bank has supported exports by American corporations, all at taxpayer expense.

The top recipients of Ex-Im Bank subsidies were big corporations, with the war-profiteers at Boeing receiving more Ex-Im largess than any other company.

The Ex-Im Bank wasn’t the only New Deal program to suffer a major defeat in June. On June 22nd, farmer Marvin Horne triumphed at the Supreme Court against one of the most comically cronyist New Deal relics around: the Raisin Administrative Committee.

The Raisin Administrative Committee claimed the power to take 47 percent of Marvin Horne’s raisins without compensation. Horne argued that this was an uncompensated taking of property and thus violated the Fifth Amendment’s takings clause. Eight Supreme Court justices agreed.

The Raisin Administrative Committee’s entire purpose is to protect entrenched business interests. As Cato’s Trevor Burrus explains, “The RAC is a group of 46 raisin growers and packers (and one “member of the public”)” that regularly meets to “decide how many raisins they must take off the market in order to keep the price of raisins artificially high.”

Mainstream progressives tell us that the New Deal was a victory for the working class and the public interest. But New Deal corporate welfare programs like the Ex-Im Bank and the Raisin Administrative Committee certainly don’t benefit the general public.

Instead, these corporate welfare programs illustrate the findings of leftist historian Gabriel Kolko. He argued that “progressive” reforms, including the New Deal, “embodied the principle that government sanctions are used to back private power in specific industries, meaning generally the biggest firms in the industries involved.” To Kolko, progressive reforms were not victories for the working class or for idealistic reformers, but for big business interests.

Today, those business interests aggressively defend the privileges they’ve secured through state power. For example, the Chamber of Commerce praises the Ex-Im Bank, arguing that export subsidies “create U.S. jobs and grow the American economy.”

Economist Veronique de Rugy points out that the job numbers often cited by Ex-Im proponents are based on sloppy methodology, “and have been roundly criticized as misleading by the Government Accountability Office, among others.” Moreover, she notes that “export subsidies do not ‘create’ or ‘support’ jobs—they redistribute them from unsubsidized firms to subsidized ones.” These subsidies do not benefit working people in general. Instead, they benefit privileged corporate interests.

Whenever they have the opportunity, businesses will gladly use state power to suppress their competitors and line their pockets with taxpayer money. And they all too often justify this legal plunder through disingenuous appeals to the public interest. Such slimy alliances between business and government are not unique to the New Deal.

Gabriel Kolko documented these perverse cases of corporate-state collusion in two books. Kolko’s book Railroads and Regulation documented how the railroad industry supported political interventions for their own benefit between 1877 and 1916. In The Triumph of Conservatism, he similarly argued that business interests played a key role in promoting Progressive Era reforms between 1900 and 1916.

But even during America’s early history, often falsely portrayed as an era of laissez-faire, government used its power to protect business interests. For example, the U.S. government imposed tariffs beginning with the Tariff Act of 1789. Tariffs raised prices for consumers while protecting businesses from international competition.

As Adam Smith noted, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Government provides the most effective mechanism for business interests to carry out such anti-social actions. Since government and business often collude under public spirited pretexts, all state intervention should be subjected to skeptical scrutiny, no matter how progressive its proponents sound.

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory