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Issue #1752      October 12, 2016

Taking issue – Rob Gowland

Case study in Corporate Welfare

When capitalism was young, merchants and cashed-up landowners used their surplus capital to outfit ships to sail to the New World to share in plundering its gold. Later, they sent their ships to the spice islands of the Orient to bring back cargoes as valuable as gold.

This influx of gold and expensive trade goods saw capital itself begin to replace land as the measure of wealth. The transition from feudalism to capitalism had begun. As the industrial revolution developed, the possessors of this new wealth sought to increase their holdings by exploiting the money-making potential of the new inventions and scientific discoveries that distinguished the age. The products of the new mines and mills needed to reach their markets so canny investors put up the money to build, initially canals, then railways.

They soon realised, however, that manufacturing the goods to be transported was potentially much more profitable. And so it remained for the next hundred years or so while capitalism exhausted the possibilities for investing its profits at home and had to seek foreign outlets for them instead. The age of economic imperialism had arrived.

There followed a century of unprecedented wars for colonies and markets, followed by national liberation struggles plus revolutionary and counter-revolutionary struggles and the flight of manufacturing from developed capitalist countries to low-wage economies concentrating on assembly.

As manufacturing shut down in developed countries, jobs disappeared by the thousand. Manufacturing in low-wage countries, by definition, cannot generate adequate income to replace that which has been lost. Low-paid workers cannot hope to buy everything they produce. The result is a crisis of overproduction and such crises have become endemic and constant.

Capitalism is in deep trouble. The richest capitalist country, the USA, is beset by poverty, homelessness (even among people with jobs) and despair. So universal is this feeling of crisis that Presidential hopeful – and fascist demagogue – Donald Trump has campaigned successfully on a promise to “make America great again”, an admission that the country has well and truly fallen off its pedestal, as if such an admission of national failure was actually needed.

So how do the USA’s capitalists hope to revive their country’s economic fortunes (both figuratively and literally)? The more predatory elements of the US corporate state wage war against the global environment and against any government that does not accept their diktat. In the face of overwhelming scientific evidence, they persist in promoting the use of fossil fuels and, in the quest for short term profits, happily drill for oil and gas in such sensitive areas as the Gulf of Mexico and the Arctic.

They foment wars to disrupt the supply of oil and gas to their competitors in Europe and they especially seek to disrupt the economies of their main social and economic rivals, Russia and China. Russia is supplying China with massive quantities of oil and both countries are economic allies of another US target, oil-rich Iran.

The network of pipelines that delivers Russian oil and gas to Europe goes through Ukraine. A massive intelligence operation was launched to destabilise Ukraine, using street fighters brought in from as far afield as Chechnya and Israel, accompanied by intense US diplomatic pressure, all staged for the benefit of the international capitalist media.

The coup in Ukraine was successful, ousting the elected government and installing an openly fascist stooge of the US. The other major source of oil and gas for Europe is Iran but the planned pipeline to bring it would pass through Syria. US efforts to overthrow the government of Bashar al-Assad in Syria are in part intended to frustrate attempts to build this oil pipeline or at least to bring it under US control.

The USA developed its manufacturing capacity in the 19th century and expanded it greatly in the 20th century, especially during WW1 and WW2, when – unlike its European rivals – it was spared the disaster of invasion while supplying vast amounts of arms and materiel to the Allies. Today, however, the larger US companies engaged in manufacturing are desperately trying to cut their costs, seeking to transfer their operations to a low-wage country so they can boost their profits at the expense of their laid off American workers.

US politicians at national, state and municipal levels are painfully aware that the country cannot continue to shed jobs at the rate it has been if they want to sustain their economy and avoid turning the USA into a massive rusting ghost town. They need to attract enterprises to their locality that will generate new jobs if they are to prevent their populations from revolting.

So desperate are they to attract these businesses that they are offering what amount to huge bribes to any corporation that will only come and set up in their town. In 2008, to get German auto giant Volkswagen (VW) to set up in Chattanooga, Tennessee, the city and state administrations arranged to provide VW with a trifling US$577 million subsidy package, “the largest taxpayer handout ever given to a foreign-headquartered automaker in US history” (– Chris Brooks, Dollars & Sense).

As Brooks points out, “According to the Subsidy Tracker at the website of watchdog group Good Jobs First, the package provided to VW included ‘$229 million from the state for training costs and infrastructure; $86 million in land and site improvements from the city and the county; state tax credits worth $106 million over 30 years; and local tax abatements worth $133 million over the same period’.”

That’s a hell of a subsidy, I hear you say? Wait, it gets worse – much worse. As Brooks explains: “In exchange for this massive infusion of public wealth onto Volkswagen’s corporate balance sheets, the company promised to create 2,000 jobs in Chattanooga, bringing the price tag for each promised job to $288,500.” WHAT!? Keep the job, just gimme the money!

Was Tennessee’s willingness to cough up a ginormous subsidy the only reason VW decided to set up shop in the state? Not entirely, no. A referendum in 2014 decided to forbid the state from ever establishing a payroll tax and Brooks notes that “earlier this year the state legislature passed a bill to phase out the state’s tax on dividends and income from bonds by 2022”. This largesse on the part of Tennessee towards corporations coming into the region resulted in millions of dollars in tax revenue being stripped from city budgets. The inevitable consequences are cuts in services and higher charges, both impacting hardest on the working class.

Almost the sole source of revenue for the Tennessee state government is sales tax. The primary form of wealth for the working and middle classes – a family home – is taxed to provide revenue for local government while major forms of wealth for the ruling class – corporate stocks and bonds – are not. Similarly, essentials like groceries are subject to sales tax while luxury goods such as “attorneys’ fees, services such as haircuts and massages, and goods for horses and airplanes” are exempt!

As Brooks notes, “this regressive system is compounded with every tax abatement given to a large multinational corporation, such as Volkswagen. When the state increases its reliance on sales taxes to offset the holes punched into the budget by corporate tax breaks, this increases the overall tax burden on the poor and working class. The only other option to raising revenue through regressive taxes is for the state to cut services. Cuts to services, such as healthcare, public education, infrastructure, and transportation, are just another way to shift the burden onto the working class.”

The policy of in effect bribing large corporations to set up shop in Chattanooga may have given state and city politicians something to brag about when seeking re-election, but in fact it has done nothing to help the working people of Tennessee. “Currently, 27% of Chattanoogans overall live in poverty, almost double the national average, and that number jumps to 36% in the city’s Black community. ... According to the 2015 report State of Black Chattanooga, by the Ochs Centre for Metropolitan Studies, the median wealth of white households in Tennessee ... increased by 2.4% between 2010 and 2013, to $141,900. Contrast that with the median wealth of Black households in the state, which continued to spiral down in the same time period, falling more than 33% to $11,000.”

With tax breaks, subsidies and other generous handouts of public money, it is no wonder that, in Brooks’s words, “the arrival of Volkswagen, [and other large companies like] Wacker and Amazon has failed to fundamentally alter the overall low-wage economy in Chattanooga ... In the 11 lowest-income neighbourhoods in the city, in which about three-quarters of residents identify as Black, the poverty rate is 64%.”

Corporate welfare is no solution to their problems. By diverting money away from the poor where it is needed, it in fact makes the situation worse. But that’s capitalism for you!

Next article – Q&A on a heating planet

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