Recently read in the paper that cotton farmers want the current one-year cotton subsidy made permanent, to make that commodity competitive with other countries’ prices.
We know our government “subsidizes” many commodities, and often complain about “corporate welfare.” But what are subsidies? It’s complicated. The World Trade Organization defines these types: Cash subsidies, tax concessions, assumption of risk (loan guarantees), and government price supports.
And it’s not a bad thing. Our farmers and manufacturers should be able to sell their products worldwide in a fair market, and if other countries heavily subsidize their producers we should also. What bothers me is that while our political conservatives contend government should get off the proverbial backs of businesses and that free market forces will prevail, they should know that there is no such thing as “free enterprise,” and they definitely want government support and intervention at national, state, and local levels.
Many subsidies began with good intentions at a time when the situation demanded attention, but times and situations change. Crop supports began with the Great Depression and the Dust Bowl of the 1930s, but with current computerization, equipment, water control, satellite imagery and new fertilizers, continuing need is questionable. Economics of scale have also changed, with consolidating corporations replacing small family-owned farms. Consequently, 74 percent of about $12 billion in farm subsidies went to just 4 percent of the businesses in 2012.
MORE opinion: After the coup by the press, what then?
Example: In 1916 drilling for oil was risky; exploration costs were high and poor results common. To encourage drilling “intangible drilling costs” could be written off. Today dry holes are rare, but the subsidy remains costing the taxpayers over $3 billion a year. When oil was $15 a barrel and war effort needed oil the feds allowed companies to drill on federal lands without payment; this subsidy alone deprived the taxpayers of a reported $50 billion in revenues while oil prices climbed to over $100 per barrel.
Regardless of continuing need, all product-businesses have industry groups, and their highly paid lobbyists constantly woo legislators and regulators. Not surprisingly, agribusinesses and big oil are major contributors to political campaigns.
In the clamor for “job creation” another form of subsidy is being used: tax concessions. Concessions are getting so out of hand that they may take decades to recoup even if promises are kept. Again, good intentions but a seeming lack of evaluation.
In our Ohio, House and Senate leaders reportedly resisted even launching a “Tax Expenditure Review Committee” which is required at least every eight years, with $9 billion in need of review.
Two current examples: Our Fuyao Glass Co. (China) is receiving about $12 million in state and local concessions, promising 800 jobs and payroll of $33 million. Even larger, Foxconn (Taiwan) in Wisconsin is expected to enjoy $2 billion in state concessions, with a projected employment of 3,000 and payroll of $159 million with “potential to grow.” Time will tell.
Bottom line: I learned that subsidies can help us compete and keep us employed. But even if well-intentioned, subsidies need careful application, continual evaluation, resistance to one-dimensional lobbyists, and independence from politics (this last may be wishful thinking).
David Shumway is one of our regular community contributors.