Multinational Monitor

SEP/OCT 2006
VOL 27 No. 5


Greasing the Deal: A Royalty Scam
by Mandy Smithberger

Not Very Sporting: Outdoor Sporting Goods Retail Subsidy Scam
by Greg LeRoy

Relocation Racket: How Relocation Consultants Pit Cities and States Against Each Other
by Greg LeRoy

South Africa Embraces Corporate Welfare: Mega Deal Subsidies Over Services for the Poor
by Patrick Bond

The Corporate Beneficiaries of the Medicare Drug Benefit
by Dean Baker

Public Funds Up in Flames: The Incineration Industry Seeks Renewable Energy Subsidies
by Monica Wilson

Green Mountain's Other Faces: The Dirty Side of Clean Energy
by Andrew Wheat


The Big Box Swindle: The True Cost of the Mega-Retailers
an interview with Stacy Mitchell


Behind the Lines

Letter to the Editor

The State of Corporate Welfare

The Front
Climate Changing Africa -- African Inequality

The Lawrence Summers Memorial Award

Book Note
The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer

Names In the News



The State of Coporate Welfare

A decade ago in Washington, D.C., there was an interesting left-right coalition working to eliminate, or at least reduce, corporate welfare. This brought together Ralph Nader and Grover Norquist, Friends of the Earth and the Cato Institute.

From the left end of the spectrum, progressives fumed about the rip-off of public monies and public assets, and highlighted the ways that many corporate welfare programs damaged the environment. As this issue of Multinational Monitor exhibits, those problems persist — indeed, they have worsened dramatically.

Some conservatives were willing to criticize corporate welfare, either because they were legitimately concerned about husbanding taxpayer money, or because libertarian or corporatist commitments led them to oppose government expenditures.

It is entirely possible that the left-right coalition against corporate welfare can be revitalized, and perhaps this time around, score some victories.

But now a new form of corporate welfare has evolved. It is not likely to be amenable to left-right fixes. What also remains unclear is whether the Democrats are ready to tackle it.

The Reinventing Government initiative that began under the initiative of former Vice President Al Gore was dangerous enough at the time. That initiative involved the downsizing of the federal workforce, and increased contracting out of government jobs.

Under the Bush regime, however, contracting out has mutated out of control. Under the Bush administration, federal contracts have almost doubled, to $400 billion a year. $400 billion!

Although the rationale for these contracts is that the competitive marketplace — read: corporations — is more efficient than government, now more than half of the contracts are awarded without a competitive, open-bidding process, according to a New York Times analysis.

These contracts are replete with waste and fraud. The most prominent examples include the utter failure of contractors to deliver reconstruction in Iraq or New Orleans. Instead, we have seemingly endless stories of rip-offs large and small: the U.S. Army agreeing to pay Halliburton’s KBR subsidiary nearly $2 billion for work that nobody can prove ever took place; the same company charging $45 for a case of Coca-Cola.

The third prong of what might be considered the triple crown of contracting debacles is the Medicare drug benefit, as Dean Baker documents in this issue. Leave aside for the moment the gift to the pharmaceutical industry — worth tens of billions of dollars, or more — and consider the handout to the HMOs and private insurers. In adopting the program, Congress mandated that only private insurers would administer the benefit — in other words, provision of the benefit was contracted out, taken away from Medicare’s efficient administrative system. The Congressional Budget Office concludes this decision will cost the program roughly $4 billion a year.

The contracting welfare mania extends not just in these unusual situations, but into the realm of core governmental functions. Government offices are filled with private contractors, doing roughly the same work as the government employees sitting next to them — but frequently getting paid far more, often for inferior performance and without the commitment to their agencies’ mission. These contractors are involved in activities ranging from tax collection to secretarial work, from Park Service archaeology to the actual oversight of contracts. Often, they mishandle their duties to enable further corporate swindles — facilitating corporate takings of publicly owned natural resources, for example, or further crony contracts (since contractors are often hired to determine whether governmental functions should be contracted out, and how).

A 2004 study report by the Office of Management and Budget, a White House oversight agency with authority over budgetary and procurement matters, found that government employees outcompete corporate contractors on efficiency grounds 90 percent of the time. The contractors’ response: such an uneven result can only mean they are not being permitted to compete fairly!

In fact, the opposite is true: corporate cronies are receiving contracts without regard to efficiency, or in spite of demonstrably inferior performance.

Like most things in Washington, this is a problem that can be fixed — if there is political will. Legislation expected to be reintroduced by Senator Byron Dorgan, D-North Dakota, and Representative Henry Waxman, D-California, would go a long way to address systematic corruption problems in contracting. Legislation introduced in previous Congresses also laid out a sensible approach to contracting in general — requiring reviews of outsourced government jobs, and renewed competition with government workers when contractors failed to deliver promised cost savings, among other provisions.

It is not likely that a Democratic majority, if it can muster the will to pass such legislation, could overcome a likely Bush veto — though one never knows how politics will unfold. But there is in any case a strong argument for prioritizing this agenda, and deploying the enormous empirical evidence to overwhelm the ideological claim that the market and corporations are more efficient than government.

Just as Grover Norquist gravitated to the corporate welfare issue to make the case for shrinking government, it is now possible, and necessary, to challenge crony contractor welfare — to make the case for restoring government to its proper role.


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