State corporate welfare is undemocratic

April 21, 2022, 8:25 PM UTC
Many states have existing business subsidy programs. Yet when company lobbyists ask for more money, state officials oblige because they want to show they are doing something to help create jobs.
JEFF KOWALSKY - AFP - Getty Images)

Virtually every day, state and city governments violate a basic principle of democracy. They pass laws or enact policies that give a single organization an unfair advantage over everyone else. Worse yet, they typically let the organization dictate the terms.

State handouts to corporations, which cost at least $95 billion a year nationwide, are fundamentally undemocratic, in addition to being ineffective and expensive.

The proof is playing out in every corner of the country. West Virginia policymakers recently voted to create a new selective business program to give an unnamed company $1.7 billion earlier this year. Residents were later told that it was going to be collected by steel producer Nucor. The terms of the deal were negotiated after lawmakers signed non-disclosure agreements.

In Michigan, lawmakers recently authorized a new program to give one billion dollars to mystery companies, some of which got officials to sign a non-disclosure agreement to prevent them from saying who was lobbying for the program. General Motors, which is already the second biggest recipient of corporate handouts in the country according to the Good Jobs First database, was offered the first deal and $666 million in support. Meanwhile, Tennessee passed a new program to land Ford auto plants, in coordination with the business.

Then there’s Kansas. Lawmakers just approved a new business subsidy program to give an unnamed company taxpayer dollars, with the amounts to be determined later, following discussions with the business. Hopefully, voters will eventually find out the name of that company, though it’s far from certain. Other states, such as Colorado, hand out cash to select companies and won’t say who gets it.

All of these states have existing business subsidy programs. Yet when company lobbyists asked for more, state lawmakers bent to the lobbyists’ requests. How do you square that with democracy, which demands that laws equally apply to all? You can’t. Companies are dictating the policies they want, and from state to state and city to city, elected officials are giving in to their demands.

Businesses know exactly what they’re doing. They only ask for more money if they expect lawmakers will give them what they want. If lobbyists expect lawmakers to reject their requests, they are unlikely to make them. Rejection would hurt the company’s other legislative priorities and its reputation. The company could be portrayed as looking for unfair special favors. It could be criticized for costing the state cash needed for important government services. It could be hammered for trying to sell elected officials a bill of goods by treating cash that benefits their narrow private interests as something that benefits the public interest. Obviously, businesses don’t want any of that, but they’ve still found a way to get the government to pass laws that benefit them and no one else.

The calculus for lawmakers is equally straightforward. There are political benefits from showing that they’re doing something about jobs. When these benefits are large enough, our elected officials give the business what it wants. They praise the company and pat themselves on the back. Never mind that corporate handouts have been proven ineffective at creating the promised jobs or boosting the economy. Lawmakers are subverting a basic democratic principle of fairness, and their constituents aren’t even getting anything out of it.

Big companies seem to be changing their lobbying strategies to make it easier for state officials to bend to their will. There was a large negative reaction to Amazon after the company appeared to auction off its second headquarters to the highest bidder. Meanwhile, the companies listed above that received handouts in West Virginia, Kansas, Michigan, and Tennessee didn’t threaten to locate their projects elsewhere. They instead treated their requests for taxpayer cash as a regular practice, with special treatment as par for the course.

It shouldn’t be. States and cities should be prohibited from doling out taxpayer money to specific firms. The best bet to ban this practice is an interstate compact to end corporate handouts. Legislation to that effect has been introduced in 15 states, and as states start to pass it, lawmakers would officially be blocked from giving away the taxpayer’s money to this or that business.

Companies shouldn’t get special treatment from lawmakers–and they definitely shouldn’t be able to write the rules in their own favor. That’s undemocratic, and it needs to end now.

James Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute in Midland, Mich. 

The opinions expressed in Commentary pieces are solely the views of their authors, and do not reflect the opinions and beliefs of Fortune.

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