THE BIG HANDOUT
How U.S. subsidies and corporate welfare corrupt the world we live in and wreak havoc on our food bills
Thomas Kostigen, Scribe, 288pp.
Reviewed: 21 July 2012
Nobody spruiks the principles of Free Trade more strenuously than the United States, but this book tells us the home of free market economics does not practice what it preaches. Thomas Kostigen describes an economy characterized by production subsidies and discriminatory tax breaks that make nonsense of free market principles, and that make US arguments for global Free Trade seem hypocritical.
Worse than that, he asserts that American exports of subsidized wheat, cotton and rice are destroying the domestic economies of developing countries, thus contributing to anti-American sentiment and even terrorism.
It all points to the great anomaly of electoral democracy. The more a government is beholden to the electorate, the easier it is for sectional interests to demand special privileges or protections in return for electoral support. With congressional elections every two years, the USA is never out of election mode. The few politicians who dare to resist the loud, ruthless and well-funded lobbyists are outvoted by those who dare not.
The result is astonishing levels of subsidy, most of it captured by large agribusiness, chemical and oil corporations rather than the traditional family farms that now make up less than five percent of American rural production.
Kostigen, a journalist by profession, wants American readers to be outraged about how much they are paying in taxes – generally a soft target. In these times of trillion-dollar US budget deficits, he could have made more of the fact that these subsidies are funded from a national debt borrowed largely from China.
Whether from belief or to appeal to an inward-looking readership, he argues purely on the grounds of American self-interest, with no suggestion of America’s global responsibility as “leader of the Free World”. Rather, he complains that the decline in the US dollar exchange rate has led to “Times Square rotten with foreigners”. I took that personally.
There are chapters on eleven key industries from corn through to steel, via livestock, fisheries, and energy. From a daunting litany of largesse, some examples stick out: $2.25 million dollars per day to the dairy industry, $3billion per year for beef exports, $5 billion per year for corn. There’s a total of $200 billion per year in direct and indirect subsidies to agricultural production. And that does not count the additional price effects of protective tariffs such as on sugar (150%), nor the fraudulent price rises engineered by Wall Street commodity futures traders corrupting the supposedly “free” market on a global scale.
The breadth of this structural problem in the American economy is reflected in an unusual left-right coalition of its critics. Kostigen identifies himself as “left liberal”. He does not argue like an economist, but as an empirical populist. He visits supermarkets and small farms for colorful anecdotes. He devotes chapters to environmental issues and to the health and welfare implications of America’s population becoming a human feed-lot, stuffed to obesity on High Fructose Corn Syrup (half the price of cane sugar) and chemically-enhanced, genetically-modified animal fats.
Despite this greenish tinge, Kostigen’s principle research sources are a roll-call of America’s conservative free-market think-tanks: the Cato Institute, the Heritage Foundation, the American Enterprise Institute and others. An informal grouping, the Alliance for Sensible Agricultural Policies, had brought together American free-market lobbies with welfare and environment groups such as Oxfam, church groups and the Environmental Defense Fund.
In 2008 this group worked, mostly behind the scenes, to coordinate resistance to the pressure of agribusiness lobbies in negotiation of the annual US Farm Bill, by which Congress allocates the loot. They were comprehensively trounced, once push came to shove in the Congressional committees. Too many sympathetic congressmen believed they would lose their seats if they tackled the issue. Another Farm Bill is due later this year, and the same results are to be expected.
Sadly, books like this usually fade when the time comes to propose a solution. Free-marketeers want simply to cut all subsidies and leave all outcomes to the “invisible hand” of market forces. Social activists want governments to cut subsidies and redistribute resources to the needy, however they define them.
Kostigen seems to side more with the lefties, who want subsidy funds redirected to support for “family farm” agriculture and environmental restoration. But since subsidies are currently funded by budget deficit, are there any real funds to redistribute?
This book is better on the politics than on the economics. Unpicking webs of entrenched subsidies is complex, even in a dictatorship. In a democracy, it is a nightmare, as Australian experience shows in both agricultural and industrial sectors. If any sector is targeted, Parliament House and its Press Gallery resound with unearthly screams. The issues go well beyond mere political compromise or opportunism. Real livelihoods may be immediately affected. Long-term national interest is much harder to sell and will always be contested, but can not be ignored.
The best of Kostigen’s recommendations is the simplest: to ensure maximum transparency as to who gets what from the public resource. The merits can then be debated openly and, hopefully, subject to an informed vote.
For this Australian edition, Kostigen has added a preface praising Australia and New Zealand for our relatively pure records on subsidies and free market access. The lesson for us is to look very skeptically at promises of “Free Trade” held out by those less able or less willing to deliver, in the real market, on what they might seem to offer.
Richard Thwaites is scarred by several years’ participation in Australia’s international trade liberalization negotiations.