Chief Executive Magazine, June 1996

In a 1994 speech, U.S. Secretary of Labor Robert Reich coined the term "corporate welfare." Like "welfare quhrase, popping up in both the mainstream and financiaeen" and "quota queen," it quickly became a household phrase, popping up in both the mainstream and financial press.

It was an issue on which the big-government left and the pro-business right could agree. Both the left-leaning Progressive Policy Institute and the free-market Cato Institute produced studies identifying business subsidies that should be eliminated. The Cato study, which rejected PPI's classification of tax relief as corporate welfare, identified more than 125 federal programs that subsidize business at a cost of more than $85 billion per year.

Programs on Cato's hit list included:

Sematech, a consortium of large U.S. computer microchip producers to which the Pentagon provides an annual subsidy of nearly $100 million.

Sugar price supports, from which the largest 1 percent of sugar farmers claim an estimated 40 percent of the annual $1.4 billion subsidy.

The Rural Electrification Administration and the federal power marketing administration, which, among other things, subsidize profitable utilities and luxurious ski resorts.

The Department of Agriculture's Market Promotion Program, which spends $110 million annually underwriting the international advertising of such products as Sunkist oranges and McDonald's Chicken McNuggets.

Such programs would seem to be easy targets in a year in which deficit reduction took center stage. But unlike analysts, politicians-whose livelihoods depend on a steady stream of cash from interests of all kinds-agree that cutting programs is too politically risky.

"Eighty-five percent of the corporate welfare safety net survived the 1995 process intact," a disappointed Stephen Moore, director of fiscal policy studies at the Cato Institute, told Congress in March.

Indeed, while his Secretary of Labor decries business subsidies, President Clinton wants to expand them under the rubric of "public-private partnerships." Clinton's 1997 budget, for example, calls for $300 million a year for the Advanced Technology Program, which funds scientific research and development programs.

T.J. Rodgers, president and CEO of Cypress Semiconductor and an outspoken critic of "techno-pork," debunks the ivory-tower view of government-iindustry partnership. "What does the word 'partnership' mean?" Rodgers asked in recent congressional testimony. "It means, 'If you give me free money, I will be your partner and political contributor.' Or: 'If you support my election, I will be your partner and pay for your Data Highway.'" 'Public-private partnership means, "give me money, and I'll contribute to your campaign.'" Taxpayers should grab for their wallets every time they hear politicians extolling the virtues of public-private endeavors. "Almost all the available studies suggest that rates of return on privately financed R&D are much higher than those on publicly funded R&D," says M. Ishaq Nadiri, an economist at New York University. "For privately financed R&D, the rates of return range between 27 percent and 60 percent, while those for publicly financed R&D are often insignificant oor negative." Why do businesses that otherwise support the free market flock to the government trough? Two reasons: Because they can. Because they are suckers if they don't and their competitors do. If T.J. Rodgers is right that "corporate welfare burdens successful companies and individuals with higher taxes and interest rates," then we all have a stake in ending egregious subsidies. As the Cato Institute's Moore notes, many of these subsidies undermine the moral justification for a free economy.

The only answer is radically changing public policy. Richard Mahoney, former chairman and CEO of chemical company Monsanto who is currently at the Center for the Study of American Business at Washington University in St. Louis, believes businesses will accede to as a whole what is illogical for them to accede to as individuals."If there was a will to limit corporate subsidies, and it became accepted public policy, no one would dare raise their heads, and over time they would become accommodated to it," he says.

Mahoney brings up another point: "If we are going to label government redistribution welfare, then we might as well get it all. What about the Davis-Bacon Act, which is labor welfare?" he asks. "According to Sec. Reich, anytime you take from someone and give it to someone else, that's welfare. That's what governments have done since the beginning of time."

Yet another good argument for limiting the power, which means the budget, of government. That's something upon which the business community, if not Robert Reich, is sure to agree.