The Political and Business Institutions as Obstacles to Civilization's Resilience: Part V

This is the fifth installment in an exploration of the ways the Political and Business institutions collude to further their interests at the expense of the rest of Civilization and the biosphere. Here we examine the role of perverse subsidies.

Successful business people are savvy with their money. They do not repeatedly invest in anything, including political campaigns and lobbyists, unless there is a good return. And, indeed, the returns on politicians and lobbyists are phenomenal—far more than the mere few cents on a dollar they can earn from most ventures. Business gets (and sometimes itself writes) legislation that grants them subsidies, tax breaks, deregulation, biofuel mandates, drilling of public land, the continuity of externalities, invasions of sovereign countries, assassinations of heads of state, unacceptable demands at international forums such as in Kyoto, Copenhagen, and Durban, and trade agreements in international organizations such as the WTO and NAFTA that sell out a nation’s citizens to transnational interests.[i] The buying of government by business is a shrewd investment serving their short-term fiscal interests. Simultaneously, it has formed a great obstacle to meaningful environmental and social change for the long-term benefit of all.[ii] 

Subsidies and tax breaks, alone, bring business thousand-fold returns on investment. Subsidies and tax breaks are two strategies that a society uses to pool its resources to promote a desired result. China, Germany, Spain, and Denmark have lavishly subsidized solar energy, and so they are the world’s leaders in manufacturing and use of this inexhaustible energy form.[iii] In Germany’s case, solar has become a major source of energy even though they suffer the constraints of high latitude and frequent rain and cloudiness.[iv] With Obama’s push, American subsidies of solar businesses reached nearly fifteen billion dollars in 2010.[v] Less than one-tenth of what fossil fuels are annually subsidized, but still… a significant step in a nation dominated by the fossil fuel industries.

To distinguish from these sorts of salubrious subsidies, Paul Hawkins and Amory and L. Hunter Lovins speak of “perverse subsidies,” which involve ridiculous sums of corporate welfare: over $400 billion to the fossil fuel industries, $360 billion to farmers, $25 billion to the fishing industry, and $14 billion to the logging industries—each and every year.[vi] Big business has hijacked a strategy meant to benefit society. In what amounts to a massive upward redistribution of wealth, these powerful interests are paid to poison and sterilize our soils, atmosphere, and oceans and to lay waste to the diversity of life. According to the authors of Natural Capital, all of whom are clearly big fans of capitalism itself, “Perverse subsidies… function as disinvestments, leaving the environments and the economy worse off than if the subsidy had never been granted. They inflate the costs of government, add to deficits that in turn raise taxes, and drive out scarce capital from markets where it is needed. They confuse investors by sending distorting signals to markets; they suppress innovation and technological change; they provide incentives for inefficacy and consumption rather than productivity and conservation. They are a powerful form of corporate welfare that benefits the rich and disadvantages the poor.”[vii]  

Among the most perverse are the vast subsidies sucked in by the fossil fuel industry. The sums are inordinate, the arguments for the use of fossil fuels short-sighted and antiquated, and the handouts to the world’s largest corporations unnecessary, even if fossil fuels were a good idea. Even the last vestige of an argument once in their favor—that fossil fuels are cheaper than alternative fuels—has steadily eroded. Even though wind power does not enjoy the lavish government subsidies and pollution and military externalities of conventional fuels, they are still—within that unequal playing field—competitive with oil, coal, and gas. They cost the consumer no more and sometimes less than oil, coal, and gas. [viii] And although energy from photovoltaics still costs several times more than wind and conventional, they too are expected to be competitive by 2020.[ix]

 Yet, when comparing solar to fossil fuels, the message to investors, citizens, and consumers has been that solar technology is still decades away from being a competitive energy source. This message is patently wrong, even when comparing these energy forms in the simplistic logic of economic theory. In the United States, fossil fuels have been subsidized and costs externalized to the tune of fifty billion dollars annually, for decades.[x] Worldwide, subsidies for fossil fuels totaled somewhere between $410 billion and $560 each year from 2008 and 2011.[xi]  Plus, externalized expenses—those not paid for by business such as pollution, health, infrastructure, and military security—cost the planetary citizens another fifty to two-hundred billion dollars every year.[xii] If these were inserted into the equation, economists would likely find wind power and other renewable technologies to be already cheaper than fossil fuels.[xiii] By bringing down the prices of wasteful practices and products, perverse subsidies and externalized costs increase perverse consumption.[xiv]In his book Perverse Subsidies Norman Myers suggests that the bilking is actually far worse than this. U.S. corporations alone, he estimates, suck $2.6 trillion from the government teat every year in subsidies and externalities.[xv] These are perverse subsidies because pollution, war, and the loss of fisheries and habitat cause much suffering and premature death, and because, by being hidden, they distort the information citizens use to make important social decisions.[xvi]

Perhaps even more perverse are the subsidies that go to the big farming businesses, estimated to be $20 billion dollars annually in the United States.[xvii] Sixty percent of these go to the largest ten percent of the farming businesses.[xviii] The twenty-nine OCED countries—basically the industrialized First World nations—pay their farmers more than $350 billion annually, much of it to not grow food.[xix] Meanwhile, three billion people are malnourished and nearly a billion are not eating enough calories to sustain themselves. The investments needed to help the poor feed themselves would cost far less—four to thirty times less, according to various estimates—than these exorbitant handouts to the rich.[xx] 

Subsidies hide the gross flaws of a dysfunctional agricultural system. Most First World farmers do not net a profit from the market value of their produce. To make a living, they must rely on subsidies and on income from working jobs off the farm.[xxi] That is, the only way that First World farmers can now be “competitive” on the world market of subsidized farmers is to be subsidized. Taxpayer money allows these industrial farmers to sell their crops below cost, undercutting the Third World farmers whose countries cannot afford to subsidize their farmers.[xxii] Not only does the big-business model of agriculture destroy and deplete precious land, water, and energy resources, diminish wild and domesticated biodiversity, diminish the quality and variety of foods people eat—that is, it doesn’t make environmental and health sense—but it doesn’t even make economic sense. 

REFERENCES

[i] Barber (1995), Korten (2001:143-150), Luke and Krauss (2004), Liebman and Reynolds (2006), Broder (2011), Lipton (2011).  For just one example of corporate interests intersecting with the assassination of a democratically elected leader, see Petras, J. and Morley, M. (1978) On the U.S. and the Overthrow of Allende: A Reply to Professor Sigmund’s Criticism, Latin American Research Review, v. 13(1), pp. 205-221.  For a host of them, read Perkins, J. (2004) Confessions of an Economic Hit Man. Barrett-Koehler Publishers, Inc., San Francisco, CA..  For but one egregious example of corporate tax loop holes, see Koncieniewski, D. (2011, December 29) Tax Benefits from Options as Windfall for Business, New York Times.  

Barber, B.R. (1995) Jihad vs. McWorld: How Globalism and Tribalism are Reshaping the World, Ballantine Books, New York.

Korten, D.C. (2001) When Corporations Rule the World, Second Edition, Kumarian Press, & Barrett-Koehler Publishers.

Luke, D.A. and Krauss, M. (2004, December) Where there’s smoke there’s money: Tobacco industry campaign contributions and U.S. Congressional voting. American Journal of Preventative Medicine, v. 27 (5) pp. 363-372.

Liebman, B.H. and Reynolds, K.M. (2006) The Returns From Rent-Seeking: Campaign Contributions, Firm Subsidies And The Byrd Amendment. Canadian Journal of Economic Revue, v. 39(4), pp. 1345-1369.

Broder, J.M. (2011, March 10) House Panel Votes to Strip E.P.A. of Power to Regulate Greenhouse Gases, New York Times.

Lipton, E. (2011, December 23) Mining Companies Back Friend’s Bid for Senate, New York Times.  

[ii] Barber (1995), Bakan (2005).

Bakan, J. (2005) The Corporation: The Pathological Pursuit of Profit and Power, Free Press, New York..

[iii] French (2005), Bradsher (2009, August 24), Galbraith (2009, March 12), McKibben (2010:191), Miller and Spoolman (2009:417), Schiermeir and Kohnert (2011). 

French, H.W. (2005, July 26) In Search of a New Energy Source, China Rides the Wind, New York Times.

Bradsher, K. (2009, August 24) China Racing Ahead of U.S. in the Drive to Go Solar, New York Times. 

Galbraith, K. (2009, March 12) Europe’s Way of Encouraging Solar Power Arrives in the U.S., New York Times. 

McKibben, B. (2010) eaarth: Making a Life on a Tough New Planet. Times Books, Henry Holt and Company, New York.

Miller, G.T., and Spoolman, S.E. (2009) Living in the Environment: Concepts, Connections, and Solutions, Sixteenth Edition. Brooks/Cole, Belmont, CA.

Schiermeir, Q. and Kohnertm K. (2011). Renewables Revolution, Nature, v. 480, pp. 279-280.

[iv] Miller and Spoolman (2009:417).  In 2012, both Germany and Spain greatly reduced solar subsidies (Nicola, 2013; Sills, 2013).  However, at least in the case Germany, solar panels were still going up in record numbers in 2012 (Sills, B., 2013, January 27. Spain Halts Renewable Subsidies to Curb $31 Billion of Debts, Bloomberg.com). 

[v] Lipton, E., and Kraus, C. (2011, November 11) A Gold Rush of Subsidies in Clean Energy Search, New York Times.  

[vi] Myers and Kent (2001), Monbiot (2007:55). 

Myers, N., and Kent, J. (2001) Perverse Subsidies: How Tax Dollars Can Undercut the Environment and the Economy. Island Press, Washington, D.C.

Monbiot, G. (2007) Heat: How to Stop the Planet from Burning. South End Press, Cambridge MA.

[vii]  Hawken, P.A., Lovins, A., and Lovins, L.H. (1999:160) Natural Capitalism, Little, Brown and Co., New York.

[viii] Jacobson and Delucchi (2009), Miller and Spoolman (2009:416), World Watch Report 187 (2012:19-24).

Jacobson, M.Z., and Delucchi, M.A. (2009, October 26) A Plan to Power 100 Percent of the Planet with Renewables, Scientific American. 

World Watch Report 187 (2012) Sustainable Energy Roadmaps: Guiding the Global Shift to Domestic Renewables, Worldwatch Institute, Washington D.C.

[ix] Miller and Spoolman (2009:416), World Watch Report 187 (2012:19-24).

[x] Hubbard (1991), Andrew (2006), Margonelli (2007), Howell (2009), Wald and Zeller (2010), Muller et al. (2011), New York Times (2012, March 30).

Hubbard, H.M. (1991, April) The Real Cost of Energy. Scientific American, v. 264(4), pp. 36-42.

Andrews, E.L. (2006, February 14) U.S. Has Royalty Plan to Give Windfall to Oil Companies. New York Times.

Margonelli, L. (2007, January 30) Our Secret Stash of Oil. New York Times.

Howell, K. (2009, October 19) What is the Real Cost of Power Production. Scientific American. 

Wald, M.L., and Zeller, T. (2010, November 7) Cost of Green Power Makes Projects Tougher to Sell, New York Times.

Muller, N.Z., Mendelsohn, R., and Nordhaus, W. (2011) Environmental Accounting for Pollution in the United States Economy. American Economic Review, v. 101, pp. 1649-1675.

New York Times (2012, March 30) Big Oil’s Bogus Campaign, Editorial.

[xi] IEA (2011, October 4), Kenny (2012), Ochs and Knodler (2012).

IEA (International Energy Agency) (2011, October 4) IEA analysis of fossil-fuel subsidies, World Energy Outlook, International Energy Agency. 

Kenny, C. (2012, October 21) When it Comes to Government Subsidies, Dirty Energy Still Cleans Up. Bloomberg Business Week. 

Ochs, A., and Knodler, A. (2012) Value of Fossil Fuel Subsidies Declines, National Bans Emerging, pp. 86-89, in Vital Signs 2012: The Trends That Are Shaping Our Future. Worldwatch Institute, Washington DC.

[xii] Hubbard (1991), Howell (2009). Subsidies and externalized costs attributed to automobile use for 2001 alone was estimated to be $275 billion (Brown, L.R. 2006:78. Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble, W.W. Norton & Company, New York).

[xiii] Wald, M.L., and Zeller, T. (2010, November 7) Cost of Green Power Makes Projects Tougher to Sell, New York Times.

[xiv] Carson, K. (2010:105) The Homebrew Industrial Revolution: A Low-Overhead Manifesto, Booksurge.

[xv] Myers and Kent (2001:14).Myers, N., and Kent, J. (2001) Perverse Subsidies: How Tax Dollars Can Undercut the Environment and the Economy. Island Press, Washington, D.C.

[xvi] For deaths from energy production and pollution, see Fischetti, M. (2011, September) The Human Cost of Energy. Scientific American, p. 96.

[xvii] Washington Post (2006, July 2) Farm Subsidies Over Time.  

[xviii] Public Citizen (2010) The Ten Year Track Record of the North American Free Trade Agreement: U.S., Mexican and Canadian Farmers and Agriculture, NAFTA at Ten Series.   McKibben (2010:177).

[xix] Nature (2010), Hawken, Lovins and Lovins (1999:160-162), Monbiot (2007:55). 

Nature (2010b) Food: The Growing Problem, Nature, v. 466, pp. 546.

[xx] $10 billion/year—Sanchez, P.A. and Swaminathan, M.S. (2005) Cutting World Hunger in Half, Science, v. 307, p. 357-359. $30 billion/ year—United Nations, cited by Rosenthal, E., and Martin, A. (2008, June 3) UN official holds rich nations accountable for food shortages, New York Times.   $40 billion/year—Hawken, Lovins and Lovins (1999:160-162).  $83 billion/yr—Bradsher and Martin (2008). 

[xxi] Kierschenmann, F.L. (2007) Potential for a New Generation of Biodiversity in Agroecosystems of the Future, Agronomy Journal, v. 99(2), pp. 373-376.

[xxii] Mshomba, R. (2002), Borders and Burnett (2006), Lula da Silva (2006), Rohter (2006), Public Citizen (2010). 

Mshomba, R. (2002, September) How Northern subsidies hurt Africa, Africa Recovery, v. 16(2-3), p. 29. Available at http://www.un.org/ecosocdev/geninfo/afrec/vol16no2/162agric.htm.  Accessed December 19, 2011.

Borders, M. and Burnett, H.S. (2006, March 24) Farm Subsidies: Devastating the World’s Poor and the Environment, NCPA (National Center for Policy Analysis), no. 547. Available at http://www.ncpa.org/pub/ba547.  Accessed December 19, 2011.

Lula da Silva, L.I. (2006, June 1) Time to get serious about agricultural subsidies, New York Times.  Available at http://www.nytimes.com/2006/06/01/opinion/01iht-edlula.html?scp=1&sq=Lula,%20Time%20to%20Get%20Serious%20about%20Agricultural%20Subsidies&st=cse.  Accessed December 19, 2011.

Rohter, L. (2006, Sepember 11) Agriculture Discord Stymies World Trade Talks’ Revival, New York Times. Available at http://www.nytimes.com/2006/09/11/world/americas/11brazil.html?scp=4&sq=Lula,%20Time%20to%20Get%20Serious%20about%20Agricultural%20Subsidies&st=cse.  Accessed December 19, 2011.

Public Citizen (2010) The Ten Year Track Record of the North American Free Trade Agreement: U.S., Mexican and Canadian Farmers and Agriculture, NAFTA at Ten Series.  Available at http://www.citizen.org/publications/publicationredirect.cfm?ID=7295.  Accessed January 1, 2012.