Share, , Google Plus, Pinterest,

Print

Corporate welfare fares well

€4.7bn-€6.2bn annually in Ireland but little analysis or strategy

Corporate welfare is controversial. Negatively, it can mean ‘crony capitalism’ – politicians using public resources to benefit their friends in business, or at best propping up failing enterprises for short-term political gain. A more positive understanding is that corporate welfare involves the state, employers and workers co-operating on a shared project of economic development.

Corporate welfare, in a broad sense, is when public resources are used to give businesses one or more benefits. This can include direct payments or subsidies, the purchase of goods and services by public bodies (€8.5bn annually in Ireland), the provision of infrastructure, the availability of support services (like Enterprise Ireland), preferential tax treatment, tax breaks or lax regulation.

Corporate welfare is highly prevalent across even the most avowedly ‘free market’ economies. There is no agreed definition of corporate welfare, and there is no standard way of measuring it.

The CATO Institute (a US think-tank dedicated to limited government and free markets) estimates that just the most obvious state subsidies to business cost US taxpayers $100bn  [€90bn] in 2012. In the UK, a more expansive definition of corporate welfare was estimated by Dr Farnsworth of York University to cost £85bn [€120bn] in the year 2011-12. In Ireland, Paul Sweeney – Chair of the network of economists available to TASC, an independent progressive think-tank whose core focus is economic equality and democratic accountability – conservatively estimated state support to the Irish enterprise sector at between €4.7bn  and €6.2bn  in 2011.

Governments routinely support businesses in order to boost employment, which in turn makes people – and the country as a whole – more prosperous, and reduces the cost of social protection payments to the public purse. In this way, corporate welfare is part of wider welfare policy.

More recently, Ireland’s Department of Social Protection has supported people to leave unemployment by helping them to become self-employed, switching ‘welfare’ payments for ‘enterprise’ payments and blurring the boundaries of social protection and industrial policy.

Unlike social welfare to households and individuals, the distributional effects of corporate welfare are much harder to measure. Although a business might gain from state supports, the effect in the economy might be to provide more jobs for people on low-to-middle incomes rather than to provide any additional profit for the business owner. In some cases, corporate welfare may be cost-neutral or even generate returns for the state. The cost might be off-set by benefits from increased exports, higher employment and more tax paid by companies in receipt of supports. Sometimes wider policy goals, like more balanced regional development, might be judged to outweigh the financial cost of business supports.

Nonetheless, corporate welfare can mean public money benefiting individuals who are already wealthy. For example, businesses in receipt of state supports may give high pay to their executives and the effect of the state intervention may be to make a business more profitable in the long term, which means more wealth flowing to owners and shareholders.

One of the most egregious examples of excessive pay in businesses supported by the state was the €500,000 agreed as the cap on executive remuneration in Ireland’s bailed-out banks, which even then met resistance from bankers.

Distinguishing cronyism from genuine industrial policy can be difficult. The social costs and benefits of corporate welfare are not easy to calculate, as some measures may genuinely benefit the economy but also involve giving benefits to friends of the government of the day. Various Tribunals have passed judgment on crony capitalism in Ireland – Tribunals into beef export subsidies, planning decisions and a telecoms licence. These processes took years, and are not a practical or economical way to safeguard probity in business dealings with government.

The Irish state has a long history of corporate welfare – from basic economic development such as electrification, to various supports and inducements to foreign direct investment today.

Politically, the tendency has been for the radical extremes to oppose corporate welfare – the Left based on the accusation of crony capitalism and the Right out of deference to the religion of free markets, while those closer to the centre of the political spectrum are more likely to favour it.

The connection between industrial policy and corporate welfare highlights the pro-enterprise role of the welfare state. This perspective also raises issues of equity that have been absent from earlier discussions of industrial policy, where the focus was chiefly on economic goals such as technological development or employment.

The complex and changing role of the state in the economy is perhaps best described in terms of inter-dependence. It is widely accepted that the state should aid private enterprise in the developed capitalist economies. However, in the absence of detailed official data to permit more thorough analysis, it is impossible to say whether corporate welfare in Ireland delivers the best value for public money, or whether it is ethical. 

Nat O’Connor is Lecturer in Public Policy and Public Management at Ulster University.
This article is based on ‘Crisis and Corporate Welfare’ by Nat O’Connor and Paul Sweeney, in Murphy, M.P. and Dukelow, F. (editors 2016) ‘The Irish Welfare State in the