The Subsidy Game as Corporate Strategy

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When a company wants to expand, it should rely on its own resources or borrowing capacity. But the truth is many companies look to federal, state, and local governments for lucrative subsidies:  tax credits, low-interest loans, tax exemptions, property tax abatements, and research aid. Some estimate that state and local economic development subsidies alone total more than $50 billion each year in the U.S.

This week, Boeing was found by the World Trade Organization to have received $23.7 billion in federal, state, and local government support, much of it illegally. The WTO declares a subsidy as illegal when it benefits a specific company or industry to the detriment of a rival company. Ironically, Boeing claimed to be harmed by subsidies Airbus received in Europe.

Boeing played the subsidy game and won big in Washington State, Kansas, South Carolina, and Illinois. In Washington State, the Governor rammed through the legislature a special package for Boeing worth $3.2 billion. In Kansas, Boeing benefitted from enormous incentives before selling the production facility. In South Carolina, the company received an estimated $900 million package. Out-going Mayor Daley of Chicago awarded Boeing $56 million for its headquarters.

Aside from state and local subsidies, the company received lavish NASA and Pentagon research contracts. As this news broke yesterday, members of Congress differed in their opinion depending on whether Boeing or its rival Airbus (or its parent EADS) was located in their home district.

The WTO’s sweeping statement about the illegality of subsidizing international trade raises a great deal of questions about inter- and intrastate trade. Wal-Mart has received over $1.2 billion in state and local subsidies, often to the detriment of other local retailers. Cabela’s and Bass-Pro Shops both utilize this strategy. Gander Mountain cried foul. Semiconductor companies like Intel and AMD continue to try to gain a competitive edge over each other with our tax dollars.  Would the WTO ever declare subsidies used to attract big retailers with political allies, which in turn put smaller companies out of business, as illegal even if it didn’t cross international boundaries? What about if a subsidy benefits a specific-company to the detriment of another city or state vis-à-vis interstate or intraregional relocations?

The problem isn’t just that these companies get an unfair advantage. It’s hugely burdensome on our economy to spend billions each year on companies which successfully lobby for kickbacks.

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