Poverty and Inequality: Caused by Corporate Favoritism

Friday, September 4th, 2015

The major cause of much poverty and extreme inequality is favoritism to special interests, such as corporate  subsidies and other government-granted privileges, which  distort the entire economy, resulting in higher prices  for products and services, and less job creation, so that with more unemployed people chasing fewer jobs, wages are  also bid down – the result is extreme inequality and unnecessary poverty.

The crucial issue of corporate favoritism needs to be addressed, instead of focusing on bandaids and distractions that don’t deal with the major root cause of  much poverty, extreme inequality, and other economic problems.

Corporate favoritism and other privileges given to special interests include such things as:

– giving direct subsidies to corporations;

– laws that favor some companies over others; and laws that restrict the supply of products or services in order to raise the price;

– tax favoritism for privileged companies, instead of giving others the same deal;

– subsidies to polluters, by allowing them to dump their emissions into the air and water;

– giving big agribusiness major subsidies, which hurts more efficient farmers, and raises the cost of food; etc.

– subsidies to fossil fuel industries and the nuclear industry;

– subsidizing land speculators and developers by funding  infrastructure that raises their land values and thereby  brings unearned profits to those special interests.  Instead, they should be required to reimburse the government based on how their increased land values were subsidized.

For example, one approach, as applied in several cities in the U.S., is that they could be required to pay an annual tax for the value of the locations they are speculating on or hoarding, while we can then lower taxes on buildings, products, and services, as much as possible, which would lower the cost of housing, products, and services, because those are produced by labor and human effort, whereas locations were not produced by any person.

A location value tax along those lines would put a limit on land speculation and land hoarding, and the revenue could be used to fund public services, including a general social safety net; perhaps part of it could be used to fund land vouchers to help pay for rent or a mortgage – either way would serve as compensation for being excluded from access to locations and natural resources.

– favoritism to privileged TV and radio broadcasters, who use the airwaves, which travel through the air, another natural resource; that subsidy has led to a handful of companies now controlling over half of the total broadcast market, thereby limiting the range of opinions heard by citizens.

There are thousands of other such examples of corporate subsidies and favoritism to special interests – that distorts the entire economy, and is the major cause of much poverty and extreme inequality.

The Democratic Party originally saw corporate subsidies and corporate favoritism as one of its major issues (early Democrats used other words for it, such as monopolies caused by government-granted privileges to special interests, instead of promoting the public interest).

If Democrats would pick up that ball again, and speak out against corporate subsidies and other favoritism to special interests, then Democratic candidates could easily beat Republicans, who tend to promote a misleading version of what economic freedom means, while quietly continuing to allow billions in corporate favoritism every year, along with various other legislation that favors special interests instead of the public interest, and distorts the whole economy.

During the Clinton administration, there was a brief period during which Labor Secretary Robert Reich spoke about cutting corporate favoritism. But soon after Reich raised the issue, it dropped out of sight.

If we find more Democratic Party candidates who will take a clear stand on moving toward getting rid of corporate subsidies and favoritism as much as possible, such candidates who will address that important issue would be ones we would want to consider endorsing, if their other views are reasonably compatible with the DFC; or in any case, they might be allies, by helping to promote that crucial issue, which is related to most economic problems.

Addressing the major issue of corporate favoritism in a prominent way could have great potential, for the DFC and Democratic Party candidates – it would offer an alternative to the Republican Party’s misleading views about what is meant by economic freedom.

The corporate favoritism issue is included in the DFC’s Principles and Platform

Land and Market Power

Monday, February 7th, 2011

As described in Mason Gaffney’s essay below, the current system of land markets is very distorted, which distorts the rest of the entire economy, resulting in job shortages, lower wages, homelessness, less affordable housing, less affordable products and services, and unnecessary poverty for many.

Markets only work if the distinction between the two kinds of property is addressed: products made by human effort, versus land and its natural resources, which no person produced.

That is why property in land needs to be treated somewhat differently from products made by human effort, so that there need to be clear limits on the power of landowners, as advocated in the DFC’s Principles and Platform.



Land is a Major Basis of Market Power

(excerpts from Mason Gaffney’s essay: “Land as a Distinctive Factor of Production)

“Land” in economics means all natural resources and agents, with their sites (locations and extensions in space). Land is not just the matter occupying space: it is space. …

Land is indispensable to life, hence to economic activity. The same is generally true of labor and capital, but less “absolutely”. Land can exist perfectly well without labor or capital, and support timber and wildlife, but labor and capital cannot exist at all without at least some land, and often a great deal of land. Substitution is limited. It will not do just to have 57 varieties of labor, or of capital. There must be at least some land. Remember, land includes space itself, and a time-slot in it. It includes air and water, the environment and the ecology and all original matter itself. Without land there is nothing. Coupling this with the non-reproduceability of land, and its fixity, land is distinctive.

An old limerick puts it well.

“A captious economist planned
to live without access to land.
He nearly succeeded,
but found that he needed
food, water, and somewhere to stand.”

Massed control of land is the most natural base for monopolizing markets because land is limited. Buying land always does double duty: when A expands he ipso facto preempts opportunities from B. For example, a chain of service stations with most of the best corners in a town has market power, the more so if it also holds a large share of oil sources, of refinery sites, of “offset rights” to pollute air, transmission rights of way, harbor sites, and other such limited lands.

Preemption is not always just a by-product of expansion; it may be the main point. For example, in 1993 Builders’ Emporium, a large chain of California hardware stores with large parking lots in good locations, closed down and sold out. The sites were bought up by the largest grocery chain in southern California, Vons Company. According to news reports, this is “a shut-out strategy against competitors.” Vons will convert 6-8 Emporium stores to Vons’ markets, and “hold onto the others until commercial rents rebound — then market them to non-rivals.”

Salomon Bros. analyst Jonathan Ziegler, far from being shocked, praises this as “ingenious.” “You’re controlling who’s in your market area.” Ralphs, another grocery chain, had been looking for sites and is now shut out.

Land uses that stint on labor spell unemployment. The land-surfeit of some, when unconstrained, spells homelessness for others.

Land as a Distinctive Factor of Production

What’s Your Position?