Corporate Welfare Queens: Destructive Parasites Which Deserve to Die

Nothing is more unjust to the working families and retirees of America than to over-pay for under-performance. In other words, not to get fair value for our hard-earned monies.

It is in that context where this blogsite has been appropriately critical of both public sector unions and private sector unions. Follow all the links at the bottom of postings here and here for concrete examples. In some of the latter postings, the imbecilic actions of certain management teams have also been criticized.

No less of a problem in our society are the corporate welfare queens who exist like parasites living off their manipulation of a bloated federal government, thereby reducing many Americans' standard of living through hidden and completely unnecessary taxes.

The article entitled Sugar Daddies: How sugar interests rip off America and harm the national interest provides a classic example of a corporate welfare queen:

In a hall of fame for corporate-welfare queens, the sugar industry would occupy a place of special honor. For decades, powerful sugar growers have gotten politicians to enrich them with a protectionist scheme that inflates domestic sugar prices to the detriment of American consumers, American manufacturers, American farmers, and the American economy as a whole…

The program allows sugar processors to take out loans from the USDA by pledging sugar as collateral. The loan rates — 18 cents per pound for cane sugar, 22.9 cents per pound for beet sugar — are significantly higher than average world sugar prices. These loans must be repaid within nine months, but processors also have the option of forfeiting their sugar to the government in lieu of repaying their debt.

This arrangement effectively guarantees that the processors receive a price for their sugar that is no lower than the loan value: If prices fell below that level, they would simply forfeit their sugar and keep the government’s money. In order to avoid that scenario, the USDA must prop up the domestic price of sugar. It does this by controlling supply through two mechanisms. First, it sets quotas on how much foreign sugar can be imported without facing prohibitive tariffs; second, it regulates the amount of sugar that domestic processors can sell.

The consequence is that sugar in the U.S. has, over the past decade, cost two to three times the average world price. The sugar industry likes to point out that the program requires no government outlays, since processors repay their loans each year (assuming the government keeps sugar prices sufficiently high). This argument is sound if one regards the sugar program as a question of federal bookkeeping, but that is only because, in this case, the government does an uncharacteristically efficient job of plundering taxpayers to pay off a special interest: It simply cuts itself out as middleman. Each time you buy sugar or a product made with sugar, the difference between the price you pay and the lower price you would pay absent the sugar program’s dirigisme can be thought of as a sugar tax. Unlike most taxes, this tax never finds its way to government accounts. Instead, it passes directly from your pocket to the sugar industry’s profit statements.

A GAO study found that, between 1989 and 1991, the sugar tax cost American consumers an average of $1.4 billion per year. By 1998, that number had risen to $1.9 billion. Other costs are borne by manufacturers who use sugar as an input. Faced with high domestic prices, some confectioners have moved to countries without sugar price supports, such as Canada. Others have simply shut down…Without the program, resources currently devoted to sugar production would shift to more efficient sectors of the economy and create new jobs.

The sugar program is a case study in how small, concentrated interests can trump larger but more diffuse ones. By any measure, the U.S. sugar industry is minuscule. It employs only 62,000 people and comprises less than 0.5 percent of U.S. farms. But because it profits so richly from the current protectionist scheme, it has a powerful incentive to keep that scheme in place.

It does so by donating extravagantly to political candidates. One lobbyist who works with trade issues says, “[The sugar industry] is collecting monopoly rents. Any industry in a position of collecting monopoly rents will spend back a significant portion of those rents to maintain those monopolies.” Although sugar accounts for just 1 percent of U.S. farm receipts, 17 percent of all campaign contributions from the agricultural sector between 1990 and 2004 came from the sugar lobby.

Perhaps no political investment has brought a higher return. The GAO report found that sugar producers gain around $1 billion a year from the artificially high prices that the sugar program guarantees. Some growers have gotten exceedingly rich…

Nowhere does the sugar lobby pursue its interests more ferociously than in debates on free trade. Having successfully lobbied the Bush administration to exclude sugar from the recently ratified free-trade agreement with Australia, sugar producers are now determined to kill the Central American Free Trade Agreement, on which Congress will vote sometime this summer.

CAFTA, which would eliminate most trade barriers between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic, is, if anything, embarrassingly deferential toward the sugar lobby. After its full implementation over a 15-year period, it would allow participating states to increase their sugar exports to the U.S. by only 1.7 percent of current U.S. sugar production. The sugar industry is nevertheless intransigently opposed to the pact, and has rejected every suggested compromise.

If the sugar lobby derails CAFTA, its success will, once again, represent the triumph of the few at the expense of the many. CAFTA would bring modest but not insignificant economic gains to both the U.S. and Central America. Perhaps more important, it would advance efforts to create a Free Trade Area of the Americas, and would strengthen the Central American middle class while making the economic and legal systems of participating states more open and transparent…

It is deeply exasperating that a tiny sector on which CAFTA’s effect would be almost negligible is within striking distance of scuttling the agreement. The obstinacy of sugar producers looks especially unreasonable when one considers that protectionism has increased their share of the domestic market from 55 percent in the late 1970s to 89 percent in 2002, and when one notes that population growth over the next decade is likely to increase demand for sugar, thereby offsetting any lost income to the industry…

…The United States has no reason to grow sugar, and every reason not to. It is a simple question of comparative advantage, as Dennis Avery, a former agriculture analyst for the Department of State, explains: “Yields of sugar in the tropics are twice as high and the costs half as high as growing sugar in temperate regions.” The U.S. sugar program thus defies both nature and economics; in guaranteeing an artificially high price for sugar, it encourages American farmers to plant sugar instead of crops they could grow more efficiently. Ending the domestic sugar program would require them to switch to the crops they should have been growing all along.

While liberalizing world farm trade would probably put a stop to domestic sugar production, it would also, according to Avery, mean that U.S. farmers who now grow sugar beets “could sell wheat to China and India, and make far more money than they do from this sugar.” Cane growers in Florida and Louisiana would have a somewhat harder time of it, since little else could grow on their lands…Smaller farmers could be compensated for their loss, and their transition eased by a gradual phase-out of the sugar program.

The benefits of ending domestic sugar production would not be merely economic; Avery sees liberalized farm trade as “both the leading environmental issue and the leading trade issue in the world.” Given long-term population trends, countries will have to specialize in crops for which they have a comparative advantage — or else undertake policies with disastrous environmental consequences…

…domestic producers will not acquiesce in the removal of their government-mandated profit margins…

The real test will come in 2007, when the next farm bill is negotiated. Reformers should seek nothing less than the total dismantling of the sugar program…

These sweetheart deals - that benefit a few to the detriment of the many - are economically wrong and morally wrong. They must end.

To conclude, ask yourself why such sweetheart deals like the one described above exist in the first place. The answer is part of a much broader issue, which was addressed in an indepth posting entitled A Call to Action: Responding to Government Being Neither Well-Meaning Nor Focused on the Public Interest. I would encourage you to read that posting carefully.