Public policies for private corporations: the British corporate welfare state.

Author:Farnsworth, Kevin
Position:Essay

One of the biggest myths of the contemporary political age is that private businesses would be stronger, more competitive, and more profitable, without the state. In reality, private businesses depend extensively on public services and state benefits - in other words, on corporate welfare. Corporate welfare describes public policies that directly or indirectly meet the specific needs and/or preferences of private businesses. Such provision assists corporations through their life-course. It makes possible the birth of corporations and helps to meet their evolving needs from 'youth' to maturity. It provides advice and protection and, more generally, socialises the costs and risks associated with private investment and profit-making. It keeps some companies on life-support and assists some companies in their death (Farnsworth, 2013). Despite the tendency to assume that citizens are the primary beneficiaries of public policies and the welfare state, there are very few examples of public policies that do not bring benefits to private businesses. The opposite is also true, of course; many forms of corporate welfare also bring benefits to citizens.

There is a big difference, however, in the way that social and corporate welfare are discussed, scrutinised and delivered. Social welfare is debated constantly. The costs, benefits and impact of provision on individual behaviour is the subject of heavy media and political scrutiny. Provision is based upon legally constituted rights and (relatively) clear procedures. And these rights are underpinned by duties. Corporate welfare is different in almost all respects. Whereas social welfare claimants are pilloried and castigated in the media for their irresponsible behaviour, corporate welfare claimants are often celebrated. Whereas social welfare recipients face increasingly tough conditions when they make a claim on the state, business recipients face few conditions and no real sanctions, even when their actions, for instance, on tax avoidance or lobbying against the welfare state, undermine the very future of public policy.

Such was the scale of the financial bailouts needed to assist corporations during the economic crisis that the British government had to be open about the assistance it provided. In less exceptional cases, however, corporate welfare is seldom discussed. Even during these times of austerity, where the government has challenged schools, hospitals, public sector workers and the unemployed to reduce their reliance on public expenditure, state provision for private companies is rarely questioned. This is all the more surprising given the huge amount of public money that has been directed towards saving private banks and various other companies since the post-2008 economic crisis. Indeed, where corporate welfare has been discussed, it has taken the form of calls for more help for private businesses rather than less.

The purpose of this article and the related research project is not to condemn corporate welfare but to kick-start a more informed and more open debate on the role, importance and purpose of public policies and how they are funded. Employees need good employers; businesses need to make healthy returns for their owners; and governments need to raise taxes on the profits of those very same companies. But this raises the question of how public policies might be utilised to create more responsible and more sustainable business practices that underpin, rather than undermine, effective, equitable and expansive welfare states. We need to foster corporate welfare that brings general benefits to society and condemn that which simply lines the pockets of the already rich and powerful. To facilitate such a debate, this article, along with other work (e.g. Farnsworth, 2013) sets out an analysis, critique and audit of British corporate welfare today. It maps out the various ways in which corporations benefit directly and indirectly from state provision before summarising some of the most important indicators of the value of corporate welfare in the UK. But before we can engage in this exercise, it is important to examine, in a little more detail, the context of corporate welfare.

The British corporate welfare state

The contemporary story of British corporate welfare begins in the early 1970s with the dawn of what we have since come to understand as the period of globalisation. During this period, a number of international agreements, notably those negotiated by, and through, the various guises of the European Economic Community/European Union and the General Agreement on Tariffs and Trade (GATT) and its replacement, the World Trade Organisation (WTO), have been brokered in order to eradicate market-distorting subsidies, tariffs and other protectionist measures. This shift in international governance was influenced by the growing dominance of right-wing - or so-called neo-liberal - ideas during this same period. In the UK, the rise of neo-liberalism with the election of the 1979 Conservative government led to the condemnation of the types of state assistance that artificially kept alive 'lame-duck' industries and locked the UK into an uncompetitive spiral. What business needed, according to the post-1979 Conservative government, was for the state to get out of the way. This didn't mean a complete withdrawal of corporate welfare, but it did mean a reconfiguration of public policy to that which would facilitate and boost modern private businesses in particular. In practice this meant switching from direct to more indirect and in-kind support, away from the direct subsidies and support that many older industries were reliant on.

This new strategy did not sit well with the most interventionist wing of the Conservative Party, typified by Michael Heseltine, who famously resigned from the Thatcher Cabinet in protest at the Prime Minister's decision to back a US bid to take over Westland, the UK's last helicopter manufacturer, rather than an Anglo-European consortium. This row exemplified the difference of opinion between those who favoured greater state intervention in the affairs and future direction of the company, and those who favoured allowing the company to find a new future within the marketplace.

Neither did the new strategy meet with universal approval from the business community. The Confederation of British Industry, for instance, aggressively opposed lessening direct support for British industry, whilst the City and Institute of Directors favoured it (Farnsworth, 2004; Grant and Marsh, 1977; Ingram and Ingram, 2003; Longstreth, 1979). The CBI was much more comfortable with John Major's premiership which, from the outset, signalled greater enthusiasm for the role of active government in assisting businesses. Michael Heseltine assumed the role of President of the Board of Trade within Major's Cabinet and promoted the importance of active government engagement in regional economic development.

The post-1997 Labour government's Third Way approach built on such policies to strengthen direct and indirect interventions that would underpin more productive and more competitive private businesses through more targeted public policies. From the outset of his election, Tony Blair went out of his way to assure businesses that even the most socially-centred reforms would ultimately be introduced in such a way that their negative effects on businesses would be minimised:

Even where you may have doubts about certain parts of policy - a minimum wage or trade union representation - remember: that we are consulting business every step of the way; and that taken altogether, the entire changes proposed would still leave us with a labour market considerably less regulated than that of the USA. (Blair, 1997) The UK economic model that emerged in the late 1990s under New Labour emphasised highly skilled, flexible, non-unionised, lightly regulated and relatively cheap labour coupled with low taxes. This strategy of prioritising the need for lower regulation went hand-in-hand with policies designed to attract higher technology companies via greater public investment in higher-level skills, more generous tax breaks, and public policies that placed corporate needs at their heart. In other words, social and economic policy in the UK has helped to promote a particular kind of capitalism; one that has sought to satisfy business needs by reducing, shifting or socialising the costs and risks associated with 'doing' business. And this strategy has tended to favour corporate predators rather than producers (as Ed Miliband would put it).

An assessment of the post-1979 corporate welfare environment reveals that governments continued to utilise a range of methods in order to support businesses, albeit in different forms. The withdrawal of state subsidies within the auto industry in the 1980s, for instance, effectively killed off the British car industry, but new forms of assistance helped to attract the likes of Toyota, Honda and Nissan to the UK, and these companies have continued to receive state support ever since. And in new industries where the UK has competed successfully, in pharmaceuticals, defence and the public-private partnerships industry, all have relied heavily on direct and indirect state assistance. But all this help has been conveniently ignored in the on-going political debate. The dominant political message from business interests throughout this period has been that governments impose costs on businesses but provide very few real benefits. The major business organisations, including the CBI and Institute of Directors, have vigorously and consistently argued against government 'red tape' and for lower business taxes over the past 40 years (see Farnsworth, 2004).

Economic crisis and the expansion of corporate welfare

This argument, that businesses could be stronger without government 'interference', was seriously challenged by the post-2008 economic crisis. It...

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