Corporate welfare violates the rule of law

We all claim to believe in the rule of law, but I bet many of us haven’t given much recent thought to what that concept means. Or to what extent we’ve lost it. Recent conversations about economic development incentives — corporate welfare, because framing is 90% of the battle — have me thinking about this topic.

What does rule of law mean? Various principles are often associated with it. Some of the big ones that come to mind are government of rules, not rule by men; no individual is exempt from the rules; the rules apply going forward, not to past conduct; and non-arbitrary enforcement of the rules. Particularly when it comes to aspects such as non-arbitrary enforcement, rule of law is pretty clearly an aspirational ideal that can be achieved to greater or lesser degrees, rather than a binary status (present or not).

But rule of law should be something we strive for, not something to be shrugged about and ignored when we recognize activities that are clearly contrary to its ideal.

II.

When it comes to corporate welfare, those pushing targeted incentives tend to justify their proposals with appeals to pragmatism: investment, job creation, development, improvement. Whether their predictions about these outcomes are right or not (and my money is mostly on not, depending on their claims), advocates of corporate welfare completely ignore how their proposals relate to the rule of law.

A moment’s thought shows why they ignore that relationship: it’s not a good one. The whole point is to seek an exemption from the general rules, violating that principle of the rule of law. But the hostility that corporate welfare exhibits toward the rule of law is more than that.

Part of our instinctive distaste for the corporate welfare enterprise comes from our intuition that it’s the favored few who benefit, and that the rulers and exemption seekers aren’t being straight with us about the whole arrangement. This feeling may have roots in other aspects of the rule of law: that the rules are not arbitrary, and that they are created by individuals looking out for the common good, rather than for private interests. Part of having non-arbitrary rules is having a fair procedure for determining the scope of their applicability. But how fair can the procedure be when it comes to handing out exemptions from state and local taxes? How focused on the common good can these exemptions be when one of the most valuable companies in the world is a prime beneficiary of them?

III.

Another aspect of the rule of law is also a key aspect of fairness, of justice. Those who receive the benefit should share in the cost. Some people have said that democracy itself is basically an ongoing attempt to get other people to pay for the things we want. While that may be humorous, when it comes to government services that we largely take for granted (police and fire protection, government schools, courts, etc.), I hope that we all expect to share in their costs; they’re not free, and they don’t just magically appear.

The question of how these services should be paid for is a long-running question in governance debates. We’ve generally settled on funding them through property taxes, sales taxes, and in some states, personal or corporate income taxes. But allowing the favored few to avoid some or all of these taxes effectively increases the burden on the rest of us.

Think about those government services. When the population of an area increases, to maintain the same quality of such services, the money that funds them has to increase as well. (Advocates of corporate welfare are constantly promising new jobs, so population growth is either expressly promised or implicit in their claims. Justin Amash, another opponent of corporate welfare, outlined how this works in a nice series of tweets a while back.) Of course, not many people see the quality of government services very directly, so one result of a “successful” corporate welfare program is a poorer quality of service received by existing residents.

Which companies do you recall receiving corporate welfare subsidies? Subsidies should generally be minimized or eliminated. Where they flow from the relatively poor to the relatively rich, that’s even more true; having the poor pay more for services consumed by the rich seems to be a particularly galling violation of the burden/benefit aspect of the rule of law. Exempting the favored few from the tax burden that the rest of us have is immoral and unjust. It violates the rule of law, regardless of what any legislation says.

IV.

I’m a founding board member of the Center for Economic Accountability, a nonprofit corporation run by John Mozena that will be a voice for reason against corporate welfare. I hope you’ll follow us on Twitter (@AccountableEcon) and Facebook, watch our website, and join our cause.