Corporate Welfare - The New Justification for Regulation

What your new bosses look like?

In a time where the President is firing the CEO of General Motors, and the “Pay for Performance Act of 2009”, which recently passed in the House, is poised to control the pay of all employees of all companies receiving governmental aid, one wonders what is left of the free-market and individual choice that our country was founded on.

While there has always been tension between businesses and the government, there has been a long established process for interaction: businesses employed their monetary strengths to lobby political officials for favor, while the government, in turn, utilized their law making prerogative to craft the boundaries that businesses exist and prosper within. However, with the advent of the economic crisis and an administration committed to oversight, the government has found a carte blanche for intervention in the private sector, which it will loathe to rescind.

That carte blanche is derived from the two major sectors of the United States economy surviving on government welfare, fueled by taxpayer money. Both the financial sector and the industrial sector - from AIG executives to part manufacturers - are artificially being propped up by a government that has decided that the failure of these entities would be too much for our fragile economy to take. Capitalizing on this investment, the Obama administration has stated that in order for these companies to continue receiving taxpayer money, they must conform to government “recommendations” – Chrysler must merge with Fiat, and General Motors must resubmit a new business plan (among other things), to be approved by our CEO in Chief. The fact that the federal government is derided universally for its inefficiency, and is therefore perhaps not the best choice to run a floundering private company, is handily overlooked.

It’s easy, however, to sell this justification for unprecedented governmental involvement to the public. Now that we are actually in this situation where companies are suckling from the governmental teat of tax paper money, it’s not unreasonable to say that they can rightly be subjugated to any restrictions the government deems appropriate. After all, what tax paying citizen wants a company to squander their money when the government could ensure that it’s being spent wisely through regulation? The problem lies in the fact that while those regulations are n0t necessarily onerous, some certainly are.

In the financial sector, it seems that any bank that has the necessary capital is turning tail from any involvement with the Obama administration, singularly due to the fact that the mandated government oversight that accompanies the new variant of TARP “adversely affects” their business models, which is a euphemism for “is hurting our chances of economic recovery”. No less than eight banks, including Goldman Sachs, Wells Fargo, JPMorgan Chase and Bank of America, have plans to give back any financial assistance received under TARP due to this heavy handed and detrimental government “oversight”. In practical terms, the government regulations were causing more harm than good in respect to the overarching goal of getting these institutions, the veins that carry the lifeblood of our economy, back in good economic standing. By repaying the government the funds borrowed, these banks will be able to reclaim their independence from governmental decision making, and perhaps secure a strategic advantage over those banks that still labor underneath it.

The industrial sector, however, shows no signs of having the ability to refuse more governmental assistance. This will most likely lead to a more entrenched governmental foothold for regulation that may not be easily dissolved when and if the auto industry ever has the capability to repay their taxpayer benefactors. While it seems reasonable to have oversight over private corporation expenditure of tax payer money, the financial sector has proven that oversight can come in forms that are less than palatable to those who actually fall within the government’s penumbra, and the industrial sector may never be able to escape it.

Please contribute to the discussion in the comments.

William O'Hara is a graduate of Annapolis, a law student at George Washington University, and the co-founder of The PULSE Review, a non-partisan public policy, law, and national security weblog.