In the short run, it’s a great deal for corporations. They get to nail the consumers twice – once as consumers, and once as taxpayers. They get to prevent competitors from entering the market. They get to stop foreign competition from providing cheaper products. In many cases, they get tax breaks.
In the long run, however, corporatism is devastating for industries. The Cuban sugar industry provides a perfect case study. Prior to the communist takeover of Cuba, the U.S .was the largest buyer of Cuban sugar, purchasing nearly 60 percent of their exports. Once Castro grabbed power, the U.S. initiated an embargo that nearly crippled the industry. The Soviet Union filled the gap, and Cuba’s sugar business boomed once again – but only because the Soviets subsidized it heavily. Over the course of time, the Soviets were forced to spend more and more money on Cuba. No longer was Cuba competing on the world market; now it was getting special benefits from its master. Cuba’s sugar industry became a paradigmatic representation of the regulatory-subsidization model. In the late 1980s, the Soviets bought up between 50 and 60 percent of Cuba’s sugar exports at an insane markup, and brought cheap oil to the island country. In 1987, the Soviet Union paid Cuba a whopping $0.42 per pound for sugar, even though the average world price was $0.06 per pound. That was actually the low water mark for the 1980s. During that decade, over 80 percent of Cuban sugar was exported to the Soviet Union. At the same time, the Soviets sent oil so cheaply to Cuba that Cuba began re-exporting the oil at a normal world mark-up to make money.
Then the Soviet Union collapsed. So did Cuba’s sugar industry. In 1988, Cuba was the world’s third largest sugar producing country. By 1995, it had fallen to number eight. By 2005, it was down to number 17. Today, Cuba’s sugar economy is nearly dead. Subsidies may float industry for a while, but in the end, they kill it. Companies and industries live up to the market, or they live down to their subsidies. Meanwhile, consumers and taxpayers have to swallow the cost. Just ask the citizens of the Soviet Union, who had to suffer through severe sugar shortages in order to ensure that Fidel could afford to smoke his cigars.
We’re seeing the same thing in today’s United States. The government’s bailout of Chrysler, it was reported this week, lost the taxpayers some $1.3 billion. That was on top of all the subsidies and tariffs from which the US auto industry has benefitted, jacking prices up for American consumers. America’s auto industry is dying because of corporatism – government regulation of and on behalf of industry.
The car industry isn’t alone. We’re watching the same process in virtually every American industry. We must realize that the death of American industry isn’t the fault of mythical free market corporations – it’s the result of the toxic and incestuous relationship between corporations and the government. We, the citizens, consumers, and taxpayers, pay the price.
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