The Government Used to Regulate Corporations. Now It Subsidizes Them | Opinion

The Clean Air Act of 1970 authorized the government to regulate air pollution. The Inflation Reduction Act, which Joe Biden signed into law last week, allocates more than $300 billion to energy and climate reform, including $30 billion in subsidies for manufacturers of solar panels and wind turbines.

Notice the difference?

The Inflation Reduction Act is a large and important step toward addressing the climate crisis. It also illustrates the nation's shift away from regulating businesses to subsidizing businesses.

From 1932 through the late 1970s, the government mainly regulated businesses. This was the era of the alphabet soup of regulatory agencies begun under Franklin D. Roosevelt (the SEC, ICC, FCC, CAB, and so on), culminating in the EPA of 1970.

The government still regulates businesses, of course, but the biggest thing the federal government now does with businesses is subsidize them.

Consider Joe Biden's biggest first-term accomplishments:

— the CHIPS and Science Act (with $52 billion of subsidies to semiconductor firms, plus another $24 billion in manufacturing tax credits);

— the Infrastructure Investment and Jobs Act ($550 billion of new spending on railroads, broadband, and the electric grid, among other things);

— and now the Inflation Reduction Act (including, as I noted, $30 billion for solar and wind manufacturers).

This shift from regulation to subsidy has characterized every recent administration. Trump's "Operation Warp Speed" delivered $10 billion to Covid vaccine manufacturers. Obama's Affordable Care Act subsidized the health care and pharmaceutical industries indirectly, through massive subsidies to the purchasers of healthcare and pharmaceuticals. Obama also spent some $489 billion bailing out the financial industry (and, notably, never fully restored financial regulations that previous administrations had repealed).

Biden signs the CHIPS act
U.S. President Joe Biden holds up the bill after signing the CHIPS and Science Act of 2022 during a ceremony on the South Lawn of the White House on August 9, 2022 in Washington, DC. The centerpiece of the legislation is $52 billion in funding aimed at boosting U.S semiconductor chip manufacturing and continued scientific research in the field to better compete with Chinas increasing dominance in the sector. Chip Somodevilla/Getty Images

Before the 1980s, instead of subsidizing broadband, semiconductors, energy companies, vaccine manufacturers, health care and pharmaceutical businesses, and the financial sector, we would have regulated them. If this regulatory alternative seems far-fetched today, that's because of how far we've come from the regulatory state of the 1930s to the 1970s, to the subsidy state beginning in the 1980s.

Why this big shift? Because of the change in the balance of power between large corporations and the government. Today it's politically difficult, if not impossible, for the government to demand that corporations (and their shareholders) bear the costs of public goods

Corporations now have more clout in Washington than any other political player. Spending by corporations on lobbying increased from $1.44 billion in 1999 to $3.77 billion in 2021 and is on track to exceed $4 billion this year, according to OpenSecrets.org, a nonprofit that tracks lobbying spending.

I saw this first-hand. Bill Clinton's healthcare plan was blocked by the pharmaceutical and healthcare industries, which would have had to sacrifice some profits. By contrast, Obama got the Affordable Care Act by paying off these industries, all but guaranteeing them larger profits from a massive inflow of newly subsidized customers.

The tidal wave of corporate money has occurred at the same time large American corporations have globalized to the point where many are able to play off the United States against other nations, demanding government bribes in return for creating jobs and doing their cutting-edge research in America.

The new CHIPS Act shows how powerful and highly-profitable semiconductor manufacturers, such as American-based Intel, can extract billions of dollars in a global shakedown for where they'll make semiconductor chips.

In the 1980s, yours truly was involved in a national debate over what was called "industrial policy." The question, put simply, was whether the government should subsidize certain industries that generate large social benefits in the form of new technologies.

I argued that the government was already engaged in a hidden industrial policy, disguised, for example, as grants to the aerospace and telecom industries by the Department of Defense and to the pharmaceutical industry by the National Institutes of Health, and that it would be far better to do industrial policy in the open, so that the public could assess what it was paying for and getting in return.

Opponents, which included just about every Republican, were indignant at the very idea that the government should "intrude" on their blessed free market.

Today's subsidies are far larger, but industrial policy is no longer considered dangerous. Even Republican Senator John Cornyn, in arguing for the CHIPS Act, admitted, "What we are doing is industrial policy unlike people of my free-market background have done before."

Not quite. The three decades-long shift in power to big American corporations has transformed industrial policy into a system for bribing them to do the sorts of things once demanded of them as the price for being part of the American system.

Robert B. Reich is an American political commentator, professor and author. He served in the administrations of Presidents Gerald Ford, Jimmy Carter and Bill Clinton. Reich's latest book, The System: Who Rigged It, How We Fix It, is out now.

The views expressed in this article are the writer's own.