Cronyism Alive and Well in Washington

Despite pledging to send special interests to the woodshed, President Obama has practiced his own form of crony capitalism, laying out taxpayer funds on businesses that have helped him politically – green energy (Solyndra) being of particular note, but also, notably, General Electric. 

His support of union members, at the expense of bondholders in the auto industry in 2009, was another example, as were his recess appointments of three people to the National Labor Relations Board this past January. Nevertheless, if Republicans want to gain the high ground in ethical politics, they, too, must exchange favoritism of the few for the interests of the majority; thus far in this Congress their success is mixed.

An insightful editorial on this subject appeared in yesterday’s Wall Street Journal, which praised Senator JimDeMint (R-SC) and chastised Senator Marco Rubio (R-FL.)

In the first instance the Senate, by a vote of 78-20, reauthorized the Export-Import Bank, a bill whose passage was never in question because of its backing from the White House, the Chamber of Commerce and business groups. The Export-Import Bank is the official export credit agency for the United States. It was established in 1934 to help businesses fund exports, thereby (theoretically) creating or preserving jobs, while (supposedly) leveling playing fields. 

Supporters argue that the bank provides these functions at no cost to taxpayers; in fact, they claim, it earns a profit. However, the non-partisan Congressional Budget Office has cautioned that under Fair-Value Accounting rules the bank actually loses money – about $200 million a year. The Administration has argued that the bank helps small businesses, but, interestingly, of the $32.7 billion in loans in 2011, 41.6% went to two companies – Boeing and General Electric, with Boeing receiving $12.4 billion.

According to Economic Policies for the 21st Century, the borrowers receive a subsidy of about 1% of the amount borrowed. In other words, Boeing benefitted by approximately $120 million. Was taxpayer largesse of that amount necessary for a company that last year reported $5.34 billion in net income, or were those loans examples of crony capitalism?

A cynic might argue that the outcome of the Senate vote was a foregone conclusion, implying Senator DeMint was able to make political hay by voting against it. But that doesn’t seem to have been the case; he led the opposition and — keep in mind, Boeing has a major new plant in South Carolina (as does GE). In a speech to 400 Chamber of Commerce members, Mr. DeMint said he voted against the reauthorization because “we’ve created a culture in Washington that has almost every major business in the country with its nose in the trough.” It’s hard to disagree with that statement.

On the other hand, Senator Rubio caved to the sugar lobby, especially to Florida’s Fanjul family, the country’s largest sugar producers. Sugar has enjoyed price supports for years that effectively limit lower priced sugar from other countries. An amendment to the farm bill, sponsored by Senator Jeanne Shaheen (D-NH), and a reform bill proposed by Senator Pat Toomey (R-PA) would have eliminated or reduced price supports for U.S.-grown beet and cane sugar. Shaheen’s amendment failed, and the Senate voted 50 to 46 to table Senator Toomey’s bill. Senator Rubio joined 15 Republicans and 34 Democrats in killing reform. 

Sugar is used by virtually everybody, though Mayor Bloomberg is doing what he can to curtail its usage in New York City. By artificially inflating its price, the bill provides support of about $2 billion a year to 5000 sugar farmers, according to a 2000 study by the General Accounting Office. It acts as a regressive tax on the rest of us 306,995,000 Americans.

Promising to be like Jesus who drove the money lenders from the temple, candidate Obama promised to drive special interests from Washington. In 2008, candidate Barack Obama said, “Were going to have to change the culture in Washington, so that lobbyists and special interests aren’t driving the process.” While registered lobbyists have been banned from official invitation lists to the White House, the New York Times reported on April 14th of this year that large donors “often took lobbyists with them, while others performed essentially the same function on their visits.” 

What I find especially offensive about this Administration is the sanctimonious tone of their remarks and the ingenuousness of their actions. Unsurprisingly, Mr. Obama has not driven special interests from Washington, and certainly their influence on Congress is as strong as ever. One could argue that the President has probably set a record as the single worst investor since Jimmy Carter – taking our money and throwing it at battery and solar companies, like Solyndra.

Money will never be removed from politics. Every attempt to reform campaigns has proved a failure. Money and politics will always mix. It is naïve to believe otherwise. The Administration had hoped that Citizens United would curtail or limit corporate contributions to campaigns; though they had no interest in eliminating contributions by labor unions or Hollywood studios. Whatever, the Supreme Court decided otherwise. 

We are left with the best disinfectant being sunshine – that, and term limits, which would render Congressional men and women less valuable to business people, bankers and unions. Contributors to specific campaigns are obligated to disclose their names, and limited in what they can contribute. Contributors to PACs have no such limits, and can remain secret. Their names should be made public. 

Republicans have recently argued against such disclosure rules; they are concerned that they would be harassed. They do have reason for concern, as Mr. Obama, like one of his less-than-worthy predecessors, has created an “enemies” list, and has used it to intimidate and harass opponents. But the reality is that if the name of every contributor were made public, any attempt to intimidate would also be in the public domain. It is a price worth paying, in my opinion, for a badly needed cleansing.

Crony capitalism is one of the few issues on which there is bipartisan unity. Both parties lament its existence. Neither party is immune from its effects, and both parties partake of its goodies. It will not disappear, despite promises made by aspiring politicians. The more complicated the rules governing such behavior, the greater the possibility of discovering loopholes. Complex regulations inspire a competitive streak in lawyers who see them as a challenge, not something to limit their creativity. Again, sunshine and good investigative journalism are the best antidotes.

As the Wall Street Journal editorial concludes: “If Republicans want the political credibility to reform middle-class entitlements, they had better be prepared to eliminate corporate welfare too.” While it is too much to hope that cronyism be eliminated, at least it should be controlled. That’s Mr. Romney’s opportunity. It sure doesn’t appear that Mr. Obama has made much of a dent.