President Obama’s appointment of GE CEO Jeffrey Immelt as his job czar signaled his “move to the center.” The pro-business President declared a “government-business partnership” to create jobs, green technology, and other good things. Now a NYT investigation reports that GE paid no U.S. taxes, aggressively lobbied Congress for subsidies and sweetheart deals, and spends millions (billions?) to minimize its tax bill. The NYT was shocked, as was Claude Rains in Casablanca, to find such skullduggery, from GE, no less. The NYT concludes that one of the most striking advantages of GE is not its jet engines and washing machines but “its ability to lobby for, win and take advantage of tax breaks.”
Written to buttress the case against reductions in the corporate tax rate, the NYT investigation unwittingly strikes a deeper vein --- that GE is faithfully pursuing Obama’s vision of, what is called in other countries, crony capitalism. Under this philosophy, “crony corporations” should follow where government incentives lead them. If Obama wants green jobs, they will build windmills, with healthy subsidies of course. If the government wants more lending, crony corporations will lend with a bailout if the loans go bad. A “green car” should be no problem. The government will pick up most of the price tag for leery consumers. Insofar as crony corporations, like GE, can “negotiate” their tax bill with Congress, they are a ready source of campaign contributions or other perquisites.
Such crony capitalism changes the normal rules of economics. Those who play the “business-government partnership game” better than others win. Those who do not play well lose, even if they are superior entrepreneurs or innovators.
From an economic perspective, it is not even clear that GE is a real “winner.” In pursuing subsidies and tax advantages, GE engages in activities that yield lower returns than other alternatives. The government payoff compensates them for making otherwise unwise economic decisions. The GEs of the world also have to waste enormous resources on the lobbying game.
If we factor in all these economic costs and losses, GE may have been better off not playing the crony capitalism game after all. The public, surely, is made worse off by the misallocation of resources and other economic losses.
The NYT’s disclosures, coupled with Obama’s appointment of Immelt, are an embarrassment, but they offer a rare backroom glimpse of crony capitalism in action. Our crony capitalism takes place, respectably and legally, in board rooms, in congressional and executive offices, or “on bended knee” before Charles Rangel. In other less civilized countries, it takes the form of shakedowns, threats of violence, and arbitrary prosecutions, but the game is played with the same results. In Russia, it is called State-Mafia capitalism. In the U.S., it is corporate welfare.