The Inflation Reduction Act, signed by Joe Biden last week, has more than $300 billion for 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 an important step toward slowing or reversing the climate crisis. It also demonstrates the nation’s shift from regulating business to subsidizing business. From 1932 to the late 1970s, the government mainly regulated business. This was the era of the alphabet soup of regulatory agencies that began under Franklin D Roosevelt (the SEC, ICC, FCC, CAB and so on) culminating in the 1970 EPA. 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 Infrastructure Investment and Jobs Act ($550 billion in new spending on rail, broadband and the electric grid, among others);
This shift from regulation to subsidy has characterized every recent administration. Trump’s Operation Warp Speed provided $10 billion in subsidies to Covid vaccine makers. Obama’s Affordable Care Act subsidized the healthcare and pharmaceutical industries (indirectly, through massive subsidies to purchasers of healthcare and pharmaceuticals). And Obama spent about $489 billion bailing out the financial industry (and, crucially, never fully restored the financial regulations that previous administrations had removed), as well as GM and Chrysler. Before the 1980s, the US would have done all this differently. Instead of subsidizing broadband, semiconductors, energy companies, vaccine makers, health care and pharmaceutical companies, and the financial sector, we would have regulated them – requiring them to act in various ways. If this regulatory alternative seems far-fetched today, it is because of how far we have come from the regulatory state of the 1930s to the 1970s, to the subsidy state that began in the 1980s. Why the big change? Because of the shift in the balance of power between large corporations and the government. Today it is politically difficult, if not impossible, for government to require corporations (and their shareholders) to bear the cost of public goods. Instead, the government has to bribe them. I saw it firsthand. Bill Clinton’s health care plan was blocked by the drug and health care industries, which would have to sacrifice some profits. Instead, Obama got the Affordable Care Act by paying those industries – without guaranteeing them greater profits from a huge influx of new subsidized customers. Corporate spending on lobbying grew from $1.44 billion in 1999 to $3.77 billion in 2021 and is set to top $4 billion this year. This tidal wave of corporate money has occurred at the same time that major American companies have become globalized, to the point where many are able to play the United States against other nations – demanding government subsidies in exchange for creating jobs and cutting-edge research in America . The new chip law shows how powerful and highly profitable semiconductor makers such as US-based Intel can extract billions of dollars in a global shakedown over where to make semiconductor chips. In the 1980s, yours truly became involved in a national debate about “industrial policy.” The question, simply put, was whether the government should subsidize certain industries that produce large social benefits in the form of new technologies. I argued that the government was already engaged in a covert industrial policy, disguised, for example, as grants to the aerospace and telecommunications industries from the Department of Defense and to the pharmaceutical industry from the National Institutes of Health. It would be much better to make industrial policy out in the open so that the public could appreciate what they were paying for and what they were getting in return. Opponents, which included almost all Republicans, resented the very idea that the government should “invade” their blessed free market. Today’s subsidies are much larger and are even supported by Republicans. Republican Senator John Cornyn, supporting the CHIPS Act, said: “What we’re doing is industrial policy unlike what my free market people have done in the past.” In fact, three decades of shifting power to big corporations has turned industrial policy into a system that bribes them to do the things the government once demanded they do as a price for being part of the American system.
