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Socially Responsible Business

Leveling the Playing Field

US Federal subsidies encourage waste and incentivize unsustainable business practices.

US Federal subsidies encourage waste and incentivize unsustainable business practices, raising the cost of good products.

Over the past decade, I’ve written and spoken about how the US economy is designed to encourage the consumption of unsustainable products by artificially lowering their costs. Misguided federal subsidies and an economic system that allows business to avoid taking financial responsibility for many of the impacts of their operations that cause environmental damage put sustainable products and services at a marketplace disadvantage.

I’ll be blunt: There is no such thing as a free market, and our federal subsidies explain why. Our market is designed to produce winners and losers—and, more so, to tilt the balance in favor of certain trade associations, industries, and companies that invest heavily in making sure the rules that support their way of doing business frame the playing field. For example, there’s a direct connection between GE’s investment in 1,000 tax accountants and lobbyists and the fact that they paid less than 5 percent in corporate taxes on average over the last 10 years. GE helped write parts of the tax code.

This translates into “bad” products being cheaper than “good” products, which confuses consumers and puts them in an ethical bind: “Do I buy what’s more affordable for myself and my family, or do I invest in a product that’s better for the world?” We encourage the purchase of products that are harmful to our health and the planet.

The Green Scissors 2011 report—a research masterpiece developed by a coalition of environmental and conservative groups—shows how we can enhance our environment by spending less when it comes to subsidies.

The report identifies more than $380 billion in wasteful government subsidies that damage the environment, harm taxpayers, and destroy the market for sustainable products. With the federal government facing a $1.65 trillion deficit and $14.6 trillion debt, the research and insight provided by the report is more critical than ever. Here’s a look at the numbers.

Subsidies for non-renewable resources

Green Scissors notes that the Oil Pollution Act of 1990 caps industry liability for offshore drilling accidents at an unrealistically low limit of $75 million. As we know from experience, oil spills can cost taxpayers billions of dollars. The cleanup of the Deepwater Horizon spill alone has already topped $6.8 billion.

Then there’s the 1872 Mining Law that gives away precious metals—like gold and copper—on federal lands and waters for free. Taxpayers receive nothing for the approximately $1 billion worth of minerals that mining companies extract annually from federal lands. Add to that $53 billion lost in uncollected oil and gas revenues from royalty-free leases in federal waters.

These subsidies artificially reduce the cost of non-renewable resources and discourage the development of renewable and sustainable alternatives. From an energy development perspective, the $53 billion in lost oil and gas revenues artificially lowers the cost of oil and gas, increasing the relative cost of all forms of renewable alternative energy.

Coal, oil and gas subsidies

Subsidies extend well beyond the raw materials themselves. Public financing agencies also subsidize environmentally harmful coal, oil, and gas projects. Last year, the Export-Import Bank provided $805 million to finance the largest greenhouse gas-emitting project in its history: a 4,800 megawatt coal plant that will dump 30.5 million tons of CO2, as well as huge amounts of particulate emissions, into the atmosphere each year. The health and environmental impacts are disastrous.

Agricultural subsidies

Washington’s misguided economic policies waste billions of taxpayer dollars annually on agriculture policies that do not address the economic or environmental priorities of 21st century agriculture. Many of these policies were created in the 1930s and no longer address the needs of America’s farmers, rural communities, consumers, or taxpayers. Billions of dollars each year are distributed to an increasingly small number of very large farming operations, while the majority of farmers and rural residents receive little assistance.

Corn, cotton, wheat, rice, and soybeans—commodities that make up an unhealthy percentage of the average diet because they are so cheap, receive up to 90 percent of the commodity crop subsidies. Meanwhile, fruit, vegetable, and nut producers are left with minimal subsidies that ensure their prices remain high.

Another issue is that crop insurance is quickly becoming the most expensive type of agricultural subsidy. Crop insurance covers crops planted on the most marginal land, which is often environmentally sensitive. By guaranteeing income even if crops fail, the government encourages bad agricultural practices.

All of these programs artificially reduce the cost of traditional agriculture and increase the prices of organic, local, Fair Trade, and family farm-based agriculture. Again, they incentivize consumers to purchase food that is bad for their health, their local economy, and the planet.

Timber and grazing subsidies

For decades, commercial timber sales on public lands have lost money because the fees paid to the government by the companies harvesting the timber do not even cover the costs associated with preparing and administering the sales. As a result, American citizens actually end up paying corporations to log our public lands—in 2010, that cost totaled $250 million.

According to the Government Accountability Office in 2004, livestock grazing programs cost taxpayers roughly $136 million to operate but earned only $21 million—a loss of $115 million. Below-cost grazing fees encourage overgrazing and have resulted in extensive and severe environmental damage to public lands, and reduced ecologic resiliency.

How in the world is all this possible?

Sadly, our government has effectively become an extension of the finance department of large multinational corporations. Huge hundred-million-dollar trade associations, such as the US Chamber of Commerce, use armies of lobbyists and piles of cash to purchase influence and elections.

Every industry pays its own trade association to do what no small business or voter can ever manage. Citizens United—the Supreme Court’s worst-ever decision—opened the spigot of corporate cash flowing into politics from a river to a tidal wave.

It’s time to stop this abuse. We must focus on changing the system that produces an economy designed to be both unfair and unsustainable. One way we can all help is by supporting organizations such as the American Sustainable Business Council. The 110,000 small businesses represented by the American Sustainable Business Council, an organization I co-founded and chair, are fighting to change the rules for all of us. Many other groups are also waging this battle, including Business for Shared Prosperity, Future 500, Green America, and the National Cooperative Business Association. Together, we can make a difference.

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COMMENTS

  • “Misguided federal subsidies and an economic system that allows business to avoid taking financial responsibility for many of the impacts of their operations that cause environmental damage put sustainable products and services at a marketplace disadvantage.” I like the whole article and especially this point in relation to marketplace disadvantage and the free market system. I can’t help but think that this same principle applies to individuals receiving subsidies from the government as well. Although done with, perhaps, good intentions, a subsidy of any type might actually stymie economic production as well as personal fulfillment.

  • BY Paul Polak

    ON April 9, 2012 11:43 AM

    bravo!
    I wholeheartedly agree that most subsidies lead to outrageously poor impacts.

    Western agricultural subsidies, for example, are an international disgrace, ultimately making it difficult or impossible for small poor farmers in developing countries to compete with the prices of grains dumped into their markets.

    The real question is, how can we take effective political action to remove them?

    paul polak

  • Paul Petruccelli's avatar

    BY Paul Petruccelli

    ON April 11, 2012 02:45 AM

    Absolutely agree! But let’s be clear. These kinds of subsidies are a bad idea, no matter how well-intentioned they are, because they have distorting effects on the marketplace. We should get rid of them all—and that includes the tax incentives and subsidies that have been developed more recently for such things as solar power, wind energy, etc. Otherwise, all we do is keep re-creating the same problems over and over again, simply on a shifting playing field.

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