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Socialism for the rich and capitalism for the poor
Socialism for the rich and capitalism for the poor is a classical political-economic argument, stating that in the advanced capitalist societies state policies assure that more resources flow to the rich than to the poor, for example in form of transfer payments. The term corporate welfare is widely used to describe the bestowal of favorable treatment to particular corporations by the government. One of the most commonly raised forms of criticism are statements that the capitalist political economy toward large corporations allows them to "privatize profits and socialize losses." The argument has been raised and cited on many occasions.
Privatize profits/gains, and socialize risks/losses/debts
Markets, free enterprise, private enterprise, and capitalism for the poor, while state protection and socialism for the rich.
In political discourse, the phrase "privatizing profits and socializing losses" refers to any instance of speculators benefitting (privately) from profits, but not taking losses, by pushing the losses onto society at large, particularly via the government.
The notion that banks privatize profits and socialize losses dates at least to the 19th century, as in this 1834 quote of Andrew Jackson:
I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. ... You are a den of vipers and thieves.
—Andrew Jackson, 1834, on closing the Second Bank of the United States;
It has been argued that in the current economic system, especially in the U.S., large corporations and wealthy parts of society can socialize costs and privatize profits, with the effect of a further concentration of wealth. Large firms and banks have been accused of this, as a form of crony capitalism and corporate welfare, and some bailouts are cited as examples of this: a bailout socializes a company's losses. In particular, government sponsoring and bailouts such as the federal takeover of Fannie Mae and Freddie Mac and the proposed bailout of the U.S. financial system in the economic crisis of 2008 have frequently been referred to in the U.S. as “private gains and public losses” or “privatization of profits and socialization of losses”. Economic policies which favor such concentration of capital have frequently been criticized as socialism for the rich and capitalism for the poor.
In game theory, this is formalized as the CC–PP game.
In the financial language of options, "socializing losses" corresponds to private firms having a put option from the government: if they lose, the government will cover their losses. The most famous example of this is the Greenspan put.
In the black swan theory of Nassim Nicholas Taleb, he criticizes this as one of his Ten Principles for a Black Swan Robust World, writing as his second principle:
2. No socialisation of losses and privatisation of gains.
Corporate welfare is a sociological concept that analogizes corporate subsidies to welfare payments for the poor. The term is often used derogatorily to describe a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations, and implies that corporations are much less needy of such treatment than the poor. In practice, the term is often used virtually interchangeably with crony capitalism. To the extent that there is a distinction, the latter term could be considered broader, including all types of governmental decisions that favor the "cronies" (big businesses and industry groups providing substantial campaign contributions), while corporate welfare might be restricted only to direct government subsidies.
Subsidies considered excessive, unwarranted, wasteful, unfair, inefficient, or bought by lobbying are often called corporate welfare. The label of corporate welfare is often used to decry projects advertised as benefiting the general welfare that spend a disproportionate amount of funds on large corporations, and often in uncompetitive, or anti-competitive ways. For instance, in the United States, agricultural subsidies are usually portrayed as helping honest, hardworking independent farmers stay afloat. However, the majority of income gained from commodity support programs actually goes to large agribusiness corporations such as Archer Daniels Midland, as they own a considerably larger percentage of production.
Alan Peters and Peter Fisher (Associate Professors, Graduate Program in Urban and Regional Planning, University of Iowa) have estimated that state and local governments provide $40–50 billion annually in economic development incentives, which critics characterize as corporate welfare.
Some economists consider the recent bank bailouts in the United States to be corporate welfare. U.S. politicians have also contended that zero-interest loans from the Federal Reserve System to financial institutions during the global financial crisis were a hidden, backdoor form of corporate welfare.
Policy analysis conducted by the Cato Institute, an American libertarian think tank, argued that United States fiscal policy allocated approximately US$92 billion in the 2006 federal budget toward programs that the authors considered to be corporate welfare. Subsequent analysis by the institute estimated that number to be US$100 billion in the 2012 federal budget. It should be noted, however, that Cato's criteria, which are not clearly defined, do not include tax loopholes or trade barriers.
Daniel D. Huff, professor emeritus of social work at Boise State University, published a comprehensive analysis of corporate welfare in 1993. Huff ratiocinated that a very conservative estimate of corporate welfare expenditures in the United States would have been at least US$170 billion as of 1990. Huff compared this number with social welfare:
In 1990 the federal government spent 4.7 billion dollars on all forms of international aid. Pollution control programs received 4.8 billion dollars of federal assistance while both secondary and elementary education were allotted only 8.4 billion dollars. More to the point, while more than 170 billion dollars is expended on assorted varieties of corporate welfare the federal government spends 11 billion dollars on Aid for Dependent Children. The most expensive means tested welfare program, Medicaid, costs the federal government 30 billion dollars a year or about half of the amount corporations receive each year through assorted tax breaks. S.S.I., the federal program for the disabled, receives 13 billion dollars while American businesses are given 17 billion in direct federal aid.
Huff noted that deliberate obfuscation was a complicating factor.
In 2002, Bernie Sanders scrutinized corporate welfare policies in the United States, which he considered to total US$125 billion annually.