Socialism for Corporate Wealth?

by Keith Cooper

From Broader View Weekly, May 26, 2011

Last week, the Senate voted down a bill that would dramatically reduce the federal subsidies that oil corporations receive. This followed a hearing the week before in which CEOs from the big five U.S. oil corporations testified about being treated unfairly and pressured Congress to keep the tax breaks in place.

The subsidies would add about $2 billion to the insane profits big oil has been earning over the past few years. The oil execs claimed to have little effect over gas prices, but the rising prices at the pump have been very good for the oil industry. The industry’s profits in the last decade totaled more than $902 billion. Exxon-Mobil alone has seen profits of $10.7 billion in the first quarter of 2011 (their share of $32 billion industry wide).

There is nothing wrong with earning a profit in the American model of capitalism. However, when we commit federal funds and tax revenue to any industry we should do so responsibly, especially at a time when the focus is on national debt and budget deficits. Not only are Democrats in Congress saying these subsidies are not needed, but oil industry leaders have echoed the sentiment in the past. In February, former president of Shell Oil John Hofmeister said in light of gas prices it was clear that the industry didn’t need incentives in the form of subsidies. Conoco-Phillips CEO Jim Mulva testified specifically in 2005 that with respect to oil and gas production “we do not need incentives.” Of course, Mr. Mulva changed his tune a bit a couple of weeks ago. His company may not need incentives to drill, but it sure wants the added income.

The fact of the matter is that oil companies will explore and drill where the oil supply is. This is as it always has been and always will be. The same is true of all energy-related industry. Locally, we see state and municipal officials pushing for subsidies and provisions for natural gas exploration even as it is clear that the companies are coming. They will explore and drill and hydrofracture where the supply is, regardless of incentives. So if the net result is the same without the subsidies as with them, then the lost revenue is merely a government handout to companies that can do just fine without it.

This type of big government federal spending is abhorrent to conservatives when it benefits the poor or the working class. Entitlements meant to help those struggling day-to-day in a depressed economy that has left many financially strapped or downsized out of a job is seen as socialism. Interestingly, the corporate wealthy who are riding high on a wave of prosperity brought about by high gas prices are seen as needy by those same conservatives.

Talk radio host Rush Limbaugh, who has wrongly accused President Barack Obama and his administration of being socialist and anti-business (look at Obama’s record regarding corporate America, as well as his pick of General Electric CEO Jeffrey Immelt to head his council on Jobs and Competitiveness), has defended oil subsidies. When the bill to end the handouts was introduced, Limbaugh danced verbally around the subject trying to make the case that since the oil industry had to spend billions of dollars in investments in exploration and preparation before drilling and production can begin, the subsidies were merely a way to recoup that cost. Every corporation in every industry has such expenditure in research and development of method, process or operation. These operation costs are not offset by federal handouts and shouldn’t be offset for the oil industry either.

The flip-flop on big oil is a remarkable contrast to Limbaugh’s sentiment regarding corporate stimulus and measures intended to ease the financial crisis, or the impact of the recession on the automobile industry. Limbaugh still calls General Motors a government-owned entity (despite its recent public stock offerings) and ignores the relative success GM has seen over the last couple of years. At least the stimulus funds are being repaid to the government and can be applied to the deficit.

Rush is not alone in contradiction to conservative values. Tea Party candidates who ran on reducing government spending and the national debt seem to be happy to give away the farm to the oil industry. It is becoming increasingly clear that the concerns of the working class, grass roots movement that propelled these candidates in the elections of 2010 take a back seat to the concerns of corporate America and the wealthiest two percent (who have seen their tax breaks protected regardless of budget shortfalls).

Paying $4 per gallon at the gas station is painful enough for most of us. When we see the giants of the oil industry profiting from our misery, it inspires rage against those powerful companies. But that’s not the reason why subsidies must end.

A pragmatic approach to the situation reveals that eliminating those subsidies will have little impact on gas prices. Market speculation, industry collusion and price control will continue to be the factors that set pump prices. However, the elimination of subsidies will not impact the drilling and production of oil in the United States. If we espouse free market values as part of our capitalist model we must be consistent to those values.