Corporations do not always act in the public interest. This is not because they are run by evil men and women, but rather because their incentive structure does not often reward good citizenship. At one level, one could argue that corporate leaders ought to act in the public interest regardless, but that is a actually more problematic than in seems. Do we really want corporate leaders using the power of their industries to act in whatever way they think is the public interest? Consider the problems that arise already with the relatively small number of companies that put partisanship over profits. How many more News Corps do we really need? No, for the sake of democracy, it is best if corporations focus on one thing, and one thing only, making money.
But what if making money leads to policies that violate public policy? The key problem is that of externalities. If you can dump toxic waste more cheaply into the water supply, then in the interests of making money you ought to do it, since society pays the cost of disposal rather than the company. That is obviously not a desirable outcome. There are two ways of dealing with this problem. These are regulation and incentivization.
Most progressives prefer regulation -- arguing that incentivizing good behavior is paying companies to do what they ought to be doing anyway. Many conservatives dislike regulation because they consider the government inefficient and ineffective and argue that corporations self-regulate anyway. Conservatives are wrong in this regard because even if a corporation has a long-term interest in being a good citizen, corporate managers operating in their own short-term interests may not. But progressives are also misguided in this faith in regulation alone. Simply, the problem with regulation is that in attempting to legislate behavior, you create a system that can be gamed by savvy lawyers and managers. As long as there is money to be made in pushing the envelop on compliance, corporate leaders will seek, find, and exploit loopholes that occur because you simply cannot write regulations that are joint exhaustive of all possible actions.
This brings us back to "corporate welfare" -- tax breaks and other incentives paid to corporations to encourage them to behave one way or another. Yes, at one level, it is distasteful to pay companies to behave responsibly, but realistically this is the best course of action. Critics will reply that the problem is that corporations are being paid to do things which violate public policy -- such as off-shoring job. Indeed, that is a problem because companies will lobby to be paid to do things that are profitable rather than right. But the key here is not to eliminate direct payments and tax breaks for corporations altogether but rather to ensure that those transfers actually serve the public good.
Progressives' hostility to corporations gets in the way of effective public policy. We need to focus on making "corporate welfare" work, rather than simply trying to replace it with tighter and tighter regulation. But the only way we do that is to stop with the empty rhetoric about "corporate welfare" in the first place. Like anything else, we should seek to use a combination of regulation and incentives to ensure that negative externalities are included in business decisions. Sometimes that will require regulation and threats of civil or criminal penalties when violated. In other cases, however, the most effective approach will be to incentivize corporations to act in the public interest.
Bernard Finel
www.bernardfinel.com