London Daily

Focus on the big picture.
Friday, Jul 04, 2025

America used to regulate business. Now government subsidises it

America used to regulate business. Now government subsidises it

What’s to blame? The change in the balance of power between large corporations and the government

The Clean Air Act of 1970 authorized the government to regulate air pollution.

The Inflation Reduction Act, which Joe Biden signed into law this past week, allocates more than $300bn to energy and climate reform, including $30bn 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 climate the crisis. It also illustrates the nation’s shift away from regulating businesses to subsidizing businesses.

From 1932 through the late 1970s, the government mainly regulated businesses. This was the era of the alphabet soup of regulatory agencies begun under Franklin D Roosevelt (the SEC, ICC, FCC, CAB, and so on) culminating in the EPA of 1970.

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 Chips and Science Act (with $52bn of subsidies to semiconductor firms, plus another $24bn in manufacturing tax credits);

*  the Infrastructure Investment and Jobs Act ($550bn of new spending on railroads, broadband and the electric grid, among other things);

*  and now the Inflation Reduction Act (including the subsidies I noted).

This shift from regulation to subsidy has characterized every recent administration.

Trump’s Operation Warp Speed delivered $10bn of subsidies to Covid vaccine manufacturers.

Obama’s Affordable Care Act subsidized the healthcare and pharmaceutical industries (indirectly, through massive subsidies to the buyers of healthcare and pharmaceuticals).

And Obama spent about $489bn bailing out the financial industry (and, notably, never fully restored financial regulations that previous administrations had repealed), as well as GM and Chrysler.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 manufacturers, health care and pharmaceutical businesses, and the financial sector, we would have regulated them – requiring them to act in various ways.

If this regulatory alternative seems far-fetched today, that’s because of how far we’ve come from the regulatory state of the 1930s to the 1970s, to the subsidy state beginning in the 1980s.

Why the big shift? Because of the change in the balance of power between large corporations and the government.

Today it’s politically difficult, if not impossible, for government to demand that corporations (and their shareholders) bear the costs of public goods. Government must bribe them instead.

I saw this first-hand. Bill Clinton’s healthcare plan was blocked by the pharmaceutical and healthcare industries, which would have had to sacrifice some profits.

By contrast, Obama got the Affordable Care Act by paying off these industries – all but guaranteeing them larger profits from a massive inflow of newly subsidized customers.

Spending by corporations on lobbying increased from $1.44bn in 1999 to $3.77bn in 2021 and is on track to exceed $4bn this year.

This tidal wave of corporate money has occurred at the same time large American corporations have globalized, to the point where many are able to play off the United States against other nations – demanding government subsidies in return for creating jobs and doing their cutting-edge research in America.

The new Chips Act shows how powerful and highly profitable semiconductor manufacturers, such as US-based Intel, can extract billions of dollars in a global shakedown for where they’ll make semiconductor chips.

In the 1980s, yours truly was involved in a national debate over “industrial policy”. The question, put simply, was whether the government should subsidize certain industries that generate large social benefits in the form of new technologies.

I argued that the government was already engaged in a hidden industrial policy, disguised, for example, as grants to the aerospace and telecom industries by the Department of Defense and to the pharmaceutical industry by the National Institutes of Health. It would be far better to do industrial policy in the open, so that the public could assess what it was paying for and what it was getting in return.

Opponents, which included just about every Republican, were indignant at the very idea that government ought to be “intruding” on their blessed free market.

Today’s subsidies are far larger, and even supported by Republicans.

Republican senator John Cornyn, arguing for the Chips Act, said, “What we are doing is industrial policy unlike people of my free-market background have done before.”

In truth, the three decades-long shift in power to big corporations has transformed industrial policy into a system for bribing them to do the sorts of things government once demanded they do as the price for being part of the American system.

Newsletter

Related Articles

0:00
0:00
Close
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
Poland Implements Border Checks Amid Growing Migration Tensions
Political Dispute Escalates Between Trump and Musk
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
US Senate Votes to Remove AI Regulation Moratorium from Domestic Policy Bill
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
Jury Deliberations in Diddy Trial Yield Partial Verdict in Serious Criminal Charges
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
King Charles Plans Significant Role for Prince Harry in Coronation
Two Chinese Nationals Arrested for Espionage Activities Against U.S. Navy
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
Trump Administration Considers Withdrawal of Funding for Hospitals Providing Gender Treatment to Minors
Texas Enacts Law Allowing Gold and Silver Transactions
China Unveils Miniature Insect-Like Surveillance Drone
OpenAI Secures Multimillion-Dollar AI Contracts with Pentagon, India, and Grab
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Elon Musk Critiques Senate Budget Proposal Over Job Losses and Strategic Risks
Los Angeles Riots ended with Federal Investigations into Funding
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Education Secretary Announces Overhaul of Complaints System Amid Rising Parental Grievances
Massive Anti-Government Protests Erupt in Belgrade
Trump Ends Trade Talks with Canada Over Digital Services Tax
UK Government Softens Welfare Reform Plans Amid Labour Party Rebellion
Labour Faces Rebellion Over Disability Benefit Reforms Ahead of Key Vote
Jeff Bezos and Lauren Sánchez Host Lavish Wedding in Venice Amid Protests
Trump Asserts Readiness for Further Strikes on Iran Amid Nuclear Tensions
North Korea to Open New Beach Resort to Boost Tourism Economy
UK Labour Party Faces Internal Tensions Over Welfare Reforms
Andrew Cuomo Hints at Potential November Comeback Amid Democratic Primary Results
Curtis Sliwa Champions His Vision for New York City Amid Rising Crime Concerns
Federal Reserve Proposes Changes to Capital Rule Affecting Major Banks
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Trump Escalates Criticism of Media Over Iran Strike Coverage
Trump Announces Upcoming US-Iran Meeting Amid Controversial Airstrikes
Trump Moves to Reshape Middle East Following Israel-Iran Conflict
Big Four Accounting Firms Fined in Exam Cheating Scandal
NATO Members Agree to 5% Defense Spending Target by 2035
Australia's Star Casino Secures $195 Million Rescue Package Amid Challenges
UK to Enhance Nuclear Capabilities with Acquisition of F-35A Fighter Jets
×