A New Wall of Separation: End Corporate Welfare

In his famous letter to the Danbury Baptists, Thomas Jefferson declared the Constitution erected a “wall of separation between church and state.” The Father of the Constitution James Madison agreed. “Religion and government will both exist with greater purity, the less they are mixed together,” he wrote in an 1822 letter. “It is impossible to deny,” he continued, “that Religion prevails with more zeal, and a more exemplary priesthood than it ever did when established and patronised by Public authority.”

Two centuries later, a new wall of separation must be built, this time between government and business. It is becoming clearer everyday to all parts of the political spectrum that business and government will, as Madison wrote of religion, “both exist with greater purity, the less they are mixed.” The animating cry of the Tea Party — that government has become too meddlesome and intrusive, not to mention unfair and unequal, in its dealings with business — is now echoed by Occupy Wall Street.

Yesterday, Occupy Portland called for “a national day of action” to challenge corporate power in America. “Corporations,” they write, “place profit over people, self-interest over justice, and domination over equality.” But to profit, private corporations must place themselves under people — they must serve them and cater to their needs. Far from domination, even self-interested CEOs must appeal to their customers’ interests or face bankruptcy.

But unfortunately, the relationship between business and consumers is changing. In the last four years, government’s involvement in the private sector has escalated to unprecedented levels. Bailouts have sunk billions of taxpayer dollars into failed banks, corporations, and other private organizations since the financial crisis began in late 2008. At the same time, corporate subsidies have increased dramatically as policymakers have attempted to stimulate the economy.

These developments have fundamentally changed the dynamic between business and society. Corporate profits have become disconnected from the services they provide to consumers. Rather than creating products that create prosperity for society, corporate success has become tied to managing political relationships through lobbyists and political intelligence firms. Political and corporate power have combined to protect and even create whole industries, and too often, as the Occupy protesters point out, political connections have left corporations unaccountable for their actions.

These developments have led directly to America’s current economic problems. The 2008 financial crisis and subsequent government interventions were only the beginning. Government has invested billions of dollars in private industry — insurance companies, mortgage lenders, banks, energy companies, and automobile manufacturers — leaving taxpayers liable for major losses if the economy takes a turn for the worst again. Even after S&P downgraded the U.S. debt rating, government debt is about to eclipse total GDP. The European crisis forewarns of a coming American debt crisis.

Americans have been here before. Throughout the 19th century, states invested heavily in private railroad developers, canal builders, and other internal improvement projects that ultimately went bankrupt and left taxpayers with the bill. During the 1840s and 1870s, various states defaulted on their debt obligations seventeen times. In response, nearly every state amended their Constitutions to prohibit certain types of “gifts” or subsidies to private business — loans, investments, and appropriations for private projects. These bans were intended as a wall of separation between government and business.

Arizona’s Constitution, for example, was amended to read, “neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation.”

As the political consensus deemed them unnecessary, these “Gift Clauses” fell into disuse, but recently, two challenges to public subsidies in Arizona have been upheld by the Arizona Supreme Court. As the American people wake up to the evils of government-controlled business, a new bi-partisan agenda for Congress should be a national gift clause that would give American business “more zeal” and renew the “purity” both government and free-enterprise have lost in recent years.