Corporate socialism

Several weeks ago, New York Regional Interconnection (NYRI), the company that is pushing to construct a high-voltage power line that would transect our region, filed for a guaranteed 13.5 percent rate of return on its project with the Federal Energy Regulatory Commission (FERC). The burden of paying off that percentage, naturally, would fall on the backs of electricity consumers.

To add insult to injury, the firm justified its request by pointing out that intense public opposition all along the proposed route has deterred potential investors by making the project more risky. Faced with such risk, and without a government-guaranteed rate of return, the filing argued, “it is unlikely that NYRI will be able to obtain the long-term financing that is required to bring the project to commercial operation.”

In other words, they feel investors need to be bribed to do something that the general public strenuously objects to, and that the general public should be made to pay for it.

We believe New York Congressman Hinchey hit on precisely the right name for this phenomenon in a letter he wrote to FERC protesting NYRI’s petition. He called it “corporate socialism.” It’s something we have seen growing by leaps and bounds in this country recently, and it probably has a lot to do with why the income of the top one percent or so of the population has surged while real median income has declined.

In this particular case, the company gets its cover from the idea of National Interest Electricity Transmission Corridors (NIETCs), set up in the Energy Policy Act of 2005. NIETCs are defined as areas in which FERC has claimed that there is a public need for increased energy supply. Within them, the Federal government will back up energy companies who desire to do business with eminent domain power and other perks.

Never mind that the areas that FERC has, in fact, designated as NIETCs are not corridors, but broad swaths co-opting most of the territory of numerous states, including New York and Pennsylvania. Never mind that the governors, other political leaders and people of these states have protested the designations. Never mind that studies have been done showing that NYRI’s specific project is not necessary to fulfill New York’s electricity needs. The Federal government stands ready to strong arm states and localities into fulfilling the wants of companies claiming to fill the supposed need—including, under some circumstances, a guaranteed rate of return.

But this is only one of many examples of corporate socialism, the privatization of profits coupled with the socialization of costs. The cost-plus contracts prevalent in Iraq, in which corporations get guaranteed profits on top of wildly inflated costs—like KBR’s $100 bags of laundry—are another example.

So is the recent bailout of investment house Bear Stearns. J.P. Morgan gets to buy out one of its biggest competitors, Bear Stearns, at below book value. It has to take on $30 billion of highly risky, low-quality assets, but it only has to assume $1 billion in risk—and Bear Stearns’ headquarters alone is valued at that much. And if the remaining $29 billion goes sour, who takes the hit? The Federal Reserve—which is to say, you and me. The risk on that one has certainly been spread out over society as a whole, but we have yet to hear that J.P. Morgan is going to share its profits with the public should the deal turn out well.

There is a debate in academic and policy-making circles as to which is preferable: pure laissez-faire capitalism, in which the government interferes not at all; or a mixed economy, in which the government presides over a competitive market, but imposes and enforces rules in cases where the profit motive is clearly at odds with the public good, such as trust-busting, environmental concerns, consumer safety and fraud issues. We come down heavily on the latter side (and believe the recent credit crisis is a good example of why), but acknowledge that people of good faith can disagree. But corporate socialism, in which society assumes the risk and pays the piper while a favored few corporations walk away with the cash, is absolutely unjustifiable.

Fortunately, this country will soon have an opportunity to move away from this type of system. With the Pennsylvania primary behind us, it’s time to look forward to what we have to do in the November elections, at all levels, to make sure that that happens. It’s not just the power line, but our whole economy, that’s at stake.

Dr. Punnybone

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