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Silicon Valley vs. Corporate Welfare

by T.J. Rodgers

This article appeared on cato.org on June 25, 1998.

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Corporate welfare programs cost taxpayers about $65 billion a year. Those subsidies to big businesses harm U.S. industry in general and Silicon Valley companies in particular.

Technology subsidies to corporations are routinely justified with technobabble to camouflage unjustifiable investments, which typically fall into four categories: subsidizing the rich, competing unfairly with private industry, spending that provides no benefit and spending that hurts the intended beneficiary.

Some argue that corporate welfare is necessary because Japan and Europe subsidize their corporations, but that flies in the face of reality: Japan's programs have been consistent losers, and Western Europe's socialized economies are among the sickest of the developed world.

Despite the fact that many of the subsidies are intended to benefit America's high-technology industries, those firms would be largely unscathed if Silicon Valley firms lost all federal subsidies. The competitiveness of America's semiconductor firms and other high-technology industries would benefit if corporate subsidies were eliminated altogether and the savings were devoted to reducing corporate income taxes, the capital gains tax or the personal income tax.

Over 75 Silicon Valley CEOs agree with this critical assessment of federal subsidies to industry and have signed a "Declaration of Independence" from corporate welfare.

Corporate welfare conceals the fact that making difficult technology decisions professionally is what Silicon Valley is about. Whenever a dollar is transferred from San Jose to Washington, that dollar's chances of being invested productively diminish greatly. A typical example is the NASA program aimed at manufacturing gallium arsenide chips in space. The cost is estimated at $10,000 per wafer, or 10 times that of the most expensive GaAs wafers now available. Our government has taken several hundred million dollars from American taxpayers to subsidize an exotic technology manufactured in an exotic place for a super-high-tech industry that neither needs nor cares about the investment.

Lou Tomasetta, the CEO of Vitesse Semiconductor, America's largest gallium arsenide company, has labeled the effort "a solution looking for a problem." Even the industry can see no value in this pork-barrel program.

Given Congress's reluctance to vote down corporate pork, one strategy for eliminating corporate welfare would be to form an independent commission to identify unnecessary subsidies, not unlike the one that spearheaded the successful effort to close down many of our redundant military bases. Ultimately, such a commission would force Congress to vote yes or no on a package of corporate spending subsidies.

Over 75 Silicon Valley CEOs agree with this critical assessment of federal subsidies to industry and have signed a "Declaration of Independence" from corporate welfare. It reads:

"The high taxes that our company and its employees pay to support the current local-state-federal government tax burden of 35% of GDP hurts our economy more than any possible corporate benefit from government spending. If an independent commission similar to the military base-closing commission identified a fair and substantial government spending cut in the area of so-called 'corporate welfare,' I would support that cut, even if it meant funding cuts to my own company."