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Sunday, April 12, 2015

"Free" Enterprise

The University of Louisville recently announced it had received millions of dollars of contributions from Papa John's head John Schnatter and the Koch Brothers to fund a "free enterprise center" in the Business School on campus. Apparently, the contract gives the donors somewhat unusual leverage over the personnel hired by their funds and the content of new academic programming.

English Professor Martin Kich of Wright State discussed the gift and voiced a major criticism that is often associated with the terms. First, however, he quotes a University official:
“’The [UofL Economics] department is in the process of hiring a new full-time faculty member but is struggling to get enough funding, faculty and class offerings to keep pace with student demand,’ said university spokesman Mark Hebert. 
“Hebert said the department focuses on applied microeconomics, which includes statistics and econometrics instruction needed for health, industrial organization, labor and environmental studies. ‘The department would like to expand all of these areas if funding and faculty were to become available,’ he said.” 
What this spokesperson is actually saying is that the ideological slant of the department is up for auction. Since it is very clear that the Koch gifts are not going to fund “labor and environmental studies,” in the absence of competing gifts from progressive donors, one can only conclude the Koch views on labor and environmental issues will dominate, if not go completely unchallenged.
Personally, I find it interesting that the Koch brothers and Schnatter could end up funding free market critics of the practices that help make them rich. While the Koch brothers are famous for their libertarian and anti-government policy positions, they frequently use their corporate lobbying clout to win lucrative government contracts -- mostly involving the Department of Defense. Roughly 80% of their DoD contracts do not involve competitive bids. Their timber and cattle ranching interests take advantage of cheap government leasing rights that are famously priced well below market rates. Their oil and related energy businesses seek to benefit from government seizure of private land under eminent domain. Though the Koch brothers have apparently argued against them in DC, their corporations have apparently accepted $1 billion for ethanol subsidies.

Schnatter too fairly directly benefits from government subsidies. After all, Papa John's Pizza is a food business and agricultural subsidies of pork, grain and dairy products help him keep costs artificially low. That means he personally profits from tremendous government spending that has very little to do with the free market.

One of my earliest blog posts from December 2003 quoted a letter from over 100 economists arguing that "government subsidies of irrigation, logging, livestock grazing and mining prop up activities that could not survive in efficient market conditions." The result is often subsidized environmental destruction. Government leasing needs to be priced at market rates, preferably involving full environmental costs.

Ann Hagedorn in the Winter 2015 issue of The American Prospect emphasized the economic costs of government outsourcing of security functions to private business:
Blackwater went into the annals of government contracting as one of the great disgraces of privatization. A staff report prepared for the Oversight Committee found that Blackwater billed the government $1,222 per day per guard, “equivalent to $445,000 per year; over six times more than the cost of an equivalent U.S. soldier.” Reeling from scandals, Blackwater later reorganized and changed its name to Xe, and then again to Academi, which is now part of a holding company called Constellis.
Hagedon's article appears as part of a special report, "What the Free Market Can't Do." See this and this, for example.

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