Government transfers resources, money, and opportunities from the poorly organized to the well organized. That’s the way the world works. One form is corporate welfare. The Continental Pit copper mine in Butte, Montana, exemplifies this sorry process.

In 2000, due to high electricity prices and low copper prices, Montana Resources, Inc. suspended operations at its Continental Pit copper mine. The Butte-Silver Bow city-county government recently secured a $2 million loan from the Montana Board of Investments, which it will give to Montana Resources to buy new electrical transformers for the mine. The company will also receive a “new business” tax break over 10 years -- despite the fact that it’s been in Butte since 1986.

One question: Why couldn’t Montana Resources find funding in the market? The company could issue bonds or obtain a bank loan to pay for the transformers. It didn’t. This failure indicates that even the most optimistic private lenders -- those who specialize in evaluating the quality of just such investments -- probably didn’t regard it as a wise use of their or their clients’ money. Or perhaps Montana Resources exercised its political power to shift the burden to taxpayers rather than pay the market interest.

If private investors don’t think the mine is a worthwhile investment, why should the government spend taxpayers’ money on such a risky venture? Do politicians and bureaucrats really know more about the mine’s potential than professional investors?

When governments wield wide influence over the economy and opportunities, it makes business sense to invest resources in influencing politicians instead of in marketing or R&D. The more resources a government controls, the greater the temptation to lobby. Corporations, and whole industries, pressure politicians for special treatment in the form of protection (think steel and lumber tariffs) or support (like cotton subsidies). They may justify it in terms of job protection, but in reality they’re dodging competition. Without the discipline of the market, government-supported companies have less incentive to make wise investments. They leave unwilling taxpayers with the tab when they (commonly) default on their loans.

Consumers are the main beneficiaries of competition. They receive a wider variety of better products at lower prices. But consumers as a group have little political influence. They must rely instead on the goodwill and honesty of politicians. Concentrated interests -- be they business, labor, or environmental -- have the loudest voices in the halls of power. They have the lobbyists.

Government support of business creates pathologies and distorts markets. It takes from the many and gives to the few. The 1997 edition of the Cato Handbook for Congress warns: “Corporate welfare fosters an incestuous relationship between business and government. All too often, the firms and industries that contribute the most to political campaign coffers are the largest recipients of government handouts.” Government support also makes bureaucrats and politicians pick winners. But of course they can’t. (The Handbook notes that “the average delinquency rate for government loan programs...is almost three times higher than that for commercial lenders.”)

Government favoritism is ethically unjust, for it gives preference to politically influential groups. No longer are we all equal before the law.

Subsidies and protection also encourage waste and promote environmental degradation. From 1995 through 2002, Arkansas rice farmers received $3.3 billion in federal subsidies according to the Environmental Working Group. Combined with the fact that water is essentially free, some of these farmers are about to empty one of the state’s biggest aquifers, this in a state that gets 50 inches of rain annually. (Iowa, in contrast, gets almost 40.) Their solution is to direct the Army Corps of Engineers to spend $200 million to pump water from the White River. Subsidizing an activity encourages excess.

When government exerts influence over the lives of its citizens, the powerful and well connected use the coercive apparatus of the state for their selfish ends. This comes at the expense of the less fortunate and less well organized and the environmental systems on which we depend. The perennial problem is how to reduce the power of the state to generate such abuses while maintaining its ability to protect the weak from the powerful.