Cruise ships are sea factories that produce and profit from negative externalities.
Cruise ships are sea factories that produce and profit from negative externalities. Rawpixel / GETTY IMAGES

The situation for the cruise ship industry is so bad that some claim it may never fully recover from the present coronavirus crisis. The shares of cruise ship corporations have lost a stunning 80% of their value from "their all-time highs." The cruise season in places like the Pacific Northwest (Canada and Seattle) has been suspended. Indeed, the whole industry is pretty much suspended. This is not to mention the bad publicity that its numerous quarantined ships have generated from almost the beginning of the crisis. Is it now time for our government to step in and support this industry? Should we include it in a stimulus package?

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Before doing so, the public must consider this: In 2018, the Miami-based Carnival Corporation, which claims by far the largest share (41 percent—or $18 billion in revenue) of the global cruise ship market, paid almost no US taxes. That's because its ships are not registered in the US, but rather in countries that provide shelter to its profits. And much of those profits were not reinvested in the company to improve things like safety standards or to lower—or at least partially compensate the public for—the huge social costs generated by these gigantic middle-class consumption machines, some of which can carry 9,000 souls.

As if this were not enough, cruise ships are also sheltered from US labor laws (minimum wages, rights, and so on) and aggressively exploit cheap labor on the unregulated global labor market (this is called wage arbitrage). And yet, Carnival Corporation has already benefited from things funded by US taxpayers.

The New York Times reported in 2011:

The Carnival Corporation wouldn’t have much of a business without help from various branches of the government. The United States Coast Guard keeps the seas safe for Carnival’s cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival’s ships dock.

But Carnival’s biggest government benefit of all may be the price it pays for many of those services. Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.”

Now that the carnival ship industry is set to lose billions in business due to COVID-19 (which is not a black swan), it is furiously lobbying US lawmakers for federal assistance. But it makes no sense to appeal to the US for support when you have contributed very little to its public purse. These corporations should turn instead to their flag state (the Bahamas, Panama, Cyprus, what have you) for help.

The organization that pays US politicians in both parties to side with this or that legislation favorable to cruise ship owners and shareholders, Cruise Lines International Association (CLIA), is aware of the industry's awkward political position, and so has also been pressing 43,000 travel advisors who do pay US taxes, to "call on their Congressional representatives to help the cruise industry through the COVID-19 (coronavirus) pandemic."

From the magazine Luxury Travel Advisor:

“This is an unprecedented time for the cruise industry. As we face increasing challenges, it is important for lawmakers and other decisionmakers to know that cruise lines support a diverse and wide-ranging number of small and medium-size businesses, including travel agents in the CLIA community like you. Your voice and your stories are vitally important to be heard, especially now."


But why not just bailout travel advisors during what will certainly be a long period of recovery? Some might say that the cruise ships bring business to ports, such as Seattle, and so are deserving of government aid. To begin with, the real value of the business generated by these middle-class consumption machines will, in the long run, be much lower than the value of their social costs. Secondly, why didn't these corporations save any their of profits for a rainy day (or a sea storm)? Why is it that after almost a decade of collecting huge profits, cruise ship corporations are suddenly broke? This question can be answered by one thing alone: stock buybacks.

During the 6-year period of growth, Carnival Corporation, for example, spent billions on share repurchasing schemes that effectively redirected cash from investments and labor and savings to the those who owned its stock. The purported logic of stock buybacks is this: a company finds after settling all expenses (labor, investment, maintenance), it has free cash. This "free cash" is used to reduce the number of shares available to the public. This reduction then increases the value of the remaining shares, and that increase is then pocketed by shareholders.

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But exactly what is meant by "free cash?" Or, exactly how free is it? Can you show us your books? Can we compare your expenditures with this very large stash of cash with nothing to do, with nowhere to go but up to the stock market? Were there really no other expenses? If so, then why are corporations that spent billions upon billions of their "free cash" on buybacks suddenly asking for government assistance? Obviously that cash was never free.



Two closing notes: By middle class, I do not mean the bourgeois (the owners of vast amounts of capital). The confusion of the two stems from the fact that in the 19th century, the English called their bourgeois (a French term, of course) the middle class. In the US, the middle class is, one, large; two, between the poor and rich; and, three, was born after the end of the Second World War. This class, as most Americans understand it, did not exist in the 19th century, the period the bourgeoisie (capitalists) came into power and displaced the older aristocratic order. The American middle class was created not directly by capitalism (which was in crisis before the Second World War—the Great Depression) but a more equitable distribution of social wealth (the New Deal in the US) that can be called socialism.

The next note: In economics, a social cost is known as a negative externality—meaning, a cost, such as pollution, that is not factored in the total expenditure of a concern but is instead transferred to the public. Cruise ships are sea factories that produce and profit from large amounts of negative externalities.