starbucksWhen most people think of Starbucks they think of overpriced coffee, free wifi, and omnipresence. Starbucks are everywhere. The company was founded in 1971 and since 1987 they’ve opened an average of two new stores every day. In the U.S. alone there are 12,973 locations.

When most people think of “big business”, though, they don’t often think of the Seattle-based coffee company. But they should. Starbucks has 151,000 fulltime employees, $15 billion in annual revenues, and three times as many locations as Walmart. Starbucks is one of the biggest of big businesses. And, not surprisingly, a big proponent of cronyist policies.

Cronyism occurs when an individual or organization colludes with government officials to create legislation or regulations that give them forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace. A prime example is minimum wage laws. Almost without fail, big businesses tend to support higher minimum wages.

Since they could just choose to pay higher wages, why would they support federal mandated wage floors? One reason is because it helps to eliminate the competition from small business who don’t have the size and scale to absorb higher-than-market wage increases.

In a recent interview with CNN, Starbucks CEO Howard Schultz said he supports an increase to federal minimum wage even though he admits the $15 wage in Seattle could have “traumatic effects” on small business owners and employees.

But notice what else Mr. Schultz says. He mentions that the company surveyed employees and asked what the “number one benefit” they wanted from Starbucks. The overwhelming request was for access to college education. He claims they now offer “free tuition for college” as part of their total benefits package. But is that true?

Last week the company unveiled a program that included a scholarship it described as “an investment” between Starbucks and Arizona State University. The program is designed to allow Starbucks workers to earn an online degree at the school at a steeply discounted rate. But the “free tuition” is based on the federal government picking up most of the tab:

Initially, Starbucks said that workers would be able to offset the costs through an upfront scholarship it was providing with Arizona State, but declined to say exactly how much of the cost it was shouldering. The chain estimated that the scholarship would average about $6,500 over two years to cover tuition of about $20,000.

Following the announcement, however, Arizona State University president Michael Crow told The Chronicle of Higher Education that Starbucks is not contributing any money toward the scholarship. Instead, Arizona State will essentially charge workers less than the sticker price for online tuition. Much of the remainder would likely be covered by federal aid since most Starbucks workers don’t earn a lot of money.

Workers would pay whatever costs remained out of pocket for the first two years, and Starbucks would bear no costs.

Starbucks had previously declined to say how much it was contributing to the scholarship. But in a subsequent email Wednesday evening, Starbucks said that the scholarship is being “funded by ASU.”

The “free tuition” is based mostly on students getting federal aid in the form of Pell Grants and federal student loans. Starbucks may eventually pay some of the out-of-pocket expenses of the student (perhaps even up to $1,000 a year) but they aren’t directly paying for tuition.

Overall, it’s a great deal for both Starbucks and for ASU. The school gets federal money for students who would not normally be enticed by their online programs. And Starbucks gets to claim a “benefit” that cost them almost nothing. The primary people who will be paying are American taxpayers (though they would have likely foot the bill anyway), the taxpayers in Arizona, and students who attend ASU.

Students who don’t work for Starbucks will be paying the normal tuition rates in order to subsidize the education for out-of-state baristas. That “free tuition” Starbucks claims as a “benefit” is actually being paid for not by coffee profits but by the students in Phoenix who don’t get the benefit of working for a crony in Seattle.

For a lesson in how crony capitalism works, ASU students don’t even need to take Econ 101; they just need to look at their tuition bill.

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  • Bill Hickman

    “Cronyism occurs when an individual or organization colludes with government officials to create legislation or regulations…”

    Can’t *deregulation* also be thought of as cronyism if it’s done solely to enrich some moneyed interest? Why arbitrarily exclude this kind of activity from your definition of cronyism?

    “Almost without fail, big businesses tend to support higher minimum wages.”

    This is an odd empirical claim. A quick search turned up press releases from the U.S. Chamber of Commerce and the National Federation of Independent Business opposing minimum wage increases:

    https://www.uschamber.com/blog/better-approach-minimum-wage-distraction
    http://www.nfib.com/article/raising-the-federal-minimum-wage-240/

    I also found this bit of reporting: “Among the interests opposing a rise in the minimum wage are a number of business groups that historically have lobbied against pay hikes, including the U.S. Chamber of Commerce and National Federation of Independent Businesses. But the issue divides the business world as well, with groups like the U.S. Women’s Chamber of Commerce, most of whose 500,000 members are small businesses, supporting an increase.”

    http://www.cbsnews.com/news/support-for-minimum-wage-increase-found-in-surprising-places/

    • http://Culture11.com Joe Carter

      ***Why arbitrarily exclude this kind of activity from your definition of cronyism?***

      To be honest, I didn’t think about deregulation. Could it be done solely to enrich some moneyed interest? Probably so, though I can’t think of any examples offhand. Do you know of any?

      ***A quick search turned up press releases from the U.S. Chamber of Commerce and the National Federation of Independent Business opposing minimum wage increases:***

      According to the USCC’s website, ” More than 96% of U.S. Chamber members are small businesses with 100 employees or fewer.” Similarly, the NFIB is a “small-business advocacy association.” So it’s natural that they’d oppose minimum wage increases.

      As for the U.S. Women’s Chamber of Commerce, I suspect that their members are unaware that the organization has gone rogue. The organization’s CEO, Margot Dorfman, gave testimony in MA about raising the minimum wage (http://www.businessforafairminimumwage.org/news/00394/testimony-margot-dorfman-ceo-us-womens-chamber-commerce-regarding-massachusetts-minimum-w). Here reasoning is ludicrous and is not shared by any small business owners I’ve ever known.

  • John Flaherty

    I am rather perplexed by some of the content of this article. So Starbucks isn’t paying tuition for school for people, but is likely encouraging people to pursue Pell grants. OK. Where’s the story here?
    I had the general impression that most college students over the last few decades pursued education with the aid of Pell grants, including many of us who have never worked for Starbucks.

    If we want to have a conversation about the value of Pell grants, a conversation I think we need to have, because I think we have become quite careless in our education choices, that’s one thing. But this article suggests that Starbucks is doing something underhanded.
    I can’t say that I agree that they are.

    • AugustineThomas

      I think what’s underhanded is playing the role of altruist while taking more of the peoples’ money to do it. Corporations are notorious for stealing the people’s money and taking credit for dispensing it to the people (just like the government).
      (We’ve become like Rome: free bread and circuses for the heathen mob.)

    • http://Culture11.com Joe Carter

      So Starbucks isn’t paying tuition for school for people, but is likely encouraging people to pursue Pell grants. OK. Where’s the story here?

      The story is that Starbucks is pretending that they are giving a “benefit” of “free tuition” to students. Watch the video starting at the 1:04 mark. Their CEO says, “. . what we’re doing today, in terms of providing free tuition . . . ” Getting reduced tuition at an online school — for which Starbucks doesn’t pay a dime — is not benefit of their corporation. It is a benefit subsidized by the students and taxpayers in Arizona.

      • John Flaherty

        I have rarely visited a school or examined a large corporation that didn’t advertise offering tuition assistance. In most cases though, I expect I will ultimately find someone handing me an application for a Pell Grant. Unless you can prove that various corporations like McDonalds, Burger King, Arbys, or others advertise tuition assistance and actually dispense their own funds from profits, I don’t believe there’s much of a story here.
        BTW, Pell grants come from the Federal government, thus all American taxpayers, not only people in Arizona.

        • http://Culture11.com Joe Carter

          In most cases though, I expect I will ultimately find someone handing me an application for a Pell Grant.

          There are plenty of companies that offer actual tuition assistance. It’s not all that unusual. What’s different is that Starbucks is claiming they are giving a “scholarship” when the money is coming from ASU.

          BTW, Pell grants come from the Federal government, thus all American taxpayers, not only people in Arizona.

          Yeah, I note that in my article. But no one is really arguing that the students shouldn’t get Pell Grants. The issue with Starbucks is that they are being deceptive: claiming that they are giving “free tuition” when in reality a school is offering a reduced tuition for their employees.

          As I note in my post, the people who should be most upset are the folks in Arizona. it is their state taxes that help fund ASU. And many of the students are paying full tuition (even if they are getting assistance) while a lot of out-of-state Starbucks workers will now be getting a “scholarship” that reduces the amount they have to pay. So, as I noted, ASU students are subsidizing the tuition of baristas.

          • John Flaherty

            How do you know that WalMart or others are providing tuition assistance out of profits? Are you making that assumption? Or can you provide documentation, such as line items from financial reports that demonstrate the funds they expend?

  • John Flaherty

    People declare Wal-Mart does many underhanded things, most of which have yet to be proven to my satisfaction. If you can prove that Wal-Mart offers tuition assistance and pays said assistance out of its own profits, then you have a beginning of a case.

  • The Right Fight

    Good article, @JOE_P_CARTER:disqus. Thanks.

  • John Ash

    “Free wifi”. Hahahahaha. Free.