Although some progress has been made to decrease government support that distorts markets, subsidies still amount to hundreds of billions of dollars spent every year by governments to subsidize selected businesses or sectors. Subsidies, like doping in sports, can also take many shapes and sizes. These include, for example: direct grants, tax breaks, cheap loans, subsidised inputs such as energy , regulatory exemptions and carve-outs, and even equity injections by governments.
In many cases governments do not routinely report such measures. This means that detective-like efforts must be spent in tracking down and estimating the magnitude of subsidies in monetary terms.
This is the case, for example, where cheap loans and subsidised energy bills are hidden deep inside companies' financial statements. In any competition, once someone cheats, the big problem is that others may be compelled to follow suit for fear of being left out of the game entirely. Trade and investment decisions by firms can push countries and local jurisdictions to engage in subsidy races, whereby authorities compete with one another to attract investment or win contracts by way of grants, tax incentives, and other deal sweeteners.
This points to another problem with doping and subsidies: if left unchecked, they can quickly escalate and make everyone worse off, including those they are primarily intended to benefit. The health risks of doping are real — from sudden heart attacks to liver cancer.
To start, governments should improve disclosure of their own subsidies, including through notifications to the WTO. Sunlight is said to be the best disinfectant and any reform of trade-distorting policies should therefore begin with a correct assessment of what is going on, similar to anti-doping tests.
Pro-subsidy economists argue that subsidies to particular industries are vital to helping support businesses and the jobs they create.
Economists who promote a mixed economy often argue that subsidies are justifiable to provide the socially optimal level of goods and services which will lead to economic efficiency.
In contemporary neoclassical economic models, there are circumstances where the actual supply of a good or service falls below the theoretical equilibrium level—an unwanted shortage, which creates what economists call a market failure.
One form of correcting this imbalance is to subsidize the good or service being undersupplied. The subsidy lowers the cost for the producers to bring the good or service to market. If the right level of subsidization is provided, all other things being equal, the market failure should be corrected. In other words, according to general equilibrium theory , subsidies are necessary when a market failure causes too little production in a specific area.
They would theoretically push production back up to optimal levels. Some say goods or services provide what economists call positive externalities. A positive externality is achieved whenever an economic activity provides an indirect benefit to a third party. However, because the third party does not directly enter into the decision, the activity will only occur to the extent that it directly benefits those directly involved, leaving potential social gains on the table.
Many subsidies are implemented to encourage activities that produce positive externalities that might not otherwise be provided at the socially optimal threshold. The counterpart of this kind of subsidy is to tax activities that produce negative externalities. Some theories of development argue that the governments of less-developed countries should subsidize domestic industries in their infancy to protect them from international competition.
This is a popular technique seen in China and various South American nations currently. Meanwhile, other economists feel free market forces should determine if a business survives or fails. If it fails, those resources are allocated to more efficient and profitable use. They argue that subsidies to these businesses simply sustain an inefficient allocation of resources. Free market economists are wary of subsidies for a variety of reasons. Some argue that subsidies unnecessarily distort markets, preventing efficient outcomes and diverting resources from more productive uses to less productive ones.
Similar concerns come from those who suggest economic calculation is too inexact and microeconomic models are too unrealistic to ever correctly calculate the impact of market failure. Others suggest that government spending on subsidies is never as effective as government projections claim it will be.
The costs and unintended consequences of applying subsidies are rarely worth it, they claim. Another problem, antagonists point out, is that the act of subsidizing helps corrupt the political process. According to political theories of regulatory capture and rent-seeking , subsidies exist as part of an unholy alliance between big business and the state. Companies often turn to the government to shield themselves from the competition. In turn, businesses donate to politicians or promise them benefits after their political careers.
Even if a subsidy is created with good intentions, without any conspiracy or self-seeking, it raises the profits of those receiving beneficial treatment, and so creates an incentive to lobby for its continuance, even after the need or its usefulness runs out.
There are a few different ways to evaluate the success of government subsidies. Most economists consider a subsidy a failure if it fails to improve the overall economy.
Policymakers, however, might still consider it a success if it helps achieve a different objective. Most subsidies are long-term failures in the economic sense but still achieve cultural or political goals.
An example of these competing evaluations could be seen in the Great Depression. Presidents Hoover and Roosevelt both set price floors on agricultural products and paid farmers to not produce.
Their policy goal was to stop food prices from falling and to protect small farmers. To this extent, the subsidy was a success. But the economic effect was quite different. Artificially high food prices lowered the standard of living for consumers and forced people to spend more on food than they otherwise would have. Those outside of the farm industry were worse off in absolute economic terms. Sometimes both the economic and political results of a subsidy appear to indicate failure.
The DOE anticipated that oil prices would keep increasing, and jump-starting renewable sources could slow dependence on oil. However, the receiving companies failed to turn a profit and oil prices dropped in The U. As this recent infographic shows, for example, plenty of developed and developing countries provide significant government funds for producers or consumers though the U.
Nevertheless, that other countries subsidize their farmers is a pretty terrible excuse for the U. Regressive subsidization. Beyond the mere budgetary strains imposed by the tens of billions of dollars that the government must borrow every year to subsidize our farmers, Edwards notes that those subsidies are also going to relatively rich people: farm household income is historically much higher 40 percent to 50 percent higher than the income of the average U.
Subsidies also have been shown to disproportionately benefit landowners even ones who are exiting production. Harm poor countries. Because the United States is a major exporter and importer of farm products, federal subsidies have a disproportionate effect on global agriculture markets and, in turn, farmers in developing countries.. A classic example is how African cotton farmers were hurt by U.
Not surprisingly then, lower world cotton prices harm millions of households and more than 10 million people across the region. Cutting U. Trade conflicts. WTO members can subsidize their farmers up to a certain agreed level. Economic distortions. As you can imagine, injecting billions of government dollars into U. Areas that might have been used for parks, forests, grasslands, and wetlands get locked into agricultural use.
Subsidies may induce excessive use of fertilizers and pesticides. Producers on marginal lands that have poorer soils and climates tend to use more fertilizers and pesticides, which can cause water contamination problems. Sugar cane production has expanded in Florida because of the federal sugar program, for example, and the phosphorus in fertilizers used by the growers causes damage to the Everglades.
0コメント