Phil for Humanity Phil for Humanity
A Guide for the Survival of Humankind and Helping the World, Society, and Yourself.

Subsidies and Tariffs are Anti-Capitalism

A subsidy is a financial grant from governments to businesses for the benefit of the general public. For instance, some farmers receive money from the government to grow certain foods that the general population needs to be cheaper and in larger quantities. Other farmers are paid by the government to not grow other foods that are being produced too much to help stabilize prices and jobs. The most common form of subsidy is tax breaks for certain businesses. This is commonly referred to as corporate welfare.

The best aspect of subsidies is that they help the creation of new businesses that would not naturally exist. On the other hand, subsidies are also created to help support businesses that would normally fail. Additionally, corporations use lobbyists to take advantage of taxpayers by convincing politicians for subsidies even though their businesses are already profitable and do not require subsidies to survive.

Subsidies create a larger than natural trade barrier so that domestic goods and services are artificially cheaper than competing imports. This increase in the trade barrier is paid for by taxpayers; yet in return, more domestic jobs are created and are less likely to be sent overseas through outsourcing and off-shoring. As a result, subsidies are a form of protectionism. In theory, these additional jobs should pay for these subsidies; however it is impossible to prove if these new jobs are sufficient to pay for subsidies. Therefore, in actuality, subsidies are only guaranteed to help businesses and not the general public.

Unfortunately, this is contrary to the definition of a truly free market. Capitalism is the driving force behind free markets where prices are the lowest possible via competition, despite if the competition is not domestic.

Another form of protectionism is tariffs. Tariffs are basically just import taxes or taxes for products entering a country from another country. Therefore tariffs artificially raise the prices of foreign competitors, so that local companies can more easily compete. Again, taxpayers pay for these tariffs by paying higher prices for goods that they could have purchased cheaper. In theory, the extra money that could have been saved could have been spent on other and better alternatives, such as education for a better job or creating more jobs domestically.

In conclusion, protectionism in the form of subsidies and tariffs mean well for their citizens yet has unintended consequences. The only good recommendation that I can think of is to require all forms of protectionism to be temporary. Long-term protectionism probably does more harm to the general public than good. However, short-term protectionism forces businesses to grow to the point that they can compete globally.

by Phil for Humanity
on 05/02/2008

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