Friday, March 23, 2012

Subsidies: The Governmental Weapon of Change

The polymer bank notes introduced in 2011 (for the $50)
and this month (for the $50). The remaining denominations
will be updated by late next year. Bank of Canada Photo.
I'm a bit of a numismatics freak. I like the concept of currency, the way we secure it, and the way it's evaluated. There's some really fun statistical math to be done there, and since I don't have an excuse to do engineering or physics problems as part of my school work, I tend to focus on mathematics. So you can understand my interest in the new polymer banknotes the Bank of Canada is issuing over the next year or so.

However, what I actually came in here to write about is the use of subsidies by governments on all three levels to influence industrial development, research, and essentially anything else they want done or changed. Subsidies are a sort of a double-edged sword, as we shall see.

A subsidy is economic assistance paid to either a single business or an entire economic sector, generally by a government agency (be they federal, provincial, or municipal). For example, if the Government of Canada wanted to improve student employment, they would pay for student labour costs, which is done through the SEED program. Alternately, they could issue a tax break (personal or corporate) for certain behaviours, such as was recently done for home improvements that focused on energy efficiency.

Subsidies make it economically advantageous to pursue a particular behaviour. While individual people may be principled, business in general follows the economic path of least resistance... that is, the path with the best return on expenditures. When subsidies are in place, they effectively lower operating costs, increasing profits. Therefore, businesses in subsidised industries are able to pursue their business models more effectively, and often at a lower cost to the consumer. This makes the subsidy a powerful tool for affecting a social change, or maintaining the status quo. Such power ought to be exercised responsibly.

Governmental subsidization could transform Canada's economy into a green-collar workforce virtually overnight. Conversely, it could keep us in the oil age forever. It can create new industries in a few quarters, or it can keep dying industries alive. The subject of what to subsidize is hotly debated, and every industry wants their cut. The question is whether our policy makers and "elected"1 representatives have the fortitude and integrity to select responsibly, to bring about real economic change, and begin the New Canadian Century.

1 It's possible nobody ever saw it, but I have quite a rant worked out on how our "representative democracy" isn't actually representative at all. I should import it here one day.

No comments:

Post a Comment