Two groups, CPI and Refsa-IDEAS , are debating government subsidies.This debate is critical because politicians are taking their cues from
it.
It is important that good judgment prevails. Much is at stake.
But first, what is a subsidy? Why do we need it?
Some believe subsidies are government money spent on primary
healthcare, infrastructure, culture or the environment.
But these are not subsidies. These are fundamental public provisions
that a decent society would collectively provide for all its members
in most ordinary circumstances.
A subsidy is different. It is a special kind of public expenditure.
A subsidy is designed to support a disadvantaged group that cannot
secure the needs and necessities for survival because an underlying
condition is persistently preventing their fulfilment.
When we get a burn, we run cold water over it and bandage. It is a lousy policy to do away with running water and bandages without properly attending to the cause, which is contact with fire.
Similarly, subsidies may be essential to make life bearable for
vulnerable groups and the needy as long as the root causes that
provoke the subsidies are still there.
Don't like subsidies? Address the underlying structural faults.
To reduce (or even increase) a subsidy, study it and consider the
data. Manoeuvring in the dark without information can be harmful.
Now what are the underlying reasons that necessitate subsidies?
There are of course sociological and behavioural factors.
But a major reason is that we operate in an economic system that is
systematically biased in favour of capitalist interests.
In this pro-capitalist system, the lower income classes often do not
get their fair share of the economic wealth that comes from economic growth.
Business enterprises generate profits by shifting all sorts of hidden
social costs onto society - an additional level of disenfranchisement.
When a government allies itself with big businesses, it is all the
more unfortunate.
Creating "free markets" in this kind of political-economic condition
will not remove the conditions that demand subsidies. It would
aggravate them.
That is why the Refsa-IDEAS proposal must be regarded with caution. Their motivation may be good, but their approach is narrow.
IDEAS (Institute for Democracy and Economic Affairs) is a free-market, neoliberal think-tank.
Neoliberals believe that the market system is a magical mechanism: if it operates freely, without interference, it should ensure everybody's wellbeing.
Hence why neoliberals tend to maintain that subsidies ought to be
reduced or eliminated.
For them, subsidies are bad ‘government interventions'. Neoliberals
would propose that individual citizens keep the money instead and
spend it themselves to best satisfy their wants or needs through
‘efficient' free markets.
But markets are neither magical nor self-correcting.
Not all things in life can, or should, be marketised and monetised
into packages to be allocated by markets.
Many essentials are best secured for everyone through government or other collective ways, not individually via markets.
CPI (Centre for Policy Initiatives) is a social democratic think-tank.
It proposes that we be careful when trying to adjust subsidies. It
holds that subsidies have a role to play (e.g. as a safety net for the
vulnerable) given the unfair structural defects of our political
economy.
CPI says policy actions on subsidies should be evidence-based. We
should inquire beforehand into the empirical facts, figures and the
potential effect of changes in subsidy levels on the various actors.
CPI's position is more reasonable. It suggests tackling the issue of
subsidies logically and scientifically.
The point is to analyse subsidies as well as their context prior to
taking action.