The Subsidy “Solution”

I have started going to school again for business management.  Almost all of my courses are online with the exception of one that is a hybrid.  I’ve never taklen online classes before, so there is a hectic power curve, but it’s a fun experience.

One of my classes is Principles of Supervision and an assignment I recently had presented a scenario in which a new technology manufacturer was coming to a town that was hard it with an economic downturn due in large part to international competition and automation of its primary industry- textiles.  Part of the assignment was to answer if it is ethical for the local government to provide significant incentives to the new company while its current businesses struggle.  I know I went on a bit of a tangent in my response, but it seemed relevant:

“Governments should not offer any sort of subsidy to attract business (however which way you dice it, tax breaks are subsidies).  Such a practice creates exactly the kind of conflict that is presented in this scenario.  Unfortunately, it is now commonplace and I don’t know how governments don’t get sued over it.  Whether or not business is struggling with market factors such as automation or global competition is immaterial.  Such challenges are inherent with free market.  Once government steps in to try to mitigate market influence the performance of the “saved” business is proportionately less influenced by the effectiveness of its management or marketability and more influenced by the policies and decisions of the government.  This creates a compounding effect that ultimately leads to the economic failure of the business so that, if it cannot save itself from government dependence, it becomes a ward of the state and no longer a free market enterprise.  Historical proof of this is passenger railroad service, auto makers, and the mortgage industry.”


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