A subsidy is a form of government assistance to a group or economic sector. A direct subsidy usually means that taxpayers’ money is used to help support an activity, industry or social group which would not be competitive or viable without financial assistance. Sometimes the subsidy is indirect, for example if the government sets the price for certain products and/or requires that they must be bought from certain producers. In either case, the government is intervening economically to support favoured sectors or communities.
Some of the most common types of subsidies are: direct subsidies (providing money), indirect subsidies (any subsidy that does not involve a direct transfer), tax subsidies (lowering tax bills), production subsidies (payment per unit of output), infrastructure subsidies (money build infrastructure), trade protection (limiting the amount of competition through measures such as quotas, tariffs etc), export subsidies (often to compensate for others trade protection), procurement subsidies (favoritism in procurement) and consumption subsidies (to lower the cost to consumers). When it comes to dealing with poor communities, the main types of subsidies are direct, indirect, tax and infrastructure subsidies.
Poor communities exist in every country all over the world, from those living in the favelas of Brazil, the slums of India, the suburbs of Paris or Bucharest, the inner-cities of Washington DC, Baltimore or New York, rural areas, or refugee camps, and while they are all different, with different concerns, they all have poverty in common. Poor communities should be thought of as being those who are poor in comparison to the average in that country. While subsidies are often thought of as state subsidies, one needs to consider whether different forms of international aid should not be considered subsidies as well. The debate over subsidies thus varies depending on the community that it seeks to address and the extent to which they manage to achieve their intended goals. While subsidies have generally proven to have a relatively positive short-term effect, in the long-run their effects have sometimes been judged insignificant or even negative. Common subsidies used for poor communities are direct, indirect, tax and infrastructure subsidies. Alternatives to subsidies include private investments, economic and social reforms, and different forms of social integration schemes focusing mainly on housing or education schemes.
Poor communities, often concentrated in rural areas or around large cities, carry a large risk for social instability, whether through epidemic illnesses, crime, drug abuse or political and social revolts. Even the most developed countries find it difficult to deal with these communities without paying proper attention to their development. The suburbs of Paris have recently been in the attention of the press for the violent riots led mainly by poor, unemployed, young men from immigrant families who felt abandoned by their own government (BBC News, ‘Timeline: French Riots’, 2005). France is by no means the only country dealing with such problems, and in order to avoid such high-risk behaviour, the state should be encouraged to create new subsidy schemes that address these communities in particular. For example, employment could be subsidised by paying companies to create new jobs in such deprived areas.
While we do not concede that subsidies are the most efficient means of redistributing wealth even if they are then is this redistribution something we want to see? Poor communities should instead be shown how to pull themselves up rather than having subsidies spoon fed to them. Giving those in poor communities the education and means to better themselves is a much more effective long term solution. Redistribution of wealth through subsidies is simply discouraging the poor from working hard towards the betterment of their lives both because the state is already giving them enough to survive and because they know the state will begin taking what they have earned away if they do manage to work their way up.
The longer suburbs sectioned off for the economically vulnerable are in existence, the more likely they will turn into real slums, creating long lasting problems such as the ones currently experienced in the cities of Latin America. Latin America contains 13 of the 20 countries with the highest intentional homicide rate (Global Burden of Armed Violence, Geneva Declaration on Armed Violence and Development, 2008). Brazil is one of the most criminalized countries of the world with roughly 23.8 homicides per 100,000 residents, muggings, robberies, kidnappings and gang violence (The Economist, ‘No End of Violence’, 2007). These areas have become a haven for criminals and drug lords, who both have a clear interest in keeping these communities poor so that they can continue to exert their influence on them and use them as a hiding and recruiting ground for illegal activities. Subsidies would help people escape poverty and as a result break the cycle of crime.
The existence of slums and favelas and their increasing criminality in Latin America cannot be explained by the lack of social subsidies. In fact, quite the opposite is the case: the leftward turn in Latin America with an increase in state subsidies that promised to help poor communities has yet to ease the problems of criminality. Subsidies not only do not help or provide only weak temporary relief, but they are also used to manipulate political opinions and influence the poor particularly around election time. The successful presidential campaigns of Lula da Silva in Brazil, and Hugo Chavez in Venezuela have been run precisely on promises to the poor that for the most part were left unfulfilled. Because government subsidies are not efficient, the large problem of social unrest is not avoided.
Furthermore the poor communities in the suburbs of Paris were already receiving state subsidies for housing and education, but this did not keep them from rioting. Therefore subsidies do not guarantee a reduction in crime.
Subsidies help create the equality and non-discrimination that is essential in the new multi-cultural states of today. With more and more people moving across the globe and the clear realization of inequalities in lifestyles, creating this sense of equality is essential. If we are serious about our commitment to universal human rights, including the right to equal survival chances and opportunities, then we need to consider using subsidies to promote these values. Many of the poorest areas have a disproportionate number of immigrants or ethnic minorities, Seine-Saint-Denis for example has the largest percentage of immigrants in France(Wikipedia, ‘Demographics of France’) and is one of the poorest department’s(Astier, ‘French ghettos mobilise for election’, 2007) so these communities are where the state needs to show that it is committed to non-discrimination by helping with subsidies. Without such a commitment to equality, problems like the unrest in the suburbs of Paris, the reaction to the flooding of New Orleans, crimes in the favelas of Rio de Janeiro and South Africa will simply become uncontrollable.
This kind of idealism and desire to make the world an equal place has already gotten us into quite a bit of trouble, ruining a large part of the world under the rule of communism. The idea that we could solve all the world’s problems through redistribution of wealth through government subsidies is not only naïve but also dangerous. Being committed to new human rights and wanting to offer help to the poor is not the same thing as imposing subsidies. Indeed, in many countries subsidies for particular activities end up favouring well-off landowners and the urban middle classes. Examples include agricultural subsidies in the EU (Financial Programming and Budget, 2011) and the USA, subsidies for power and water in rural India (Press Trust of India, ‘World Bank asks India to cut ‘unproductive’ farm subsidy’, 2007), and subsidies for water or Higher Education in much of Latin America. In each case the well-off benefit disproportionately, while the poor end up paying via the tax system and through reduced economic growth (Farmgate: the developmental impact of agricultural subsidies, ukfg.org.uk). It would be much better to price these activities at commercial levels and to develop economic policies aimed at growth and job creation.
Unless we do something about it we risk seeing our planet destroyed. The destruction of forests for coal or agricultural land, the destruction of farmland through illegal buildings lacking proper infrastructure, water pollution, deserting arable land in the countryside in order to move to the city are all serious environmental problems and their effects are long lasting (Hande, ‘Powering our way out of poverty’, 2009). Subsidies need to be used to provide incentives for people to act in ways which will preserve the environment for the benefit of all (Hande, ‘Powering our way out of poverty’, 2009).
Rich communities have a disastrous effect on the environment as well. The question of whether development is possible without manipulating nature and the environment is again entirely separate from the question of subsidies. Ultimately, the problem is one of resources and the best distribution and management of those resources, particularly natural resources. Getting people to understand that forests, water and land are essential resources that need to be preserved is what should be done (Hande, ‘Powering our way out of poverty’, 2009). Subsidies have in fact often created more environmental problems by investing in poorly built infrastructure and housing, and by encouraging people to stay in areas that could otherwise not support them.
Given that in general state taxation and redistribution systems have been under fire for being inefficient, it is doubtful that subsidies, as a particular form of tax redistribution would be more efficient. Not only is a bureaucratic mechanism for creating and distributing subsidies a nightmare, but the effects of such subsidies have often been questioned as well. Fuels subsidies to keep prices down for example might help the poor to heat their homes but they also encourage wasting fuel and not getting the most efficient heating systems so more fuel is used resulting in more need for subsidies (Jakarta Globe, ‘Subsidies a Costly, Inefficient Crutch’, 2010).
The needs of poor communities, such as the immigrant communities in the suburbs of Paris, as often much larger than the state can provide, and patch solutions are often no solution at all. Subsidies will not be able to solve the problems of unemployment and the concentration of the poor and immigrants in particular areas. Other solutions are required for such problems and oftentimes, the involvement of the private sector has proven to be more efficient. Encouraging a more competitive, dynamic economy by reducing the burdens of taxation and regulation is the best way to provide a route out of poverty, especially if improved educational provision and meritocratic hiring policies are also implemented.
Rather than criticising the inefficiencies of current subsides we should put efforts into improving subsidies so they work efficiently. This is clearly a very complex issue and would involve taking each poor community as individual with different needs. One specific example of where this has been efficient is subsidising housing in poor communities, such as the Gautreaux program in Chicago. This project involved the CHA (Chicago Housing Authority) handing out 7,500 housing vouchers out to residents of deprived communities (thus providing a housing subsidy to those residents). The project was widely considered a success and was supported by the government until its completion in 1998. Longitudinal studies suggested that participants where ‘pleased to be living in safer neighbourhoods with quality schools and greater job opportunities’, which all occurred as a result of the Gautreaux project (Fisher, Gautreaux Assisted Housing Program, 2005). This project shows that subsidies can be successful if we look and attend to at the particular needs of each poor communities.
Always looking at the state for solutions makes these communities dependent on the government in a world in which the state will continue to gradually lose its power. On an individual level increases in people taking disability benefits over the long term are a good example of dependency, in Australia for example between 1972 and 2004 those receiving the Disability Support Pension rose fivefold well above the increase in the disabled population(Saunders, ‘Disability Poverty and Living Standards’, 2005, p.2). Putting more pressure on increasingly weaker states is probably not the best idea. While strong social-democratic states such as France might be able to handle it, developing countries or unstable states will never be able to withstand these pressures. We need to look for solutions elsewhere, and we need to accept the fact that there might not be one solution for all. Each community, facing different kinds of problems, will have to be addressed differently. The new rise in the field of corporate social responsibility signifies that corporations are looking to take over some of the responsibilities of the state.
While getting the private sector involved might indeed be a more effective solution, the reality is that many of these poor communities are groups of outsiders. They often discriminated against by the rest of the population, including decision makers from private business. For example in France employers databases often have the abbreviation BBR or NBBR to indicate if someone is white.(SOS Racisme, ‘Discrimination, Présentation’) These communities often find themselves abandoned, and at the mercy of the state. Despite its inefficiencies, the state remains the main organisation capable to reaching out to all different communities, of gathering funds and redistributing them, and of making new investment opportunities in places where the free market would not otherwise have created them. At the risk of some inefficiency, this problem does require solvency, and while ideally things might run otherwise, this is the closest solution to the problem at hand. Governments have also been creative with their subsidies schemes, often getting the private sector involved by providing them with incentives such as tax breaks.
As modern societies are clearly moving away from an agricultural economy to an industrial and post-industrial economy, new demographic challenge arise with high concentrations of people in urban areas where jobs are available. From 2008 more than 50% of the world’s population lives in cities meaning that poverty is now growing faster in urban than rural areas (UNFPA, ‘Urbanization: A Majority in Cities’, 2007). The solution here is not subsidies, but rather the spreading of jobs across the whole economy, including rural areas, and the re-education of those who need to fill these jobs. These are structural problems that every society will need to address, regardless of how many subsidies the state is providing or not.
The change from an agricultural or rural economy to an urban one does not preclude subsidies as a way of lifting people out of poverty it simply means that subsidies have to be more targeted. As most cities continue to grow and attract more and more people from rural areas, the state needs to find a way to address the problem of urban migration, which is closely linked to the formation of poor communities particularly around cities. Illegal immigration also contributes tremendously to this problem, particularly in areas such as the Mexico-California border. Targeted subsidies can slow the pace of migration, by giving those in the countryside and in poorer countries a better standard of living where they already live.
As the introduction and opposition argument 1 explain, subsidising poor communities involves taking money away from wealthy communities. It is unfair to make the wealthy members of a community pay for the benefit of the poorer members, when the poorer members should be putting in the effort to raise and support their own communities. Those who are wealthy have earned their wealth by working hard. If they wish to be subsidizing poor communities they can give to charities that work in poorer areas.
Telling poor communities they should help themselves is not the answer; they already want to help themselves. Poverty often occurs in a cycle, meaning that for many it is inescapable. Education in poor areas is often worse, leading to people being less qualified for higher paying jobs, stuck in badly paid work, therefore living in undesirable housing that often has inadequate education, and thus the cycle continues for their children. The only way for people to escape this cycle is with government subsidies. Some would argue that forcing people to live in these conditions while others live in wealth is more immoral than asking the wealthy to help the poor.
Astier, Henri, ‘French ghettos mobilise for election’, BBC News, 2 May 2007, http://news.bbc.co.uk/1/hi/world/europe/6613867.stm
BBC News, ‘Timeline: French Riots’, BBC News Online: Europe, 14 November 2005, http://news.bbc.co.uk/1/hi/world/europe/4413964.stm
Europa, Financial Programming and Budget, 2011, http://ec.europa.eu/budget/explained/budg_system/fin_fwk0713/fin_fwk0713_en.cfm
Fisher, Paul, Gautreaux Assisted Housing Program, Encyclopaedia of Chicago, 2005, http://encyclopedia.chicagohistory.org/pages/507.html
Hande, Harish, ‘Powering our way out of poverty’, BBC News- Science and Environment, http://news.bbc.co.uk/1/hi/sci/tech/8046112.stm
Jakarta Globe, ‘Subsidies a Costly, Inefficient Crutch’, 27 February 2010, http://www.thejakartaglobe.com/editorials/subsidies-a-costly-inefficient-crutch/360973
Keith Krause et al., ‘Global Burden of Armed Violence’, Geneva Declaration on Armed Violence and Development, 2008, http://www.genevadeclaration.org/fileadmin/docs/Global-Burden-of-Armed-Violence-full-report.pdf (Last Accessed: 12/09/2011)
Press Trust of India, ‘World Bank asks India to cut ‘unproductive’ farm subsidy’, Business Standard Online, 2 April 2007, http://www.business-standard.com/india/news/world-bank-asks-india-to-cut-%60unproductive%60-farm-subsidy/279646/
Saunders, Peter, ‘Disability Poverty and Living Standards: Reviewing Australian Evidence and Policies’, SPRC Discussion Paper, No.145, December 2005, http://www.sprc.unsw.edu.au/media/File/DP145.pdf
SOS Racisme, ‘Discrimination, Présentation’, URL: http://www.sos-racisme.org/index.php?option=com_content&task=blogcategory&id=22&Itemid=92
The Economist, ‘No End of Violence’, 12 April 2007, http://www.economist.com/node/8952551?story_id=8952551
UNFPA, ‘Urbanization: A Majority in Cities’, May 2007, http://www.unfpa.org/pds/urbanization.htm
Wikipedia, ‘Demographics of France’, en.wikipedia.org, accessed 26 October 2011, http://en.wikipedia.org/wiki/Demographics_of_France#Maghrebis_in_France
‘Farmgate: the developmental impact of agricultural subsidies’, The UK Food Group, http://www.ukfg.org.uk/docs/AAFarmgate%20briefing.pdf (Last Accessed: 12/09/2011).