Corporate Protection and Government Subsidies - Article Example

of Corporate Protection and Government Subsidies The article makes a case against the practice of government intervention in the working of the market. It talks of the problems with government intervention that leads to the money of the taxpayers being misused. The article talks of the pitfalls of intervention and protection in a market such as the one which exists in a globalized world. The essay also looks at the problems that the American economy could face as a result of adopting a policy of protection to American companies. The article also deals with the idea of government subsidies in funding research projects and comes up with the finding that government subsidies often harm the poor and the middle classes more than they help them. The practice of providing subsidies is more often than not, according to the writer, justified using the rhetoric of unemployment and the need to provide more work to American companies. This is not however, what the character Dave argues for. He looks at the negligible difference that a fall in demand in the American market would create in the world market and puts into perspective the influence that tariffs imposed by the government could have on producing more jobs. He looks at the problems with introducing a tariff against foreign-produced goods as Ed says (Protection). The idea of free trade that Dave argues for is more often than not refuted by proponents of government intervention citing the reason of ‘fair trade’. This implies the ability of firms within a country to be protected against the onslaught of foreign companies that may have more money and power (Edge). However, providing subsidies may not push down the price of goods in the local economy. They would not benefit the local consumer. Apart from this, there is also no data available to substantiate the argument that local businesses would be at an advantage as their cost of production may still be higher than that of the foreign company. To increase the tariff to an extent where the foreign firms would not be able to compete would take jobs away from the American market rather than boost the economy. The difference in price would be transferred on to the local consumers. Dave also warns about the possibility of other countries imposing equally large taxes on American firms. This would lead to greater problems in the long run for the American economy and its people. There is also the possibility of there being lobbies that affect the government’s decisions. Much of the tariffs that are imposed on products are based on the political power and influence that local firms have rather than the economic wisdom of the decision. The people who suffer amidst all of this are the taxpayers. The idea of free trade involves the assumption that what is required by a particular consumer would be provided by the market according to the laws of demand and supply (Rothbard “Free Market”). The idea of free trade is then in direct conflict with the ideas of protectionism which let certain elements have an advantage based on the support of the government. This is unsustainable in a free market in a globalized setup as it would lead to the kind of problems that are detailed above. The existence of two systems in conflict with each other can only prove to be disastrous in the long run. The adverse impact of such a policy can be seen in the economic slump that is experienced by Japan at this point of time (Rothbard “Protectionism and the Destruction of Prosperity”). The policies that are created according to such ideologies more often than not end up harming large sections of the taxpaying population in the country. The article illustrates the problems with the kind of funding that is provided by the government to private concerns. The essay suggests that they end up benefitting certain individuals while causing greater harm to the middle classes. The money that they pay is used for such funding; however, the benefits are reaped by the richest sections of the population. This can be seen in the example of the Concorde where the taxpayers’ money was used for conducting the research while they were not able to afford the tickets. The cost of the project was not justified by the market that it was intended for and this resulted in losses to the countries that financed the project, Britain and France (Protection). The impact of such a project was in making the governments across the world realize that the market was an institution that did not need to be intervened in. Tariffs and subsidies were instruments that needed to be used sparingly and after a clear analysis of the consequences of such measures in the long run. The article also uses the example of Intel and Sematech to illustrate how private players in the economy were often made reliant on the government and the money of the taxpayers if given the option. The article talks of how the world market is large enough to accommodate more players than one and rules out the possibility of monopoly even if a particular technology reaches a market first or second. Also, as in the case of the Concorde, it is sometimes wise to see whether a particular commodity is able to make a profit rather than be the one to invest first. As the article suggests, there are advantages to investing second in a market as well (Protection). The article, overall, makes a sound case against the protectionist tendencies that can be seen in several governments at this point in time. The arguments against free trade are made so as to establish the fact that subsidies and tariffs be among the many elements of economic control that a state can use. The article also busts the myth about state subsidies being an instrument that benefits mainly the poor people of a particular country. Used without discretion, it can be a tool in the hands of the wealthiest of the wealthy in order to further their interests. Works Cited Edge, Ken. “Types of protection: tariffs, the economic theory”. Web. 25 June 2013. http://hsc.csu.edu.au/economics/global_economy/tut9/Tutorial9.html “The Case for Protection”. Rothbard, Murray N. “Protectionism and the Destruction of Prosperity” Web. 25 June 2013. http://mises.org/rothbard/protectionism.asp Rothbard, Murray N. “Free Market”. Web. 25 June 2013. http://www.econlib.org/library/Enc/FreeMarket.html Read More