Economics and Business Forum

Subsidies and sacrifices

During electioneering one word people heard from the mouths of politicians was subsidies,one almost never heard the word sacrifices.Both words ought to have been uttered,because subsidies and sacrifices will have to go hand in hand if development is to take place.

Subsidies are incurred in almost every country in the world, developed or underdeveloped. These subsidies are either on production or consumption. Those made on production are meant to encourage an industry. In Malawi subsidies are made on farm inputs in order to achieve food self sufficiency.

In South Korea subsidies were made on manufacturing industries in order to boost expert industries.These industries known as chaebola included shipping and steel.Subsidies took the form of cheap credit facilities,some chaebols were allowed to operate as monopolies.

In the United States agriculture has always been subsidized on the marketing side by ensuring produce is sold at a certain price that would ensure a comparable standard of living for farmers.Excess produce the government bought thereby ensuring that prices did not fluctuate or tumble because of supply.

Countries which want to encourage industrialisation often allow raw materials and equipment imported into the country duty free.An importer might pay the duty at the customs border and then go to the revenue offices to demand refund.

On consumption subsidies are made mostly on food, health, transport or education for the benefit of the poor. In developing countries marketing boards were set up to buy cash crops such as maize and pulses at less than the normal equilibrium price of demand and supply for the benefit of urban dwellers.

In Britain subsidies in health is done through the The National Health Services which offers free medical and dental services or at a nominal price. In Malawi free medical services have been provided by governments since the advent of colonial rule. There is free primary school education. Before that subsidies were made in the form of assisted schools where pupils were given free text and exercise books.

A subsidy is a cost to one part of the economy and a benefit to the other. When we talk of benefit for some groups of our society we must think of those who bear the costs. Donors even during the last days of the Kamuzu/MCP era were urging the Malawi Government to phase out subsidies on farm inputs and to retrench the civil service because they were bearing most of the subsidy costs.

Since the Malawi government will bear most of the subsidy costs in the absence of donor support, we must figure out which part of the economy will bear the cost of subsidising farm inputs, when individual x gives a thousand dollars to individual y, he foregoes the benefit of spending that amount on his own needs. If those needs are great then he sacrifices his interest.

This is the case with inter-industry subsidy. If an export industry like tobacco is taxed in order to subsidise the inputs of maize and pulses then the tobacco industry is deprived of the capital for investment in research and development. These politicians who talk of extending subsidies should at the same time tell us where they are going to get the wherewithal.

We may have to do two things that might help. Reduce the perks enjoyed by high ranking officials and let the savings go into subsidies, secondly, reduce the number of people to receive subsidies. There should be a means test. Those who have jobs and yet have garden, or farm, should be encouraged to buy the fertilisers at the market prices by sacrificing some of the luxuries they cherish such as a bottle and a banquet.

All farmers should be exhorted to make organic manure and the advantages of organic manure over chemical ones ought to highlight. Sacrifice will be in the form of extra effort, because digging holes in which to build compost manure is a sweaty job.

We have so far been dealing with subsidies on farm inputs. It is time we identified potential export industries and try to develop them by use of subsidies as South Korea and Taiwan did. It is true that Malawi is basically an agricultural country but agriculture is failing to provide jobs for everybody, people who have been to university and obtained degrees in business management, engineering computer technology won’t find their destiny in agriculture. There is a limit to which a country can prosper through agriculture because of the ineluctable law of income in elasticity of demand for its products.

These are brainstorming ideas, here is someone or organisation that will sift the grain from the chaff. Let us get reorganised if the next 50 years will make a difference.

 

 

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