Who deserves a break?

Subsidy Regulation and State Transformation in North America, the GATT and the EU
March 6, 1998

As economies liberalise and the market ethos reigns, subsidies are falling into greater disfavour than ever. Thank goodness, say many; subsidy for them is a good idea that rarely works.

True, subsidies serve a valuable purpose when, for example, a "sunrise" industry is trying to establish itself in the face of over-bearing, often oligarchical competition. The nascent industry needs a leg-up to survive the tough first stage and achieve economies of scale.

All depends on whether the industry serves the best interests of society. Wind power and solar energy are non-polluting, renewable energy sources, but they face great competition from fossil fuels, which receive ten times more subsidies. The new arrivals should be subsidised until they gain their feet or the fossil-fuel subsidies should be removed. This is apart from the fact that fossil fuels are so polluting that they should be heavily taxed, not supported by the taxpayer.

Alas, things are not so simple. Germany's economy would come out ahead if the government were to close all coal mines and send the miners home on full pay for the rest of their lives. Germany's taxpayers would benefit again through breathing cleaner air. But the miners live in key voter constituencies, and no political party has the guts to stand up to them.

Subsidies that are adverse to the economy and the environment total almost $1.5 trillion a year. So the entire field of subsidies deserves urgent and close scrutiny. Fortunately it is getting it, as shown by the efforts of Russia, Poland, China, India, Brazil and a few other prominent nations (though hardly the US) in slashing subsidies for fossil fuels and other sectors. It is shown, too, by this admirable book, which seeks to appraise the roles of governments, businesses and social forces as they try to adapt to globalisation.

The book employs a focus on the US and Canada, and also Mexico to the extent that it is part of the North American Free Trade Agreement, to outline the issues involved. One prominent one is the diminishing extent of the US government's involvement in the economy, notably in light of the shrinking of state sovereignty as decision-making authority shifts, deliberately or not, to international bodies and multinational corporations. Some of the same authority is also being transferred to international agencies such as Nafta, though this, like most such bodies, is not so much an international organisation as an inter-governmental committee, ie. an extension of the nation-state system rather than a truly independent body.

What, asks the author, shall be the policy scope of the US and other governments in the emergent age of the World Trade Organisation, which abhors subsidies if only for the commercial advantage they confer on those business sectors that gain their favour? How does this apply to such heavily subsidised industries as agriculture, automotive, aerospace and fossil fuels? What, if anything, should be done about the heavy fisheries subsidies extended to Canada's maritime provinces, the nation's most backward economically? What "unfair" comparative advantage is being conferred upon these provinces through the subsidies, which serve social as much as economic interests insofar as Canada needs all the social cohesion it can muster to stay glued together?

The author is well equipped to tackle these complex questions having worked on subsidies vis-a-vis trade in both Canada and the US. He is now lecturer in international relations at the University of Sussex, where he specialises in political economy, labour regulation, social movements and the integration of North America. This will give the reader an idea of his approach to a highly technical subject. Those who share his passion for the field will find his book illuminating and stimulating, though others may think it a trifle over-specialised. His findings are applicable outside North America, and especially to other regional groupings: Europe at large, take note.

Norman Myers is honorary visiting fellow, Green College, University of Oxford.

Subsidy Regulation and State Transformation in North America, the GATT and the EU

Author - Robert O'Brien
ISBN - 0 333 69246 2
Publisher - Macmillan
Price - £45.00
Pages - 210

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