Subsidies and grants

 

For more information on alternative approaches which avoid subsidies and grants, see also Community participation.

Subsidies and grants can offer a start to people, projects and communities in need, but can also lead to harm, e.g. through disincentives and corruption.

Criticisms

Subsidies are often criticized for creating reliance on governments and agencies and removing incentives. There is also the likelihood that the thing given won't be valued and cared for as well as if the new owners chose to buy it with their own (hard-earned) money.^[1] There is also the fact that subsidies cost money and are thus limited in number/amount and take time to be implemented, having to be done through the arms of development agencies (whether NGO or government).

This is not only an argument made by Western critics of foreign aid, but also by those active in development, including those from developing countries:

• Kamal Kar, a development consultant from Kolkata, India, argues for self-reliance rather than subsidies, and has applied this philosophy through community-led total sanitation, or CLTS.
• Dipankar Chakraborti has criticized agencies for spending large amounts of money on foreign consultants, to give expensive, inappropriate and largely ineffective solutions to the problem of arsenic contamination of groundwater^W in Bangladesh.^[2] This kind of wastefulness is unlikely when a community is able to solve its own problems with its own resources.
• Muhammad Yunus^W - founder of the Grameen Bank^W and pioneer of microcredit, which could be described as "trickle-up economics" The Grameen Bank operates on a philosophy of self-reliance.^[3]
• Deepak Lal^W has taken quite a radical view, arguing against all foreign aid.^[4]
• Slum Networking^W also does not rely on subsidies, but uses the efforts and simple resources of the community to build cost-effective urban infrastructure.

Making subsidies more effective

The idea of subsidies being harmful should not become a dogma. Sometimes very poor communities cannot easily develop without assistance, and well-designed and carefully applied subsidies may be beneficial. Other ways of creating a sense of ownership are possible, however, particularly through community participation in development.

Consider emergency aid programs - in disaster situations, it is too late and too critical to avoid giving grants (especially of food, shelter and medicine). Certain measures (such as food-for-work programs) may assist, however, in providing dignity and avoiding an expectation of handouts, but even these should be phased out when possible to enable effective development to occur. Even here, however, it is important to remember the findings of Amartya Sen^W, that famines do not occur in democratic countries with a free press - suggesting that effective responses to disasters are likely to come from accountable democratic governments.

One innovative approach to subsidies is in Turkmenistan, where livestock are given in exchange for solar lighting systems, but the livestock are kept as community property. (See Category:Community participation#Community power in Turkmenistan.) Thus it is to be expected that the solar systems are valued, as the new owners have paid for them; but the community as a whole has not lost resources to gain this new technology.

Incentives to pollute: bad economics, bad environmental policy

Fossil fuels are still subsidized by many governments around the world, particularly in the developing world, but also in developed countries such as Australia.

See also

• Community participation
• Comments on the problems with aid on the Wikipedia talk page for Aid.

External links

• Cash for Work grumbleage - Pyjama Samsara (blog) - comment on the damage done by subsidies in this form.
• The 'too hard' basket - Pyjama Samsara (blog) - comment on quality problems associated with rushed Food for Work or Food for Asset Creation.
• http://blogs.cgdev.org/globaldevelopment/2006/11/aid_effectiveness_a_debate_bet.php, a debate between economists at the Center for Global Development on the effectiveness of foreign aid

Notes and references