A Helpful Hand or a Wasteful Prop

The business of government subsidies for business is a tricky one.
Often, it's politically popular -- we're not going to take losing this
important business to some other place, so we'll do all we can to keep
it and its jobs here. Often, it looks good on paper -- a blighted
area needs more activity, so let's give people a reason to relocate
there. Sometimes, it can even appeal to my Republican values -- let's
lend a hand to a struggling business and help them get up on their own
two.

But it's not often as easy as that. Are government subsidies helpful
hands or wasteful props? There are a number of ways governments can
help businesses within their jurisdictions: outright grants,
low-interest loans, tax breaks, building stuff for them. All of them
take a situation where maybe nothing would have happened and create
the incentives for something to happen. Sounds good, right?
Something out of nothing?

Not so fast. Historical data bears out that the recipients of such
incentives are often teetering businesses that, once the incentive
period is over (for example, a tax-free period of ten years), begin to
falter and eventually shutter. Instead of helping businesses stand up
by themselves, it seems, these programs often just prop them up for a
period of time, after which they fall down on their own.

You see this in a number of arenas. Rendell is trying to keep
Sovereign Bank afloat, states are setting up tax-free "enterprise
zones," and cities throw resources at small and minority businesses.
It is possible that many of these uses of taxpayer dollars aren't
accomplishing what their upfront rhetoric promise: that a little help
upfront will seed an area, strengthen new ventures, and expand the
local economy.

Does that mean we shouldn't consider such tools, then? My conclusion
isn't that government subsidies are bad, but that they can be bad if
poorly conceived or implemented. It is important for the program to
very explicit about its temporary status: there should be ample
hands-on preparation for subsidy recipients to cope with life after
the subsidy, perhaps even a scaling down of the subsidy in the final
years.

To be sure, some government subsidies aren't intended to empower their
recipients. Some politicians use them to dole out political favors,
others to allay their consciences, and still others to reinforce
existing structures of the powerful and the powerless. But even those
politicians who mean well can end up having their subsidy programs
backfire on them, to the tune of businesses going out of business
after the program is over and blighted areas settled in and then
blighted all over again.

It's easier to help someone than to help them help themselves. It is
politically more appealing, it is less complicated, and it can feed
into your preconceived notions of who is strong and who is weak. It
is much more difficult and complicated and burdensome to truly help a
business get to a greater place of strength. Would that those
proposing and implementing government subsidies to catalyze business
activity choose the harder but more effective road.