Subsidies favour big business

Take agriculture subsidies: in the OECD area these amount to US$250 billion per year. Most of it does not end up in additional income for farm households. Some goes to those who administer farm programmes, but most goes to those who supply inputs to farmers and those who process output from farmers.

The OECD estimates that only 25 per cent or less of most of the subsidy from consumers and taxpayers ends up as additional income for farm households.

What happens to the remainder? For every one dollar of taxpayer funded deficiency payments, 40 cents goes as extra profits to suppliers of farm inputs. Another 14 cents goes out as extra rents for non-farming landlords. Resource costs, that is the money needed to offset the combined opportunity costs of diverting resources from other productive uses to the production of the supported commodity, account for 20 cents.

Inputs and processing are mostly supplied by large agribusiness companies. Agricultural support policies tend to raise the prices of fertilisers, pesticides, animal feedstuffs and farm buildings, as well as land. Subsidies mean that farmers buy more purchased inputs and that suppliers, knowing that farmers can afford to pay more, charge higher prices for them. One study showed that identically packaged products and services in unsubsidised New Zealand are typically priced at half the levels charged to their subsidised counterparts in the UK and the Netherlands.

So large agribusiness corporates are major beneficiaries of high food prices. Who else benefits? A British charity, Oxfam, found that wealthy landowners like the Dukes of Westminster, Marlborough and Bedford, Lords Illife and de Ramsey and the Earl of Leicester can each receive subsidies of up to £370 000 a year for growing their cereal crops.

It is a self-perpetuating system of mutual back-scratching. The subsidies discriminate in favour of the largest corporates and biggest landowners, who can use taxpayer funds to buy up small businesses and small farms and to bankroll opposition to reform. Large businesses are also in a much stronger position to manipulate the regulatory environment that makes life so difficult for their smaller competitors.

The pattern is similar in other sectors, and the result is industry concentration. A subsidised transport infrastructure favours large, global businesses, as do compliance costs, which impose a disproportionately heavier burden on small businesses. Small, independent firms go bankrupt or sell out. McDonalds, Burger King and Starbucks take over.

A Social Policy Bond regime would not see a proliferation of small businesses as an objective, but that would be the most likely outcome. Why? Because the current subsidy system is based in large part on deception and it is unlikely that most people would willingly choose to subsidise large trans-nationals at the expense of small, local businesses. A bond regime would be transparent about what taxpayer funds would be used for: its goals would be explicit and meaningful to real people. Most of us, I believe, would rather see our taxes spent on raising basic health and education standards (for example) than on further enriching some of the wealthiest companies and individuals in the world.