26 March 2007

Subsidising ourselves to death

It’s not only the developed countries that subsidise rich motorists to pollute the planet. Iran does it as well. The current Economist (subscription) mentions a petrol subsidy that amounts to four times what motorists pay at the pump. It costs the Iranian taxpayer billions of dollars a year. Raising the petrol price is politically difficult.

Of course, it’s not just Iran, and it’s not just petrol. It’s most of the rich countries, many of the poor countries, and it’s agriculture, energy and water. How do governments find themselves taking funds from poor people to give to the rich to help them destroy the environment? Often such subsidies start out as well intentioned. There’s a food shortage? Subsidise farmers to produce more. But the subsidies mainly goes to the owners of the least elastically supplied input. In the case of agriculture, this is farmland. Wealthy landowners are the big gainers therefore, along with the agribusiness corporates that supply the increased volume of inputs and process the expanded volume of outputs. Cutting subsidies is far more difficult than starting them. Their beneficiaries have the means and the motivation to resist meaningful reform. Government is frightened of punishing its friends (and, very often, paymasters) in the business world, so takes the path of least resistance. It’s ordinary people who suffer, as well as the environment.

Such nonsense is only possible where there is a disconnect between government and the people it’s supposed to represent. And such a disconnect is guaranteed when policy is expressed in terms of vague, mutually conflicting, and uncosted goals. That happens when we trust government to do the right thing. But in our complex economies, neither government nor anyone else has much understanding of all the relationships between cause and effect. Obscenities like Iran’s subsidies to motorists, or the European Union’s subsidies to wealthy aristocrats are the result.

Either we tolerate this insanity, until its financial, social and environmental costs destroy the planet completely, or we reduce our economic units to the size at which we can understand its linkages – probably something like the village level. The latter course has its attractions, but couldn’t hope to sustain the population we already have. Or we introduce outcome-based government: something along the lines of Social Policy Bonds, where all policies, activities, and institutional goals are subordinated to social and environmental objectives that are chosen by, and meaningful to, ordinary people; as distinct from wealthy individuals or corporations.

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