Can a government subsidise its way to prosperity? > Check the facts
Who: ‘In the end, no government has ever subsidised its way to prosperity’. Prime Minister, Tony Abbott.
The claim: Industry protection through mechanisms such as subsidies, doesn’t foster industry development.
The facts: : Most economies, during a strong period of economic development, used direct industry intervention strategies. Britain, provided protection for the East India Company by prohibiting manufacture by machinery in competing industries. They also banned the importation of competing products.
In more recent times, the World Bank documented the East Asian miracle and pointed to the extensive industry intervention in Japan when the war ended in 1945. This approach was also emulated by the four tigers of Singapore, Taiwan, Hong Kong and Korea.
Similarly, Thailand, China, Indonesia and Vietnam have implemented industry development strategies. In each case there is an important element of subsidy including export facilitation, price support, access to cheap credit, and tax credits.
Many of the industry development strategies were phased out once they had achieved their aims. The US Trade Representative still presents an annual assessment of the ongoing industry protection measures used by these countries (and others).
The finding: Many governments have used industry development strategies, including subsidies, for specific industries and have successfully developed their economies to the extent that the World Bank in 1993 was able to refer to the ‘Asian miracle’.
Discussion of evidence: The statement that “no government has ever subsidised its way to prosperity” is inconsistent and can be refuted with a single example. History provides numerous examples of government fostering economic development by assisting industry, including using subsidies. Indeed, it is difficult to find an example of a successful economy which did not have some government strategy to deliberately foster industry development.
Between the Lines Newsletter
The biggest stories and the best analysis from the team at the Australia Institute, delivered to your inbox every fortnight.
You might also like
The Climate Crisis is an Integrity Crisis | Polly Hemming
I am starting my address to this year’s summit in the exact same way that I started last year’s address. Because it is just over a year since I delivered these same words, which aren’t actually my words. They are the words of our Climate Change Minister, and they provide a baseline of sorts for what progress has been made in that time.
Good Neighbours Ban Fossil Fuels | Between the Lines
The Wrap with Ebony Bennett The date for the Voice Referendum has been set and on Saturday 14 October the country will come together to make a choice about the role of First Nations people in Australia’s future. For me, the choice to vote Yes in the referendum is a simple one. First Nations people
New Captain, New Ship? | Between the Lines
The Wrap with Richard Denniss ‘Continuity with change’ was the presidential campaign slogan from the US satire Veep, and so far it seems to capture the messages emerging from the newly communications focused Reserve Bank of Australia. The new RBA Governor Michele Bullock, like her predecessor, has spent her whole professional life at the RBA