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Economic Controls 4: Subsidies, Incentives and Market Instruments

Subsidies and Incentives In addition to taxes, which can render undesired behaviors less attractive than desired ones, governments have at their disposal instruments to render desired behaviors relatively more attractive. These are subsidies and incentives (Table 15.1). The difference between a subsidy and an incentive is that a subsidy helps a household or business to pay for something, constituting a form of financial aid, whereas an incentive offsets the price of a good or service in a market as a way to influence consumer behavior. A subsidy is somewhat broader than an incentive, in that it can support the cost of certain needs for which markets may be ill-suited. Indeed, a great deal of political debate in modern market economies revolves around the extent to which such services as health care and education can or should be provided through markets. The fashion since the rise of market liberalism in the 1970s has been to impose market doctrine upon these areas, as evidenced by the health care market in the US and such concepts as charter schools in education. However, as Julian LeGrand argued, market liberalism tends to conflate the two. Preference is a choice typically made within a market. As such, it may be tunable through the application of incentives. Need, by definition, is not a choice. People have needs for health care and education, independent of any choices that may be on offer. Those needs may be subsidized if people are unable to afford

© The Author(s) 2020 F. Murison Smith, A Planetary Economy, https://doi.org/10.1007/978-3-030-49296-0_15

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F. MURISON SMITH

Table 15.1  Approximate conformance of subsidies and incentives for material efficiency or natural capacity to the four principles of economic controls for a planetary economy Material discipline Economic stability Widespread prosperity Innovation through markets Source: Author’s creation Note: Darker shading denotes relatively greater conformance

any of the choices. Or, put another way, their needs could be satisfied through preference if more than one of the available options were affordable. Subsidies Subsidies for a planetary economy would, where applicable, support needs for material efficiency or for the improvement of natural capacity in situations where markets may not exist or be poorly suited to the allocation of available resources. In the interest of widening prosperity, other services also may be subsidized, such as through sovereign money creation or capacity use fees. These include health and dependent care and education, as discussed earlier.  aterial Efficiency Subsidies M In today’s growth economy, subsidies can help to accelerate the transition toward material efficiency. In the long term, there may be no need for material efficiency subsidies, since a material intensity tax would do the work of pricing material efficiency favorably relative to material intensity. A recent study by David King and others estimated the global total of subsidies f