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Debate: Subsidization of poor communities

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Should governments subsidize poor communities?

Background and context

A subsidy is a form of government assistance to a group or economic sector. A direct subsidy usually means that taxpayers’ money is used to help support an activity, industry or social group which would not be competitive or viable without financial assistance. Sometimes the subsidy is indirect, for example if the government sets the price for certain products and/or requires that they must be bought from certain producers. In either case, the government is intervening economically to support favoured sectors or communities. Some of the most common types of subsidies are: direct subsidies, indirect subsidies, tax subsidies, production subsidies, infrastructure subsidies, trade protection, export subsidies, procurement subsidies and consumption subsidies. When it comes to dealing with poor communities, the main types of subsidies are direct, indirect, tax and infrastructure subsidies. This topic also requires a very clear definition of what we mean by poor communities, something that is often difficult to achieve, given that poor communities living in the favellas of Brazil, the slums of India, the suburbs of Paris or Bucharest, the inner-cities of Washington DC, Baltimore or New York, rural areas, or refugee camps are all different. While subsidies are often thought of as state subsidies, one needs to consider whether different forms of international aid should not be considered subsidies as well. The debate over subsidies thus varies depending on the community that it seeks to address and the extent to which they manage to achieve their intended goals. While subsidies have generally proven to have a relatively positive short-term effect, in the long-run their effects have sometimes been judged insignificant or even negative. Alternatives to subsidies include private investments, economic and social reforms, and different forms of social integration schemes focusing mainly on housing or education schemes.

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Argument #1

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Yes

Subsidies are the most efficient means for a state to redistribute wealth within its borders and insure stability. Poor communities, often concentrated in rural areas or around large cities, carry a large risk for social instability, whether through epidemic illnesses, crime, drug abuse or political and social revolts. Even the most developed countries find it difficult to deal with these communities without paying proper attention to their development. The suburbs of Paris have recently been in the attention of the press for the violent riots led mainly by poor, unemployed, young men from immigrant families who felt abandoned by their own government. France is by no means the only country dealing with such problems, and in order to avoid such high-risk behaviour, the state should be encouraged to create new subsidy schemes that address these communities in particular. For example, employment could be subsidised by paying companies to create new jobs in such deprived areas.

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No

Given that in general state taxation and redistribution systems have been under fire for being inefficient, it is doubtful that subsidies, as a particular form of tax redistribution would be more efficient. Not only is a bureaucratic mechanism for creating and distributing subsidies a nightmare, but the effects of such subsidies have often been questioned as well. The needs of poor communities, such as the immigrant communities in the suburbs of Paris, as often much larger than the state can provide, and patch solutions are often not a solution at all. Subsidies will not be able to solve the problems of unemployment and the concentration of the poor and immigrants in particular areas. Other solutions are required for such problems and oftentimes, the involvement of the private sector has proven to be more efficient. Encouraging a more competitive, dynamic economy by reducing the burdens of taxation and regulation is the best way to provide a route out of poverty, especially if improved educational provision and meritocratic hiring policies are also implemented.

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Argument #2

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Yes

While getting the private sector involved might indeed be a more effective solution, the reality is that many of these poor communities are groups of outsiders. They often discriminated against by the rest of the population, including decision makers from private business. These communities often find themselves abandoned, and at the mercy of the state. Despite its inefficiencies, the state remains the main organisation capable to reaching out to all different communities, of gathering funds and redistributing them, and of making new investment opportunities in places where the free market would not otherwise have created them. At the risk of some inefficiency, this problem does require solvency, and while ideally things might run otherwise, this is the closest solution to the problem at hand. Governments have also been creative with their subsidies schemes, often getting the private sector involved by providing them with incentives such as tax breaks.

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No

Because government subsidies are not efficient, the large problem of social unrest is not avoided. The poor communities in the suburbs of Paris were already receiving state subsidies for housing and education, but this did not keep them from rioting. Always looking at the state for solutions makes these communities dependent on the government in a world in which the state will continue to gradually lose its power. Putting more pressure on increasingly weaker states is probably not the best idea. While powerful social-democratic states such as France might be able to handle it, developing countries or unstable states will never be able to withstand these pressures. We need to look for solutions elsewhere, and we need to accept the fact that there might not be one solution for all. Each community, facing different kinds of problems, will have to be addressed differently. The new rise in the field of corporate social responsibility signifies that corporations are looking to take over some of the responsibilities of the state.

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Argument #3

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Yes

We cannot wait for each community to find creative solutions on its own, or for corporations to decide when they want to be socially responsible and under what conditions. Waiting too long will transform dangerous suburbs into real slums, creating long lasting problems such as the ones currently experienced in the cities of Latin America. These areas have become a haven for criminals and drug lords, who both have a clear interest in keeping these communities poor so that they can continue to exert their influence on them and use them as a hiding and recruiting ground for illegal activities.

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No

The states of Latin America are faced with larger social, economic and political problems and the existence of slums and favellas with increasing criminality cannot be explained by the lack of social subsidies. In fact, quite the opposite is the case: the leftward turn in Latin America with an increase in state subsidies that promised to help poor communities has yet to ease the problems of criminality. Subsidies not only do not help or provide only weak temporary relief, but they are also used to manipulate political opinions and influence the poor particularly around election time. The successful campaigns of Lula da Silva in Brazil, and Hugo Chavez in Venezuela have been run precisely on promises to the poor that for the most part were left unfulfilled.

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Argument #4

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Yes

Unless we deal with the problem of poor communities, our cities will be surrounded by a belt of poverty, an increasing growing belt that will create a serious threat. As most cities continue to grow and attract more and more people from rural areas, the state needs to find a way to address the problem of urban migration, which is closely linked to the formation of poor communities particularly around cities. Illegal immigration also contributes tremendously to this problem, particularly in areas such as the Mexico-California border. Targeted subsidies can slow the pace of migration, by giving those in the countryside and in poorer countries a better standard of living where they already live.

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No

The need to rethink urban-rural connections is unarguable and this will certainly need to be faced in the future. However, this has little to do with the question of subsidies. As modern societies are clearly moving away from an agricultural economy to an industrial and post-industrial economy, new demographic challenge arise with high concentrations of people in urban areas where jobs are available. The solution here is not subsidies, but rather the spreading of jobs across the whole economy, including rural areas, and the re-education of those who need to fill these jobs. These are structural problems that every society will need to address, regardless of how many subsidies the state is providing or not.

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Argument #5

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Yes

Subsidies help create an important sense of equality and non-discrimination that is essential in the new multi-cultural states of today. With more and more people moving across the globe and the clear realization of inequalities in lifestyles, creating this sense of equality is essential. If we are serious about our commitment to universal human rights, including the right to equal survival chances and opportunities, then we need to consider using subsidies to promote these values. Without such a commitment to equality, problems like the unrest in the suburbs of Paris, the reaction to the flooding of New Orleans, and crimes in the favellas of Rio de Janeiro will simply become uncontrollable.

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No

This kind of idealism and desire to make the world an equal place has already gotten us into quite a bit of trouble, ruining a large part of the world under the rule of communism. The idea that we could solve all the world’s problems through redistribution of wealth through government subsidies is not only naive but also dangerous. Being committed to new human rights and wanting to offer help to the poor is not the same thing as imposing subsidies. Indeed, in many countries subsidies for particular activities end up favouring well-off landowners and the urban middle classes. Examples include agricultural subsidies in the EU and the USA, subsidies for power and water in rural India, and subsidies for water or Higher Education in much of Latin America. In each case the well off benefit disproportionately, while the poor end up paying via the tax system and through reduced economic growth. It would be much better to price these activities at commercial levels and to develop economic policies aimed at growth and job creation.

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Argument #6

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Yes

Poor communities have a disastrous effect on the environment. Unless we do something about it we risk seeing our planet destroyed. The destruction of forests for coal or agricultural land, the destruction of farmland through illegal buildings lacking proper infrastructure, water pollution, deserting arable land in the countryside in order to move to the city are all serious environmental problems and their effects are long lasting. Subsidies need to be used to provide incentives for people to act in ways which will preserve the environment for the benefit of all.

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No

Rich communities have a disastrous effect on the environment as well. The question of whether development is possible without manipulating nature and the environment is again entirely separate from the question of subsidies. Ultimately, the problem is one of resources and the best distribution and management of those resources, particularly natural resources. Getting people to understand that forests, water and land are essential resources that need to be preserved is what should be done. Subsidies have in fact often created more environmental problems by investing in poorly built infrastructure and housing, and by encouraging people to stay in areas that could otherwise not support them.

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