When Subsidies are Hard to See
When we think of our governments subsidizing a particular industry we usually envision a nice big check sent to them every year to the tune of millions of dollars from tax revenues. Sometimes, instead, it is that industry that is free from a particular tax that most others have to pay. But, what if instead there are payments in kind that elevate one industry or one form of technology over another. Would we recognize those things as government subsidies?
I am not going to speak to the policy merits of any of the particular subsidies, my point is that when making decisions about the direction of a region or country, we need to clearly define the costs and those costs include subsidies. Sometimes, they can even be internal to a company or between symbiotic industries. If we do not clearly define the costs, we run the risk of biasing our decision process towards one technology over another, when in truth, each should be considered on its objective merits.
Let’s consider the automobile industry as an example. If we consider transportation as a whole, there are several methods available by technology including personal automobiles, buses, planes, helicopters, trains, boats, and horses (or camels if you are in the Southwest).
All of those industries use petroleum based fuels (except horses and camels and electric cars/trains), so we have a potential symbiotic relationship between those two industries and most of the transportation technologies. Now, as a subsidy only the differences in energy company costs and profits between those various technologies would be considered in evaluating our best solution. Automobile gas stations may have certain costs associated with them, but so does fuel infrastructure at airports or sea ports. To be certain of a technology’s cost, all industries involved and not just the manufacturer must be considered.
So, overall in recent years, people in the United States have spent approximately $16.5 billion on new vehicles or approximately $55.00 per capita. This only includes new vehicles, so sales of existing vehicles and continuing maintenance costs are not included.
How close is that to the total cost for implementation of that technology, or cost per capita as that would be the better measure? The US federal highway budget has been near $30 billion in recent years, or $100.00 per capita, almost twice the new vehicle cost. Of course, state and local governments spend even more on roads. The per capita costs associated with gasoline are even higher.
So, is it valid in a technology tradeoff exercise to consider these costs? It is absolutely necessary! If a city government, for example, in providing public infrastructure were to trade off one option where all costs came from the city budget against another option where the city would pay only 25% and citizens would be forced to purchase as they were able the remainder of the system, we would want to be certain that both sides of that equation were considered let we wind up spending more collectively in the second option.
When any organization considers to implement a technology, they should take a careful look at what factors may be biasing them towards a certain direction, lest they not record the true costs accurately and saddle themselves with a long term burden they are unable to easily undo.