TAKING STOCK : How poor subsidise rich

Rakesh Wadhwa


Recently I was asked to comment on an assertion by India’s left wing social activist Arundhati Roy that the rich become rich by taking money away from the poor. This in general is not true and I said so.

However, I do find instances of the relatively well off being subsidised by the poor. Take the case of RNAC. Its losses are borne by the government which means ultimately it is we — the people — who bear them. We bear them by way of taxes. And if taxes can’t be raised then the government just orders its presses to print more notes causing inflation.

The benefits go to the few well-off who are employed by RNAC, or those who fly in its planes. The poor who are never even going to see the inside of a plane get to bear the costs. The poor lose, the rich gain.

If we want to end such subsidies which transfer resources to government bureaucrats, politicians, and the wealthy who are associated with government businesses, all government companies must be sold. No exceptions must be made.

Another egregious way by which resources are transferred to the rich is by way of licensing requirements. When government restricts an activity by granting monopoly privileges to one company, then all of us lose. Only the monopolist gains. The costs to the consumers of maintaining the exclusive privileges granted to Nepal Telecom and United Telecom are simply too huge to calculate.

In every country which permits competition phone connections are available on demand. In Nepal we have to wait or bribe officials to obtain a landline. A government company benefits and so do its employees; the rest of us lose.

Cell phone service is terrible and calls cost too much. How many times does your phone flash, ‘network busy’? Full fledged competition — if government permits any company which wants to provide this service do so — would result in vastly superior service and rates would fall by perhaps 90 per cent. The burden of maintaining semi-monopolies again falls on the society’s worst off who cannot afford a cell phone at prices which prevail today. Government companies benefit.

The burden on account of customs duties too falls disproportionately on the poor. Businessmen and industrialists lobby the politicians and bureaucrats, clamouring for protection. This protection by means of prohibitive tariffs and outright bans on imports adversely impacts the poor while showering benefits on the rich.

Here Nepal is not alone. Even in the ‘free trade’ US, welfare for the rich in the form of anti-dumping duties and other import barriers are common.

Award winning author John Stossel’s writes in his book, Give me a Break, about a little known company ‘Archer Daniels’ (AD) which usually tops the list of ‘corporate welfare recipients’.

AD benefits because the US government mandates minimum prices for sugar. If Pepsi and Coke want sugar they have to pay twice the world price for it. Coke therefore buys corn sweetener made by AD. AD gains and protects itself by keeping those who make the policy, happy. AD also gets a special tax break on another of its product, ethanol, and this costs the US treasury half a billion dollars a year.

Here is what Stossel says:-

“Why does ADM get these special deals? Bribery. Okey, its not bribery — that would be illegal. ADM just makes ‘contributions’. Through his business and his family, former ADM chairman Dwayne Andreas gave millions in campaign funds to both Mondale and Reagan, Dukakis and Bush, Dole and Clinton. President Nixon’s secretary, Rosemary, says Andreas himself brought $100,000 in cash to the White House. He even paid the tuition for Vice President Hubert Humphrey’s son. Republicans, Democrats, it doesn’t matter. ADM just gives.”

Be it the US or Nepal, those with connections and resources can always get the government to work for them. You and I have no chance under such a system. If we do not get the government out of business and trade, the poor will always end up being losers. Bigtime.

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