Quote Originally Posted by Uboat509 View Post
This is a good summary of the weak points of state capitalism. State Owned Enterprises (SOE) and state champions get plenty of government support in the form of cheap money and favorable legislation but that can only help a business that is competitive. Propping up uncompetitive businesses simply because they are owned or favored by the state just drains the governments coffers for little or no return.
It depends.

For starters, you are usually completely wrong with your assertion.

Imagine a shipyard competing with South Koreans. Let's say South Koreans are 20% more competitive (in part due to subsidies).
Does it make sense to subsidize the shipyard by 20%?

Likely YES.

Taxes and stuff mean that half of those 20% come back to government coffers (even without considering any service sector multipliers) within 12 months.

Now we're down to 10%.

The alternative for the shipyard workers was to be unemployed, unemployment pay is probably something like 50%. Now we save a lot instead of having 20% losses.

The costs of the shipyard are of course be much less than 100% labour costs. That doesn't change the picture, though. The material and energy costs will be about domestic suppliers in a large country. In the end, about 60-70% of these costs end up being labour costs somewhere else, while 30-40% would end up being capital income of someone.


So in the end, net savings from subsidizing may be about three times as high as the subsidies.


I know that popular economics doesn't consider such second-order effects and prefers a more Darwinian approach, but the reality is messy. Millions of workers have no alternatives to speak of. One worker fired at a closing shipyard equals an increase of the structural unemployment by more than one person.


The Darwinian stuff only applies to some markets, it does not apply to old industries at all.