Haunted by State Aid

The-Headless-Horseman-
John Quidor "The Headless Horseman Pursuing Ichabod Crane" // Public domain

Imagine a city with only three car repair shops. Each of these shops charges 20 euros for a change of tires. Yet, two of them must take five of these 20 euros and send it to the third one.

Would these two appreciate such an arrangement for a long time? Correct; they would not. However, politicians like to try engaging people in such arrangements. Sometimes their aim is helping a state-owned enterprise that cannot withstand more efficient private competitors.

Other times, they transfer resources to private companies that are owned by their friends or donors. They often move funds to where they perceive electoral votes may be, like in the event of layoffs, sale to another investor, or simply to cut the ribbon in front of the cameras opening a new manufacturing hall.

Such state actions endanger the very foundation of the market economy. The state could destroy any company or take control of a specific industry by sending tax-collected resources to a selected company, thus giving it a competitive advantage. In such a world, it makes no sense in trying to meet the needs of a customer, but only the needs of a politician.

To prevent this from happening, there are relatively strict and complex state aid rules applied across the developed world. In the EU database alone, there are no less than 33,000 such cases of reported or investigated state aid cases in the last 20 years.

The economic crisis, which has been looming inconspicuously since last year, received an extraordinarily strong dose of steroids during the pandemic. Governments are panicking over economic numbers. Everything becomes secondary, and the primary question is the speed of fulling the economy with resources.

State aid rules are in danger of becoming one of the victims of the Coronavirus. Indeed, the European Commission has relaxed some of the existing state aid rules. It is said to be temporary, but there is a risk that the dam will break.

Politicians can very quickly and easily get used to the power of deciding whether companies keep their existence or not. They are making decisions about “strategic interests” rather than allowing the citizens as consumers to make a call.

Secondarily, state aid may be a seaway for the state’s entry into private companies. After all, when a politician transfers money (which was collected from taxpayers for a different purpose, however let us keep quiet about this) it is his call to make where it goes!

The economy is thus discreetly shifting towards the economic system known from former satellite countries of the Soviet Union, or third-world countries. A system where the benefits from politicians are more important to the entrepreneurs than what they receive from consumers.

This path takes us back to the world from which we have only recently moved slowly and carefully. This time, however, many Western countries may also keep us company.


The article was originally published at Postoj on May 28, 2020.


The article is syndicated by 4Liberty.eu Network.

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