Tuesday, January 20, 2015

How Government Subsidies Can Harm the Economy

In living organisms, the effect of competition is more pronounced when there is a crowding of organisms of the same species over a limited amount of resources. Moreover, competition in living organisms affects each individual organism in a different way: the stronger individuals tend to have a greater chance of survival while the weaker ones tend to survive less as they are denied resources.

In the business world, a country providing subsidies and excess 'resources' to businesses might actually be harming the business ecosystem by allowing the weaker competitors to live at a time when resources are actually limited. A better approach would be to take the weaker competitors off life support and leave the more fit ones to take over particularly at times of limited resource availability. A business ecosystem composed of fewer but more fit individual businesses would be better on the long run than a business ecosystem full of weak competitors living on life support provided by intensive government subsidies and support.