subsidy

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subsidy,

financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. Subsidies were used in England in the later Middle Ages, when Parliament granted funds to the king to augment or replace customs and other taxes collected by royal prerogative; such early subsidies later became the means by which the power of taxation was taken from the king and lodged in Parliament. At first a nationwide levy, it became (in the reign of Charles II) a land tax levied annually without the intervention of a parliamentary vote. In France the king was able to retain his control and acquire financial powers that made him independent of any subsidy granted by the States-General. The term subsidy has had widely varied usage in the 20th cent. Subsidies may be granted to keep prices low, to maintain incomes, or to preserve employment. They are most important as grants to private corporations for performing some public service, such as to shipping companies and airlines for carrying the mail or to railroads for maintaining passenger service. These are often required where a necessary public service, particularly one that might otherwise not be profitable, is granted funds to remain in operation. In the United States, the National Railroad Passenger Corporation (Amtrak) receives federal subsidies for its intercity railway network. American cities have frequently subsidized transit companies to induce them to provide metropolitan transportation facilities for the public. Other commonly subsidized enterprises include agriculture (see agricultural subsidiesagricultural subsidies,
financial assistance to farmers through government-sponsored price-support programs. Beginning in the 1930s most industrialized countries developed agricultural price-support policies to reduce the volatility of prices for farm products and to increase,
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), business expansion, and housing and regional development. In the United States, 5 million households received housing assistance in 1998. Medical and educational institutions are among the largest recipients of subsidies (see foundationfoundation,
institution through which private wealth is contributed and distributed for public purpose. Foundations have existed since Greek and Roman times, when they honored deities.
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); in 1997, for instance, federal spending in the United States paid 46% of national medical costs. Subsidies have also been granted by one country to another country to aid it in pursuing a war effort, to gain its goodwill, or to help stabilize its economy. Very similar to a subsidy is a bountybounty,
amount paid by a government for the achievement of certain economic or other goals. It often takes the form of a premium paid for the increased production or export of certain goods. The bounty was an important technique of mercantilist economic policy (see mercantilism).
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, except that it usually takes the form of a per-unit premium or reward for a service already performed.

Subsidy

 

an allocation in the budget for the liquidation of expected losses (planovye ubytki) and for the balancing of subordinate budgets.

In capitalist systems subsidies are widely used to put capitalist enterprises in good order and to give financial assistance to war industry and nonprofit capital investment spheres (such as sectors of the infrastructure, including education, communications, and the like). Subsidies are appropriated for scientific research. Bourgeois states also use subsidies as a means of regulating the budgets of local “self-government,” which increases their dependence on the center. Subsidies are often paid to compensate the losses of monopolies in the extractive industry to continue mining deposits that would otherwise not be economically feasible and to pay farmers to reduce land under cultivation in order to support high price levels. Under imperialism, subsidies serve as additional enrichment for the financial oligarchy.

Under socialism subsidies are appropriated from the state budget for payment of expected losses of government enterprises and economic organizations that sell their basic production for prices lower than the planned cost price. Subsidies are also received by certain organizations in the nonproduction sphere, such as theaters.

The use of subsidies in the heavy industry of the USSR during the reconstruction period, the Great Patriotic War (1941-45), and the first postwar years accelerated the process of industrialization of the country and the reconstruction of sectors of the economy on a new technological basis. How-ever, the wide use of subsidies was an emergency measure, and it economically contradicted the principles of economic accountability. In 1949 wholesale prices for the production of certain sectors of heavy industry were increased. As a result, the system of subsidies was canceled in most of the sectors of the industry, though it was kept in many sectors of the extractive industry, in some sectors of the manufacturing industry, and also in unprofitable enterprises of other branches of industry operating according to the plan. The economic reform which began to be implemented in 1965 created the necessary prerequisites for the liquidation of expected losses in unprofitable industrial sectors and enterprises; wholesale prices were reviewed (1967), which made possible the liquidation of expected losses of certain sectors and the reduction to a great extent of the number of enterprises operating on the basis of expected losses (for example, in the coal, timber, and fishing industries). As a result, the enterprises were given greater incentive to use material, labor, and financial resources more efficiently.

Subsidies are also allocated from higher to subordinate budgets to fill the gap between revenues and expenditures in the latter. Before the 1930’s in the USSR, general subsidies were used to strengthen the resources of local budgets and were also applied to special subsidies for strictly defined purposes. In 1932 deductions from ail-Union revenues became the basic method of balancing subordinate budgets. The scope of subsidies was sharply limited. This change strengthened the stability of Union and local budgets and increased the responsibility and the incentives of Union republics and local soviets for procuring their own revenue sources. Subsidies from higher budgets are used only in instances when other, more efficient methods of balancing budgets are exhausted. Measures carried out in the course of the economic reform to strengthen the revenue base of local budgets, and especially village and settlement budgets, have significantly reduced the scope of subsidies.

R. D. VINOKUR

subsidy

1. a financial aid supplied by a government, as to industry, for reasons of public welfare, the balance of payments, etc.
2. English history a financial grant made originally for special purposes by Parliament to the Crown
3. any monetary contribution, grant, or aid
References in periodicals archive ?
Megabanks and urban activists/The alliance of local bankers and agrarian populists finally died with the wave of bank and savings and loan failures in the 1980s--a collapse that, like many prior banking crises, reflected the subsidization of undiversified risks in residential and agricultural real estate lending.
Zhou claimed that the company's LED backlights save 18% more energy, above the 17% required by the subsidization program.
We must chart a course toward profitability that validates the true market value of all our work and frees the newsroom from a legacy of subsidization. This great challenge will require many hard choices about spending resources wisely.
However, even if all classical arguments in favor of public subsidization cannot be dismissed as a whole, most economists argue that these arguments cannot justify the wide prevalence of education subsidies in many countries, in particular in Europe.
* Given the American belief in the efficiency of the private marketplace, people are unaware that Medicare is by far the more efficient system, with an administrative overhead of approximately 3%, versus the 12% (along with heavy government subsidization) of the private sector.
The Caux Round Table (CRT) group welcomes the recent decision 'to seek an end to national subsidization of agricultural production', made at the Doha Round of negotiations on trade liberalization.
According to officials, the project involves the introduction of 10,000 natural gas-powered taxicabs as well as subsidization through PTT Public Company, Ltd.
IPP said the title covers overlapping policy areas that are shaping the framework of European, American and global antitrust law and policy, including cross-border litigation, international enforcement, trade policy, subsidization, market access and related issues that arise from global business and investment.
Trade Representative, American dairy farmers have been hurting because of Canada's long- standing subsidization of its dairy industry.
"The most important job of our Support Your Local Police Committees has now become to keep our local police independent of the federal controls which inevitably follow such subsidization." (Emphasis in original.)
"Three mobile operators is unusual in a country with a mobile penetration of 61% and around 30 million mobile subscribers--but together with the subsidization ban this has paved the way to three financially healthy mobile operators." Strand feels that such consolidation of mobile operators will be "a necessary step for many European countries, where there are simply too many operators competing for customers and basically not making money." In Korea, all three mobile operators are now the black; two out of the three had reported several years of losses prior to the ban.
If we really want to talk about affordability, we've got to look at subsidization.