Saturday, April 9, 2011

Subsidies and Dole Outs - Arroyo versus Aquino

Arroyo and Aquino, both of them used Subsidies (aka Dole Outs) as a fastest strategy of intervention in the market. Arroyo subsides were for the purpose of preventing inflation, money injected in a utility widely used by the general public, hence benefit was "economically" appreciated. Aquino subsidies are for the purpose of preventing hunger, injecting money directly to households with specific conditions, hence benefis is "politically" appreciated.

In my standard, both of them failed the rationality test of subsidies.

My rationality test is simple. Subsidies must (1) be efficiently managed, (2) be conditionally spent only in safe investment, (3) be demand driven, and (4) perk-up the vibrancy of the domestic market.

For me, subsidy funds can possibly be efficiently managed by banks to be conditionally invested solely in creating new businesses. The ideal target business I have in mind are those that are feasible for franchise expansion of small yet thriving companies.

Franchising is a safe investment because the supervision of new shops is an automatic concern of the mother company. If you ask the proor on what they want to alleviate their condition, they always say thay want JOBS; franshising creates new jobs, therefore it is demand-driven. Franchising promotes market vibrancy because it helps locally produced commodities reach all possible corners of the demanding domestic market.