Vanderbilt is known today as a very successful Entrepreneur, taking everyone by surprise and climbing ahead of his competition without the help of government subsidies. So much so that when Dr. Burt Folsom introduced him during the lecture I had an incline toward who he was and his impact on the U.S. Whereas his competitor Collins I was, to say the least, very unaware of him entirely. So the spiraling question is are government subsidies always the answer? Or do they hinder entrepreneurial freedom and innovation? While yes subsidies can be beneficial at times I believe they often slow down the efficiency of innovation. Vanderbilt’s rise to fame is a perfect example of how market-driven competition can beat those using help from government subsidies.
Collins vs. Vanderbilt
In the mid 1800’s the US decided they wanted to join into the steamship market to boost their trade capabilities, shipbuilding, and overall American industry. They knew that their biggest competition was going to be the British who were a few steps ahead of them. Collins promised faster and more luxurious ships than the British if he had help from the government, which led them to be more inclined to provide these subsidies in hopes that they could become more successful than the British in this market. However, even with this support could not sustain itself and was inefficient. Vanderbilt offered to provide a different route to the U.S.’ success with the help of subsidies but the government declined his offer and continued to help Collins company instead. As time went by Collins continued to use government subsidies and was getting nowhere. While Vanderbilt, without subsidies, found ways to improve his services and for cheaper. He focused on efficiency, lowering costs to allow for a range of customers, and improving his speed. He was able to outperform Collins on his own, by adapting to market forces.
Are Subsidies the Solution?
I believe that subsidies can be beneficial in some cases but more often than not they create an unfair marketplace, that allows businesses that should have trickled away with time to survive longer than they should. It also allows these businesses to slow down their rate of return. In other words, have a lack of urgency or agility compared to entrepreneurs who are more aware that their financial decisions could make or break their incomes. In addition, I believe that because the government knows the risk it takes to give out subsidies, they tend to help the more safe or socially desirable ventures. Which may not always be the best option for innovation. For example, the government was more inclined to help Collins because they believed people would be more inclined to invest in a more luxurious service. When in reality immigrants were a large percentage of Vanderbilt’s customers because they were able to buy a more affordable way to the new land. Had the government maybe looked at Vanderbilt’s ideas and results they would have seen growth quicker. Subsidies may be better off being used for early infrastructure, such as space exploration. Or in cases where regulations are heavily enforced and strategically to ensure that misuse of subsidies does not occur. Take for example Collins's situation, once they realized Vanderbilt was outperforming him and able to generate more success they should have taken the resources they were providing Collins for his services instead. Instead, they gave him too many chances and accumulated debt investing in an inefficient business.
Advantages of Entrepreneurship
Entrepreneurs are quick on their feet, used to pivoting quickly, willing to test bold ideas and adapt to the market. Which is crucial for innovation in the marketplace, and adhering to customer needs. If businesses are sticking to what they think will work and merely making by, there is no room for improvement to happen. But when businesses look at what customers want and prioritize their needs it drives the market. This also helps with cost-effectiveness for these businesses, because they aren’t spending unnecessary resources on what isn’t working. The competitive environment that entrepreneurs create helps to filter out the weak links. Promoting strong ideas for the marketplace and speeding up the process of innovation.
Conclusion
Subsidies aren’t always harmful, they can be beneficial for early infrastructure that private sectors may not be as willing to invest in. But in most cases, I believe they make an unfair advantage for the innovation race. They can hinder entrepreneurial freedom and progress in the marketplace, for businesses that often weren’t cut out in the first place. Innovation thrives when entrepreneurs can acknowledge their resources and adapt to build their success.
