Fischer, Ed. "No Cap Subsidies...Farmers in Trouble." 2011. Online cartoon. CartoonStock. https://www.cartoonstock.com/cartoon?searchID=CS398768
Many individuals might think that the government offering subsidies to entrepreneurs is needed and is very beneficial. It can be challenging for many small businesses and other entrepreneurs to start without some help from the government. Not many people have the resources to support themselves in their own innovation. With a financial incentive offered by the government, entrepreneurs have reduced costs and larger access to resources. However, can something that sounds this good actually be as good as it seems? What is the value of a market entrepreneur in comparison?
The book “The Myth of the Robber Barons” written by Dr. Burt Folsom shows exactly why the government shouldn’t give subsidies to entrepreneurs. In a guest lecture, Dr. Burt Folsom talked about his book and described the battle between Edward Collin’s steamships and Cornelius Vanderbilt’s steamships. Edward Collin was a subsidized entrepreneur, constantly seeking financial support from Congress. Cornelius Vanderbilt was a market entrepreneur who did not receive financial assistance from the government upon startup. Vanderbilt was determined to be better than Collins despite his disadvantage. Because of this, he found ways to cut costs while being as efficient as possible and innovating to make more money. This led to Collins ultimately going out of business because Vanderbilt stole his passengers. If Collins had been an independent entrepreneur, and not dependent on the government for money, he likely could have found ways to cut costs and become better just like Vanderbilt did. This is how a healthy business competition functions and how innovation happens naturally. Instead, he was too reliant and didn’t have much of an incentive for innovation. At the end of it all, the United States was out about $11 million according to Dr. Folsom.
What Dr. Burt Folsom described about Collins and Vanderbilt in his book, and that I previously summarized, is a real-life example explaining why entrepreneurs should not be given financial incentives. American history is full of examples such as this where the U.S. suffered due to pouring money into entrepreneurship development. I’m not saying that entrepreneurs should necessarily suffer but they should expect and prepare for setbacks because it is those setbacks that lead to greater success. Without them, you are content sitting in the same space and never expanding or innovating. It is this exact space that I believe subsidized entrepreneurs sit and hinder market entrepreneurs’ ability to expand. How can market-based entrepreneurs be hindered by entrepreneurs getting subsidies? When they are given subsidies, it can lead to the misallocation of capital which isn’t ideal for market entrepreneurs.
Because of Dr. Folsom, I decided to do some research of my own and found my way into the world of agricultural subsidies. The agriculture risk coverage program gives subsidies to farmers when crop revenue falls below a guaranteed level. This means that when a farmer’s revenues (or their county’s revenues) drop, they get a subsidy. A larger subsidy is given to farmers with lower revenue. This program seems to make it easier for a farmer to stay steady in development even if it isn’t making enough money, so it is inefficient or unproductive. I could be wrong, but at face value that is the way it seems. Farmers can also get subsidies through crop insurance. One issue with crop insurance alone is that there is no income limit, so farmers with any level of income can receive these premium subsidies. Another issue is that farmers can receive both crop insurance subsidies and subsidies from the agriculture risk coverage program (or the price loss coverage program, whichever they wish to choose). Both of these programs generally serve the same purpose. Ultimately, the problem with farm subsidies, as with any other subsidy from the government, is that they limit innovation and the stress of cost control. Specifically with these subsidies, the majority of them seem to go to the wealthy and producers with large farms (hindering the growth of small farms and those not already well-off). It seems harsh to say that we shouldn’t support our farmers with subsidies, especially in times of need, but without them, advanced risk control strategies could be adopted that would lead to innovation and better budget management.
In conclusion, the value of a market entrepreneur compared to an entrepreneur who is given subsidies is that market entrepreneurs focus on consumer demand, innovation, efficiency, and overall creating long-term value. Subsidies limit innovation, create the possibility of inefficiency, and create dependency upon the government. Because of this, subsidies aren’t as good as they seem. We have seen this demonstrated throughout history time and time again. At the end of the day, market-driven entrepreneurs create a strong and sustainable economy, and subsidies hinder progression and development.
Works Cited
Edwards, C. (2023, August 31). Cutting Federal Farm Subsidies. Cato.org. https://www.cato.org/briefing-paper/cutting-federal-farm-subsidies#reasons-repeal-farm-subsidies
USDA Farm Service Agency. (2023, December). Agriculture Risk Coverage (ARC) & Price Loss Coverage (PLC). USDA Farm Service Agency. https://www.fsa.usda.gov/sites/default/files/2024-12/fsa_arc_plc_factsheet_1223.pdf
Wenli, L. (2002, May 7). Entrepreneurship and Government Subsidies: A General Equilibrium Analysis. Journal of Economic Dynamics and Control. https://www.sciencedirect.com/science/article/abs/pii/S0165188901000112#:~:text=rights%20and%20content-,Abstract,and%20have%20adverse%20incentive%20effects.