It is right for the government to grant subsidies to certain individuals or firms. Subsidies are tools through which the government uses to support its citizens and spur economic growth. When an individual or a firm gets subsidized, the benefit is felt by many citizens(Rieser 602). Subside for farm inputs, for example, will result in low production cost and a consequent reduction in food prices. The government should also grand subsides even when the business is not profitable because of other advantages like equipping it to enjoy economies of scale. Some businesses are not making a profit because they lack enough capital to buy goods in wholesale which would yield a profit. Also even without making profits, the subsidy would be felt by the citizens which is the government aim. Cooperatives, for example, may be provided with a grant to buy fertilizers and other farm inputs and sell to farmers at a controlled price without making a profit. The government benefits the citizens through low amounts of food products the farmers will produce.

Granting of subsidies lowers competition in the market. Through the low of supply, when subsidies lower the prices of products, producers are discouraged to produce more thus reducing the level of competition(Rieser 615). Although the demand for goods will increase as a result of low prices, the producers will not be ready to offer at a low cost, and hence, completion will remain to be low. Adam Smith would disagree with government subsidies because he viewed them as a way of enriching the already privileged in the society and the government(Rieser 612). Smith pointed out that companies which get subsidies fail to make big profits as expected because they do not use the grants to benefit the company but pocket the money.

Rieser, Alison. “The Herring Enlightenment: Adam Smith and the reform of British fishing subsidies, 1783–1799.” International Journal of Maritime History 29.3 (2017): 600-619.

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