Overdependence on government subsidies

Visualization of narrower problems
Discriminatory domestic subsidies
A wide variety of techniques is used by governments to subsidize production costs. They may be grouped as subsidies to specific industries, as regional development programmes, or as subsidies for particular economic activities (which seek to raise growth rates in broad groups of industries, to bring about significant structural adjustments, and to facilitate the adjustment of enterprises to economic shocks). Such government aids to domestic industries result in some degree of distortion of trade patterns. Some of these forms of aid may represent efforts either to offset tariff and other trade concessions or to improve balance of payments positions.
An illegal subsidy in the EEC/EU is almost any action in which the state, as owner, acts differently from a private investor. Such actions may include cash payments, debt write-offs and any case in which governments (a) accept a rate of return below the market rate on investments in nationalized companies; (b) implicitly guarantee their borrowings; (c) inject additional equity capital into them when a private investor clearly would not; or (d) waive dividend payments.
State subsidies in the EC were about 82 billion ecus a year in 1986-88. Of that, agriculture took an average of 11 billion ecus a year, coal 13 billion, railways 26 billion, and industry the remainder. In 1981-86, subsidies were around 89 billion ecu a year.
Domestic subsidies and aids are prompted by greater sense of public responsibility toward improving economic conditions for those employed in depressed industries or regions, and raising the rate of growth both generally and in selected industries.
(D) Detailed problems