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Participatory Market Chain Approach: User Guide
Being careful with subsidies
T18. Subsidizing the private sector
Building capacity for new opportunities
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When backing commercial activities, an R&D organization needs to be careful in using public funds that benefit the private sector. Subsidies must be carefully evaluated and are only justified if they also contribute to social or environmental goals, directly or indirectly. The use of subsidies should be made explicit (see Box T18). In economics, subsidies are defined as monetary grants given by governments and non-profit organizations to the private sector, in order to promote activities that are in the interest of the public. In other words, subsidies provide an incentive for the production of public goods and cover part of their costs. In R&D work, subsidies are an interesting mechanism which can be used to encourage private companies to develop activities that will benefit the public. Examples include the commercialization of products which will have a positive impact on the poor and on natural resource conservation, etc. In practice, the challenge is to measure the public benefits derived from such subsidies, in order to justify them on a case-by-case basis. If such public investments mainly benefit private companies, subsidies distort the competition in the market and are a waste of public funds. Such a situation must be avoided!
A special concern of PMCA follow-up activities relates to capacity development. Since the innovations developed during PMCA imply changes in the way that things are done, learning must continue to support the innovation process and make changes sustainable. Capacity building might be needed at different levels of the market chain – to address specific bottlenecks in production, storage, processing, commercialization and consumption. Capacity building is particularly necessary in critical areas that require concerted action across the market chain, for example with production quality, technology use and developing associated organizations (see Box T19).