South Korea is one of the greatest development stories rarely told. In just 60 years, they've taken 50 million people from largely rural poverty to a higher GDP per capita than Japan's—it's a bonkers achievement. How did they do it?
Through export subsidies. For the full story, read How Asia Works, but the short version is that Korea strategically brought its manufacturing sector up to scratch by subsidizing firms conditional on them successfully exporting products; that is, on selling things abroad on the open market to people who had plenty of other options and no particular reason to buy Korean.
Now, these goods weren't truly competitive at market rates on day one: the government did have to subsidize them. But, crucially, the government would only subsidize companies that created some real, measurable value as judged by an external arbiter, and were on a good path to create more and more. Both halves of "conditional subsidies" are important here.
Take car-making, which Korea now excels at. Korea subsidized carmakers, but only if they successfully sold their cars to foreigners. This turned out to be a masterstroke versus the two rival approaches.
On the one hand, Indonesia tried the "subsidy" without the "conditional": they paid domestic manufacturers and banned the imports of foreign cars, giving its domestic carmakers a large captive audience who were forced to buy local. But this gave the car makers no real incentive to make good cars, so Indonesians suffered with bad cars, and you are not driving an Indonesian car today.
By contrast, many other countries had no subsidy at all (whether or not the non-subsidies were conditional or unconditional is a question for philosophers. And any country that didn't subsidize its nascent car industry after the birth of the automobile just... didn't develop any carmakers.
The reason is simple. Manufacturing is one of those things with a "surprising amount of detail": you need to develop a ton of detailed expertise and tacit knowledge about a very wide range of sub-problems, and for the first twenty years your products just won't be able to compete on equal footing with (for example, and also literally,) Toyota.
So the basic diagnosis behind the "infant industry argument"—that you need to coddle little baby industries at first or they'll never grow big and strong and economies-of-scaled enough to compete with mature rivals—makes a lot of sense, even if a lot of the cures come with their own problems and abuses.
Export subsidies deliver the best of all worlds: support for the early stages of difficult pursuits given by someone supportive and subjective (the South Korean government), but arbitrated by someone impartial and disinterested (the average international consumer) to avoid soft incentives getting in the way. It makes you think....
Personal Export Subsidies
I find export subsidies a deeply interesting model, and specifically think they might be applicable on a personal scale, rather than a national one.
Whenever one person wants to invest in another person's growth and development, you can look for ways to structure that support as a Personal Export Subsidy, if you can meet the following conditions:
- actual value is being created....
- ... as judged by disinterested external parties that have genuine alternative options and actual skin in the game....
- ... but not enough value to compete un-subsidised on a truly open market, while the subsidy-recipient is still in the learning phase.
Export Subsidize Your Child
By far the easiest example for personal export subsidies is a parent trying to help their kids. Let's take the example of parents who want to help their sprog succeed in some frustrating, low-paying, competitive career: oh, just out of nowhere, let's say writer.
Paying your kid's costs while they do a writing degree is not an export subsidy, it's just a regular-subsidy. And buying your own kid's writing (or artwork, or whathaveyou) is equally just a regular-subsidy. And the problem with those subsidies is that they don't incentivize improvement (or even quality) on the part of the producer: the producer's only incentive is to please the (soft-hearted?) subsidy-giver, which risks them never getting good enough to stand on their own two feet.
On the other hand, promising to double any money they make from submitting freelance articles to magazines? This is what we'll call a Personal Export Subsidy.
By supplementing the money they make from successfully placing freelance articles, you're letting an impartial external arbiter (the various magazines) decide whether your kid's work is actually worth something, while acknowledging that in the early days you'll need to increase that "something" for your kid to survive while climbing the ladder. (Incidentally, top magazines sometimes pay as little as $300 for an article that can easily take 40 hours to write, so this subsidy might just be getting your kid above the minimum wage line).
For another example, suppose you want your teenager to experience earning their own money. You could pay them for work directly—in the suburban stereotype, you pay them to mow the lawn. But then you have the exact problem that Indonesia had in developing its car makers: the teenager knows you're a captive audience, and you want to pay them money, and frankly will have a difficult time not-paying them even if they do a shoddy job. Instead of teaching them the value of hard work, you might well be teaching them the value of getting away with the bare minimum.
The export subsidy approach, by contrast, is that you subsidize them to mow someone else's lawn: tell them you'll give them 5x whatever they earn for mowing elsewhere. Maybe their unprofessional work is only worth $3 per hour to the neighbors, but if they earn those $3 on the open market they get another $15 from you, and that makes it far more worth their time.
To be a real export subsidy, it has to be conditional on creating real value and targeted at learning and developing skills over time. So you can't just pay your teenager to mow a neighbor's lawn for free, and you can't let them mow for a neighbor who is just doing it for you as a favor. Ideally you'd be in such a deeply capitalistic neighborhood that the person weighs up your teenager's $3/hour offer against a professional's $30/hour offer, and only employs your teenager if the cost/benefit calculation comes out better, but... well, for other reasons I hope you don't live in that neigborhood.
To be a real export subsidy, it also has to diminish over time as the skills increase. For example, you tell your kid they'll get 5x what they earn this year, 4x next year, 3x the year after and so on – the subsidy is there to help them skill up, so in order to keep making good money they have to increase the value they're creating for the external arbiter over time.
Depending on your kid, lawn-mowing might or might not be the right skill to subsidize. (It might be a good shout if they enjoy it! Landscaping is likely to be one of the last jobs to be replaced by AI). But the same principle applies for (say) coding or graphic design, if those skills are more likely to be relevant for them: just get your kid to list a profile on Upwork and tell them you'll match a multiple of whatever money they make there, allowing them to charge a low price to their customers and get a start when their skills are still too basic too be profitable at market rates.
Export Subsidized Poasting
Personal Export Subsidies require one party with resources and another party with out resources, so they're easiest to implement in situations with very uneven power dynamics. But here's an example that I think might work among peers.
Suppose you have a big presence on a social network like X, and you want to encourage some friends who are new on those platforms. You can just retweet their posts as a favor, but that muddies the water somewhat–there's a good chance you're encouraging them to post things that nobody actually wants to read, and not helping them grow a sustainable audience.
The personal export subsidy approach is that you only retweet their posts that get above n organic likes: this month 5 likes, next month 10 likes, and so on. This way, you're encouraging them to create value as measured by an external arbiter, but also giving them a subsidy because it's hard to get started in a competitive market.
Further Research Needed
Already we've hit against a couple of issues that make personal export subsidies tricky:
1) not everything in life is money, and using the logic of export subsidies for non-money measures of success seems much harder. How do you assess whether value has been created in situations where the objective arbiter isn't showing it through payments? How could you export subsidise your child's volunteering, or education, or non-monetisable creative work?
2) export subsidy approaches will often seem (and frankly, be!) kinda patronising. For parent-child relationships you might well get away with this – you're socially (and even linguistically) expected to act patronisingly – but if you tried to support your friend in her writing ambitions by offering to match her income I think this would generally not go over well.
3) a third problem is cheating/enforcement – as soon as subsidies exist the recipient has a theoretical incentive to generate fake payments (e.g. get in cahoots with a magazine to claim they're paying $1000 for the submission and then split the winnings from your subsidy).
Like most things in life, I think the logical validity of an approach in theory doesn't really matter if it clashes with our emotional and social needs; your ability to implement any of these ideas is going to depend completely on making the social and emotional factors work, and in any given case that may or may not actually be possible.
It's kind of a joke that every academic paper that doesn't know where to conclude will just say "in conclusion, further research on the topic is needed." But here I am: I think personal export subsidies are an interesting idea with a lot of potential, but also some difficulties in terms of implementation, and I'd be very interested to see how they go in practice – if anyone tries them in real life I'd love to hear from you and what you learned from it.