Re: Subsidies ...

From:         ehahn@wren.mitre.org (Ed Hahn)
Organization: The MITRE Corporation, McLean, Va.
Date:         30 Mar 96 16:01:08 
References:   1 2 3 4
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mezei_jf@eisner.decus.org (Jean-Francois Mezei) writes:
> When the SCUD missile became a "star" in the Desert Storm war, why then did the
> stock of the company that makes it go up on Wall Street ? Because investors
> knew that a lot of SCUDS would be used in desert storm and that its high
> visibility might result in sales to other countries, hence more profits to the
> private company which result in higher dividends to the investors. In essence,
> the US government spent tax money which ended up partly to Wall Street
> investors.

Hmm, I don't think that the Soviet-made Scuds made anyone's stock
prices directly go up after the Gulf War, as they performed rather
poorly.

Perhaps you mean the Patriot missile made by Raytheon?

I don't see what's so insidious about the above case.  A company makes
a product under contract from a military agency.  The military user
buys the product, and it performed (mostly) as intended, and happened
to be very visible to the press.  Why wouldn't people be interested in
investing in the company which producted it, because of expectations
that the good press would cause more sales?

I don't know if this would be considered a subsidy.  After all, if the
product performed poorly, the company surely would have suffered a
loss in its stock value.

In my opinion, it's silly to talk about something being a subsidy when
a company makes a good product, which leads to lots of sales.  In this
case, the US Army paid Raytheon to develop a new anti-air missile
defense system - it was a need that the Army identified, and wouldn't
have happened without them asking for someone to produce it.

It's very rare that a company will embark on a new product development
without either a specific request for a new product, or without a
survey of the market to make sure that customers will exist for the
product.

My opinions only,
ed

--------   Ed Hahn | ehahn@mitre.org | (703) 883-5988   --------
The above comment reflects the opinions of the author, and does not
constitute endorsement or implied warranty by the MITRE Corporation.
Really, I wouldn't kid you about a thing like this.