This House believes that we should substantially subsidize the extraplanetary industry

I want to begin by thanking Stephen_Hawkins for the debate and I would like to first address some administrative issues and then move on to my introduction and topical analysis for the resolution itself. Pursuant to PRO"s stipulation, I will present an affirmative case in the first round. Judges will note that the consequence of this will mean that I do not offer additional arguments or rebuttals in the final round. For this debate, I stipulate that the burden of proof is split necessitating that my arguments support the resolution while my opponent argues for the opposite of the resolution; that "we should not substantially subsidize the extraplanetary industry." My opponent"s participation in this debate henceforth should properly indicate his acceptance of a split BOP and additional provisions, accordingly. Now, I want to offer a brief sketch of my strategy for this debate. Because the resolution is isolated to address specifically the issue of the use of subsidies to a specified end, it is proper to examine why and under what circumstances governments should use subsidies. In the first round I will examine how market failures stemming from various externalities, scale and imperfect competition create conditions where the use of subsidies may produce an increase in domestic welfare, and may additionally result in other market benefits. In Round 2 I will examine market conditions within the extraplanetary industry and articulate multifaceted public benefits that may result from subsidized extraplanetary industry as defined by my opponent. In Round 3 I will rebut and conclude pursuant to the structure outlined by my opponent above. Market failures exist where "a difference exists between the actual price and the socially optimal price."1 Market failures may manifest in problems of scale where large fixed costs of entry into a market are necessitated by industry requirements of highly specialized capital. However, upon acquisition of capital allocated efficiently toward production the cost of production falls as units produced both increase and are sold. Because the initial cost of production is exceedingly high a market price of such a good will be disproportionately more than a similar good from an established company which has already recouped its cost of market entry. Because the demand for a marketable product whose price is disproportionately high may be artificially low, where subsidies are allocated to offset the cost of market entry demand may increase where the cost of a product is reduced. This is the hallmark of "learning by doing" within a specified industry. Salutarily, the allocation of subsidies to underdeveloped companies who have not recouped their cost of entry may have the dual effect of increasing demand for a product as a result of lowered consumer costs. Empirical research suggests that this is especially true for high tech industries, such as aerospace, nuclear power and semiconductors.1 By the governmental allocation of subsidies to early-stage industry, such an initial investment has exceeding potentiality of benefiting consumers in the future. For subsidies to be beneficial to developing industry, the World Trade Organization articulates that "the losses made in the initial stages must be significant and the learning curve steep." Moreover, in imperfectly competitive markets (which tend more to correspond with the situational reality of international trade than perfect-competition hypotheticals upon which many purely free trade economic analysis are predicated) governmental subsidization of industry may result in the strategic relationships between domestic and international firms in a manor favorable to domestic firms and in consequence domestic welfare where properly implemented, as illustrated by Spencer and Brander (1983), (1985) and Brander (1995).1,2 As Gholz (1997) explains, by capitalizing on market failures, to shift rents from successful producers, national wealth may be increased.3 While as Hortsman and Markuzen (1986) validly note, policies of industrial subsidization may run the risk of the subsidizing of inefficient producers, through proper investment of subsidies to research and development it is possible that presently inefficient domestically subsidized producers may eclipse more quickly global competition by eliminating the need to amass capital for reinvestment into research and development where (as mentioned above) the industrial learning curve is steep and the cost of production decreases precipitously as more units are sold, capital is amassed and then subsequently reinvested into research and development (R&D). Strategic Trade Theory, as modeled by Spencer and Brander (1983) incorporates a 3 stage model in which firstly subsidies purposed towards R&D and/or other measures increase domestic welfare by shifting profits from foreign firms to domestic firms. This is accomplished by increasing the cost of foreignly produced products of enabling domestically produced products to be sold at a rate lower than that of foreignly produced products. This causes foreign firms to reduce their exports and similarly causes domestic firms who enjoy subsidization to export and, moreover, sell more goods. As a result, the revenue generated by domestically subsidized firms increases while that of foreign firms decreases which will furthermore reduce foreign R&D. Simply, the gain of the domestic firm is won at the expense of foreign competition. This firstly protects the domestic industry from foreign competition during developmental stages, secondly secures the place of a domestic firm within a global economic niche and thirdly erodes the revenue potential of a foreign firm. In consequence, governments may use subsidies as mechanisms of strategic trade policy to shift profits from foreign firms to domestic firms which will reduce national economic welfare in such a way that secures a continued return on investment through future tax revenues and increased global trade. 1 http://www.wto.org... 2 Barbara Spencer and James A. Bredner, "Strategic Trade Policy", in The New Palgrave Dictionary of Economics 3 http://web.mit.edu...