Free Trade Versus Protectionism
I must confess that when I hear a Free Trade argument I tend to agree, but when I hear a Protectionist argument I also tend to agree. Which means that either
1) I'm a jellybrain
2) the arguments are presented as ideals.
Unfortunately for me the two are not mutually exclusive. But for my sake I'm going to go with 2) which means that we now need to have a look at both arguments.
The Free Trade argument goes like this, Protectionism protects bad industries, industries that are unprofitable unless given an unfair advantage such as tariff protection. This advantage hurts productive industries as well as everyday consumers and everyone is a consumer. The cost of goods are more expensive which hurts every productive business and every consumer, in short it costs more to live. It would be better if these artificial barriers were removed and everyone operated on a level playing field.
The Protectionist argument goes like this, every Country has an economy and every economy competes with other economies, therefor your Countries economy needs to be given every advantage you can give it. To protect industries, jobs and living standards, trade barriers need to be enforced so that cheap foreign goods cannot destroy the advantageous that have been built up over time.
Near where I live was once the clothing manufacturing capital of Australia. It produced most of the clothing and footwear worn in Australia, it also exported . But in the 1980's the Labor Government reduced tariffs and within 5 years nearly the entire industry was dead. You could argue that Free Trade was right as it proved that the industry was unprofitable without protection. You could argue that Protectionism was right as a viable industry was destroyed by taking Australian jobs and giving them to people in other countries. We gave away our advantage. The argument would be moot if those made unemployed by the factories closing down were employed and those who would now work in those factories had jobs, but sadly that is not the case. The area were these factories closed have high rates of unemployment no matter how the rest of the economy is going.
Earlier this year Ford announced it was ending the production of cars in Australia in a few years time. This week General Motors announced the same and it's expected that Toyota will do the same soon. All three companies have been given very generous subsidies by the Government, no matter which party was in office. Now the Government with a large budget debt has decided to say no and the car companies are leaving. The Free Traders will argue that it costs us alot more money to buy a car than the sticker price on the windowscreen, in fact even if you don't buy a car manufactured in Australia you still get to pay for one, in what way is that fair? Protectionist will counter with the argument that when production ceases all cars will be imported, Australia will get no benefit as all of the skills, jobs and money either come from overseas or are going overseas. There is also no guarantee that prices will go down, only a promise.
In both cases I think the withdrawal of the protection has been too quick. With time many of these companies may have been able to compete, but having the rug pulled from under them left them with too big an obstacle to overcome. A further worry is that foreign owned multi-nations have no incentive to keep facilities in countries that do not offer some kind of incentive. Low wages or Government subsidies. To be sure subsidies are welfare for big business, something I don't like at all as it hurts smaller companies. But the truth is that the idea of a level playing field is a lie, we are not talking about Australian companies competing against Canadian companies or Australian workers and conditions competing with Canadian workers and conditions. Two countries with similar living conditions. We are talking about Australia competing with Thailand and Samoa, amongst others. Many countries have lower levels of living, lower conditions and lower wages. Many countries have subsidies. That is not a level playing field. The policies of Free Trade have in all First World countries brought on permanent mass unemployment. Until the Free Traders find a way to end mass unemployment they have failed.
That doesn't mean that the Protectionist have won. Both have advantages, but from what I have observed, personally and historically is that neither work for long. Both are too rigid in their approach. The Protectionist economy did allow companies to exist that were terrible at what they did, they didn't innovate, they didn't try to be more efficient, they were complacent and the Government encouraged that attitude.
Maybe it is time to abandon both positions and be more flexible. The "Austrian" economists argued that Communism and all command economies would fail because the economy is too complex to understand well enough to control. I think they are right on this point, but it is possible to encourage and nudge the economy. Just as most countries have floated their currency, why don't we float tariffs? No one would notice a tariff of 1 or 2 percent, but they would if it was 5 or 10 percent. The argument is that tariffs hurt consumers, why not give the money made from the tariff to the consumer in their tax return? The aim of the tariff would be to protect Australian jobs. Companies should also have a floating tax rate, there would be a minimum rate of tax, say 20 percent and then a floating amount up to a maximum of say 40 percent. The amounts can change it is the idea that is important here. The floating amount would reward companies for 3 things, long term employment, new employees and low unemployment. While it might not be possible for many companies to get down to 20 percent, it sure would give an incentive.
I hope I get some comments on this one, good or bad. I know there are both Free Trade supporters and Protectionists who look in here so please if you have something to say please do so.
Upon Hope Blog - A Traditional Conservative Future