Thursday, August 16, 2012
Buy Team America?
Samuel Johnson once wrote that "patriotism is the last refuge of a scoundrel," criticizing adverse policies and proposals falsely claimed to be based in patriotism. This has been most recently illustrated by the political furor over "made-in-China" Team USA uniforms. Many politicians asserted that it was un-American, with Senate Majority Leader Harry Reid saying those uniforms should be burned. Supposedly patriotic pressures to mandate "buying American" sprang up immediately, and Ralph Lauren quickly capitulated, promising to "go and sin no more."
While some of the details of this flap are unusual, protectionism dressed up as patriotism follows a well-worn script.
Imports are found to cause some domestic harm. Given that those imports harm competing domestic producers, "Buy American" or some other version of protectionism is put forth as the patriotic response (with the producers seeking protection from superior competitors leading the patriotism bandwagon). The Team USA version simply exploits the Olympics' peak in pro-American sentiment and symbolism to make the same case (though it makes no more sense than requiring that we grow our own coffee and bananas for our athletes).
The problem is that imports always harm competing domestic producers, so that the patriotism argument can always be used as political cover whenever any domestic producers get the government's ear. And there are always politicians ready to listen.
One person who recognized the abuses and illogic of this approach was Leonard Read. In particular, his chapter "Buy American," in Having My Way (1974), lays out a better way to approach the issue.
Read points out that that the traditional use of "Buy American" is to justify some citizens beggaring their own neighbors, rather than something that advances any sensible interpretation of our general welfare. However, there is an interpretation that does advance our general welfare. Don't buy (i.e., accept and make use of) actions that violate the American principle of freedom to choose your own productive associations, as long as you don't violate the common, inalienable rights of others.
Read recognizes that whether a principle is true or not has nothing to do with where it comes from (i.e., ad hominem or "against-the-man" attacks do nothing to invalidate something that is true, although you wouldn't know it from political rhetoric). As a result, he offers an excellent way to test whether some supposed general principle is valid — change "Buy USA" to "Buy Chinese" or "Buy Mexican," and ask if Americans would accept the proposition as true based on their patriotism. If it is really a general principle, it is as valid for others in their dealings with us as their potential suppliers as it is for us in dealing with them as our potential suppliers, and the answer would not change. We would support others' protectionism just as much as our own. But if it is really special pleading, rather than a general principle, people's answers would change, as when people hypocritically attack other countries for their protectionism at the same time we defend ours as principled.
Read also recognized that the extent of protectionism is far vaster than most people recognize.
The difference between a ban on buying a foreign country's products and imposing tariffs, quotas, or any of a host of nontariff barriers is only one of degree. Whether it benefits or harms Americans does not change; only the degree of such benefit or harm. Similarly, change "Buy American" to "Buy Local," as with locavore campaigns in agriculture, and the logic is equally invalid.
Such protectionism goes well beyond international trade, as well.
Change the wording to "Buy Union," as with project labor agreements and prevailing (higher-than-competitive) wage laws, and the logic is the same. Union members are protected from the competition of other workers who would work for less. But that protection not only harms nonunion workers; it also harms customers, whose costs are increased.
Price controls are also protectionism. For example, a minimum wage protects other workers from competing with those who would be willing to work for less, but it harms both those denied their most productive employment and consumers.
The vast majority of antitrust cases are also forms of protectionism. They are not brought by consumers, who generally gain from the practices involved, but by outcompeted rivals who want to take away others' advantages — advantages passed on to customers. Those outcompeted rivals don't want potential customers to go elsewhere — and use antitrust to restrict consumers' ability to access superior options.
A vast array of licensing schemes follows the same pattern. They hide behind masks of quality or safety but primarily keep new competitors out and keep those who would offer lower-quality–lower-price options some customers would prefer from doing so.
Leonard Read offers a powerful solution, powerfully illustrated by America's own past.
In other words, the freedom to associate for productive purposes however and with whomever one chooses, because people were protected from many of the violations of that principle that governments have imposed throughout history, was the essence of the American miracle. And at its heart, as Thomas Jefferson wrote, was "the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it."
Further, Read's focus on America's free internal trade offers a counterpoint to a frequent misinterpretation. Those who defend protectionism as a valid principle claim that it was the protectionism adopted by the United States in the form of tariffs that advanced our staggering early economic success. While it is true that import tariffs were imposed, and eventually dramatically raised (see the history of the "Tariff of Abominations" as an example), that was not the source of our success any more than hurdles — which slow running speeds — should be given credit for increasing running speeds because hurdlers are fast. The reality is that the positive impact of our massive internal free-trade zone and other constitutional restrictions on government interference far outweighed the negative impact of international-trade restrictions.
Read then addresses one particular common defense of protectionism: the "infant-industry" argument that free trade may be good in general, but that industries must be protected until they can grow to a scale where they can compete, which amounts to a claim that the benefits of freedom require restricting the freedom that generates them.
Read recognized that from the perspective of consumers it is the competition that takes place without artificial assistance or restriction that expands their options the most. It does not matter whether competition leads to a foreign producer who offers better terms because of superior efficiencies or if that producer is American. So there is no reason to artificially nurture American infant industries (which often claim to be infants virtually forever), because it is the results of real superiority that benefit consumers, and artificially tilting the playing field only inhibits the process that best discovers and passes on the gains of such superiority.
Read next turns to another test that rejects the logic of protectionism. If we accepted protectionism in principle, we would be for it in all cases. But, as he notes, we are all free traders when it benefits us. In other words, we recognize that we gain from free trade, except when we are the one benefitted by special treatment — necessarily at others' even greater costs — by those restrictions. We abandon our own revealed preference for freedom only when bribed by receiving some of what is essentially stolen from others.
Leonard Read realized that the logic of protectionism is riddled with errors and that the practice of protectionism, in its myriad forms, is theft that impoverishes everyone except those bribed by the gains of their protected status and those whose political clout greases those transactions. It is a far cry from either liberty or justice for all. Read's conclusion:
Copyright © 2012 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.
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