****** Update 05/17/2009**********
A column from Paul Krugman in nytimes broaches a similar topic
***********************************
Often I get into discussions on politics and policies, its impact on business, global trade and inevitably the dreaded "P" word - protectionism.
Although I consider myself a free market proponent, uncharacteristically I support a wee bit of protectionism. And I can explain this as a necessary evil for a level and just playing field in this age and times. Let me explain...
U.S has historically been a flag bearer of free trade, open borders etc. although have never been in direct competition with any of the trading partners. We have always been way ahead of competition be it in technology, business, education, you name it. Over the last decade or so the playing field has shifted dramatically. There has been a huge resurgence of China, India, Russia mostly due to a continuous transfer of wealth (by means of paying for oil, services, goods) from the US, increasing cost of business and lack of focus on education. Sure we can understand the need to pay for oil, but services, manufactured goods??
We have to pay China and India because it makes no sense to do either manufacturing nor services in the US with huge costs of doing business due to several reasons - One, there are not enough skilled Americans coming out colleges; two there are no incentives for businesses to run operations here in America due to high personnel costs (health care, taxes).
Yes some part of the inefficiency is inherent to an advanced society as US complies to labor laws (no child labor, minimum wages etc.), environmental laws and is the standard bearer for the developed nations.
This is where I propose protectionism to make the other trading partners responsible and to stay competitive. The only way US can be attractive to businesses to setup manufacturing or service units is by bringing down the costs considerably (which means getting around strict labor or environmental laws) or by increasing the cost of doing business elsewhere. That would mean that China and India (just using them as examples) have to achieve certain standards to sell goods or services in the US. Unless overseas firms follow standard labor law practices, there will be a levy assessed on any goods manufactured or services provided. Similarly for compliance to certain environmental standards. This will slowly drive trading partners to follow certain minimum standards in order to do business with the US.
These levies\tariffs generated could be used to give more teeth to world standard bodies such as the human rights commission and such (maybe form a global environmental protection agency which can set some standards such as the Kyoto protocol).
I am sure there are real practical issues to sort out before this makes sense. But it sure is worth a try.
Although I consider myself a free market proponent, uncharacteristically I support a wee bit of protectionism. And I can explain this as a necessary evil for a level and just playing field in this age and times. Let me explain...
U.S has historically been a flag bearer of free trade, open borders etc. although have never been in direct competition with any of the trading partners. We have always been way ahead of competition be it in technology, business, education, you name it. Over the last decade or so the playing field has shifted dramatically. There has been a huge resurgence of China, India, Russia mostly due to a continuous transfer of wealth (by means of paying for oil, services, goods) from the US, increasing cost of business and lack of focus on education. Sure we can understand the need to pay for oil, but services, manufactured goods??
We have to pay China and India because it makes no sense to do either manufacturing nor services in the US with huge costs of doing business due to several reasons - One, there are not enough skilled Americans coming out colleges; two there are no incentives for businesses to run operations here in America due to high personnel costs (health care, taxes).
Yes some part of the inefficiency is inherent to an advanced society as US complies to labor laws (no child labor, minimum wages etc.), environmental laws and is the standard bearer for the developed nations.
This is where I propose protectionism to make the other trading partners responsible and to stay competitive. The only way US can be attractive to businesses to setup manufacturing or service units is by bringing down the costs considerably (which means getting around strict labor or environmental laws) or by increasing the cost of doing business elsewhere. That would mean that China and India (just using them as examples) have to achieve certain standards to sell goods or services in the US. Unless overseas firms follow standard labor law practices, there will be a levy assessed on any goods manufactured or services provided. Similarly for compliance to certain environmental standards. This will slowly drive trading partners to follow certain minimum standards in order to do business with the US.
These levies\tariffs generated could be used to give more teeth to world standard bodies such as the human rights commission and such (maybe form a global environmental protection agency which can set some standards such as the Kyoto protocol).
I am sure there are real practical issues to sort out before this makes sense. But it sure is worth a try.
Hmm... How come western countries like Germany, Denmark and Finland manage to keep ahead even with the emergence of China and India? I bet they are more stringent in labour laws and definitely on environmental laws. Bottom line in my opinion is Education. The social safety nets that the US put in place after the great depression actually allowed enterprenuers and innovators to take the risks that they did. But over the years Americans have tried to make life easier and easier for the sucessive generations. The expectations were lowered and so did the grades and graduation percentage followed. Today the US has become a net consumer and produces next to nothing. You cant shop till you drop at Walmart and then complain about manufacturing moving to China.
ReplyDeleteBut in the interest of the environment, I fully support more stringent manufacturing laws to be enforced across the Globe.
Visesh, I agree that education is an important aspect - I have mentioned it in the post. However what I have tried to address here is the fact that China and India definitely have a leg up because of the lax environmental and labor laws prevailing there. U.S being one of the biggest consumers should use that power to force them to improve; protectionism, I feel, is a very effective tool to enable this.
ReplyDeleteEurope, in my opinion, does not share the same dynamics as US does, be it in innovation, diversity, or just the sheer size of the market. And I believe Eurpoeans are more risk averse than Americans with the afore mentioned social safety nets.