During the past year, I have noticed the appearance of several commentaries that challenge the precepts of free trade and make protectionism appear as a logical instrument of bringing order out of economic chaos. One recent effort, "Let Us Now Praise Trade Protectionism" by Wolfgang Hager, appeared in The Post's Outlook section May 15.
The basic assumption of the article is that the continuation of free-trade policies in industrialized countries will leave us nothing more than a few high-tech and service-industry jobs. Heavy industrial sectors will be lost to Third World countries, because the labor differential will leave us forever non-competitive.
This has been a particularly fashionable argument, especially during a period of economic downturn when the immediate problems of foreign competition seem infinite. But Hager boldly concludes that protectionism is something more than the politically expedient statements made by some presidential candidates--that it is a necessity based on the evolution of the world economy. There are a number of reasons why these conclusions are poorly founded, but perhaps the most important one is that increased protection ensures substantially lower levels of productivity. The result: fewer jobs, less innovation and more inflation. Hardly a logical set of goals.
It is simplistic--and false--to assume that, because of the worldwide availability of state-of-the- art capital equipment, the industrialized countries will never have the chance to make up the labor differential enjoyed by the developing countries. There are many other factors that enter into the competitiveness of national industry, including capital intensity, management competence and creativity, worker training and productivity, the quality of national infrastructure of roads, communication and distribution systems, adequate and flexible financial systems, the willingness of entrepreneurs to take risks, the level of savings, investments and incentives, and the economic environment provided by the government.
In truth, automation and technology, more than imports, may well continue to result in fewer people employed in specific heavy industries, but workers will produce more in a cleaner and safer work place while earning better pay. Can we fairly stop that process? We certainly have fewer people on the farm than we did 50 years ago, yet we produce far more products with lower prices, higher profits and better quality. Would anyone seriously suggest our diet would improve with a return to horse and harness? The same is true today in the plant. If we have the foresight to invest the necessary physical and human capital in our industries, as we must, we can remain competitive.
In fact, the key is productivity. Protection is the worst remedy for a lack of productivity. Modern technology is making possible incredible improvements, and success will go to those countries that have the foresight to build an economic and political system with the incentives to invest in both new technology and better education. Protection removes those incentives and provides an illusion of security while, in reality, the competitive gap becomes larger and larger.
A protected national market will ultimately guarantee non-competitiveness in the global market, and that's the only market that can provide the necessary economies of scale for many industries. To remain competitive in the world market, you have to compete, not hide behind import barriers.
Hager's advocacy of increased protection of industrial-country markets from the flood of goods and services originating in the developing world is particularly disturbing. These are not just friends, they are the largest and fastest growing market for our manufactured exports. We sell more to the developing countries than to Japan and the European Community combined. It is inconceivable that we might continue to create jobs here through our exports if we don't buy their products.
Far tighter controls on less-developed countries' exports to the industrial world would be even more absurd right now in light of the significant debt problems facing many developing countries. Rather, industrial countries need to maintain and increase the access of developing-country exports to their markets. If not, the refusal to buy our goods and, ultimately, the inability to pay their debts won't be simply an emotional response; it will be an economically mandated reality. The stability, and perhaps survival, of our world financial and economic system is threatened by such protectionist rationalization.
But Hager has a plan that purportedly will satisfy Third World foreign exchange needs and stabilize markets generally. All we have to do is enter into a series of understandings that will alter the "terms" of trade, which includes the notion that importing countries will be willing to accept an increase in price overall, perhaps through high tariffs that we would then rebate to them as foreign aid. So, to solve our problem, all we have to do is reduce competition here at home, pay higher prices for that which we import (presumably only those products not available domestically) and snuggle up under the warm blanket of an all-wise and all-caring government. Precedent for this is cited in Eastern Bloc trade, among others. Is massive bureaucracy to be our role model?
The article reminds us again that a significant percentage of world trade is "managed" anyway with the proliferation of textile quotas, agricultural subsidies and steel arrangements. But to acknowledge that we are all sinners does not justify economic suicide. The important thing is to acknowledge protection and to establish policies that discourage its proliferation and lead to its removal.
Then we can take an honest look at remedies and ask the real questions: How good is our educational system, and what are we doing to make it the best in the world? How good is out tax system, and can we remold it to increase savings, incentives and investment? How competitive are our management and labor practices, and can we shape up our R&D? How strong is our self-confidence, and what do we do to compete? Or, alternatively, how desperate are we for security, and what degree of stagnation and hopelessness will we impose on our children to achieve it?