Saturday, 31 January 2009

No protection from poor Gordon

Poor Gordon has found a new topic to talk about, protectionism. As we know, it is necessary to be very careful when reading anything coming from our Prime Minister and to put it in context. So first we must ask whether he was talking sense about other things before we look at his main theme.

The report of his latest offering tells us he spoke about the recession first and gave us this pearl of wisdom: "I have utter confidence in our ability to come through this." I'm just a simple fellow so I have probably missed something here, nonetheless it seems to me that there are only three possibilities: (1) the UK slips into a permanent economic coma, (2) the country ceases to exist and (3) at some stage the recession will end. The first option is impossible in practice. The second can only occur in the event of a massive nuclear strike or the physical destruction of the land by even more fanciful means. So that leaves us with only a sure-fire, odds-on certainty: at some time and after a degree of pain not yet known the UK economy will stop shrinking. I suppose we should be reassured that our incompetent and mentally unstable political leader is not so completely detached from reality that he has failed to grasp this simple fact. More troubling is that his language suggests one or both of the other theoretical possibilities might occur. If he really does think that, his continued presence in Downing Street is even more worrying than we have previously realised.

So, we know his comments on protectionism are made against the background of him appearing to believe the UK economy might shrink to nothing or we might all be blown to smithereens in the not too distant. I shouldn't be too cruel. Poor Gordon has absolutely no ability at all to speak off the cuff and make himself clear. His brain just doesn't work like that. One might think it a vital skill for every Prime Minister but we are way beyond the stage of having to wonder whether he is up to the job, for a long time now the only question has been how much more damage he can do.

What is it, then, that he fears from protectionism. Fortunately he has not yet explained his views, so I'll see if I can help him.

As always, we must start by defining our terms. To me, protectionism means closing or restricting our domestic markets to imports in order to prevent domestic producers from losing out to more efficient foreign businesses. There are three main reasons why protectionism is usually a bad thing.

First, isolating any business from competition removes incentive to be efficient. Why improve what you are doing when there is no one else to woo your customers? This point cannot be taken too far because removing or limiting foreign competition will not remove domestic competition among rival businesses. However, a dramatic change in the level of competition by removing all but domestic businesses from the game can lead to informal cartels between the remaining players who know they can all do very nicely without risking their future by trying to knock the others out of business.

Secondly, protectionism stifles innovation. Why is it that you rarely see a big fat television in the shops these days when just two or three years ago flat-panel versions were the exception rather than the rule? It's obvious, our oriental friends developed flat-panel technology and customers like them. Just as the tiny tellies of the 1960s gave way to 26 inch screens by the 1980s, so cathode ray tubes have had to give way. And it only happened because innovations in one country were sold to customers in another.

Thirdly, closing markets to imports hits the poorest countries hardest. Kenyan farmers don't grow runner beans for the fun of it, they do so to earn money from wealthier countries whose citizens are prepared to pay for out-of-season produce. It helps us because we get the vegetables we want when we want them and it helps them to earn a living far higher than they could achieve from supplying their home market only. We won't pay our own farmers a premium price for winter cabbage because it is not a premium product in winter, but we will pay a premium price for fresh runner beans in January.

These three reasons illustrate two fundamental truths. Competition improves the goods available to us and, therefore, improves our quality of life. And, just as importantly, money makes the world go around. Protectionism acts against both those truths.

Yet we engage in protectionism in some fields because it is necessary to do so to avoid risk. I mentioned this subject three weeks ago. Some things are so important that we must ensure a domestic supply simply so that we cannot be blackmailed or bullied by overseas suppliers. Perhaps we could get electricity more cheaply if we bought it from France rather than generating it ourselves, but we would then be dependent on the goodwill of others and a regular supply of electricity is too important to rest on something so flimsy. Not many products fall into this category, it might be that electricity is the only one. It doesn't matter for the purposes of this missive whether it is one or fifty, where a product or commodity it sufficiently important we must engage in protectionism even if it results in somewhat higher prices and somewhat stifled innovation.

And then there is practical politics. Government is not all about long-term economic systems, it is also about acting (if you can) to deal with the short-term predicaments of real people. Principle sometimes has to give way temporarily in order to avoid the appearance of a government acting deliberately against the interests of the people it is meant to serve.

At the moment strikes are taking place at oil refineries because cheap labour is being imported from overseas, most notably Italy and Portugal. Were we ever to have a Prime Minister foolish enough to call for "British jobs for British workers", he might find egg on his face when British workers face losing their jobs and demonstrate holding placards quoting his words back at him. Had such a hypothetical moron of a Prime Minister kept his mouth shut, the same British workers would probably have been on strike for the very same reason and he would not get as much of the blame. Thank goodness no Prime Minister would be so stupid.

The substance lying behind such actions as these strikes is, I think, slightly different than just "British jobs for British workers". I believe the substance is "times are hard, why can't we be protected?" Protection comes in the form of British jobs for British workers, but they are arguing for protection now rather than for a long-term policy of excluding willing and skilled immigrants from earning a living in this country. Of course this issue is complicated by EU laws on the free movement of worker and by the intransigence of trade unions who would rather see their members out of work than taking a short-term cut in income. No government could be blamed for submitting to practical political pressures and introducing protective measures for the benefit of its citizens during harsh economic times. Any such move must be limited both in scope and time in order to avoid long-term damage to business, but there is more to keeping a country settled and content than just the interests of business.

We will see a degree of protectionism in the labour market in countries all over the world as the current recession really bites. Only the EU countries will be unable to make this important political move. The likely result is unrest across the EU to an even greater extent than at present - wholly unnecessary unrest and resentment that each national government has not looked after its own people. How much blame will be directed at the EU remains to be seen, I suspect national governments will get most of it. One can only hope it will cause many to ask whether it is sensible to hamper the ability of national governments to protect their citizens during a crisis. Any such protectionist measures will necessarily be short-term because the harm of long-term protectionism is so great. Nonetheless, some short-term protectionist measures can be appropriate in order to contain a risk of civil unrest.

My fear is that poor Gordon will argue against protectionism for the wrong reasons and will argue for yet further power to be transferred from national governments to supra-national bodies. The decisions that affect our lives will then be made with less reference to the practical needs and desires of we little people and more reference to the abstract aims of the unaccountable internationalist elites.

I hope I am wrong. Experience tells us he will be.


Idle Pen Pusher said...

Should we perhaps be grateful for small mercies? He is actually right about something for the first time since he gave the Bank of England independence over interest rates.

My take on causes of recession and credit crunch here

Barnacle Bill said...

Part of the troubles of the Lindsey oil terminal contract are NuLabor pigeons coming home to roost.
Firstly, after three terms of NuLabor education policies we are no longer able to produce workers with the skills needed for many of these contracts.
Secondly, NuLabor in bending over to accommodate "Big Business" with Tony Wots His Name mantra of the UK's flexible workforce, have abandoned their grassroots supporters.
The very same supporters who are now striking because they are frightened for their futures.
As for which direction our glorious unelected Leader will strike out for next, I do not think he even knows himself, but he will be guided by his moral compass of self preservation.
Which unfortunately does not bode well for our, or our grand children's futures.

Mike Bryant said...

Mr. Bigot,
Michael Bryant here, only letting you know that your always interesting comments on Wattsupwiththat have been missed... at least by yours truly...
Looking forward to you return,

TheFatBigot said...

Thank you Mr Bryant, I still visit WUWT regularly but so often it is very technical stuff that's not really suited to an attempted quip. I will try to do better in future.