Protectionism or Free Trade?

Given the current economic situation, there's a word that's starting to be picked up by the Press and certain politicians, and it's called "Protectionism". Interestingly, it relates to Barack Obama, who shows modest Protectionist inclinations. At the start of the year, he co-sponsored an Act called the "Patriot Employer Act" that basically offers tax breaks to US multinationals that invest a little more at home and a little less abroad. With around 30,000+ Welsh jobs dependent on American investment, this has implications for us.

We've had about 3 decades of Globalization, but in the current rapidly deteriorating climate governments may decide that their economic priorities lie closer to home. They may start looking at erecting or raising tariffs to protect key industries. Multilateral institutions built to facilitate globalization, such as the World Trade Organisation, may find themselves under stress. Where does this leave us?

I'll nail my colours to the mast and say that I'm a Protectionist. I see no contradiction between being a Protectionist and a Welsh Republican. This course of action appeals to me. How would we apply it in a future Welsh Republic? How would we enact policies that protect our existing industries, or even build new industries from scratch? I'm not an expert on economic issues but I'll outline 2 key reasons why I'm in favour of a Protectionist strategy;

1) Globalization has not benefitted Wales. The GVA figures posted by MH partially testify to that, as Labour has continued an agenda that was initiated by the Tories back in the 1980s. Our traditional industries were stripped down, and gradually replaced with "inward investment" by foreign multinationals. These companies are attracted here with taxpayers money. The Assembly has continued the old Welsh Office policy and getting specific figures for specific companies is difficult. Some foreign firms like Sony and Ford have been here since the late 80s, albeit now reduced in size. Many others have come and gone. A lot are merely branch factories. And a lot are now closing down for good. Will the Assembly get the money back? I doubt it. Our economic base is largely at the mercy of a volatile global economy and in the current climate "inward investment" as a strategy will now be tested to the limit.

2) Peak Oil. Globalization is built on cheap oil, and it's a finite resource. There's a school of thought that argues that WHEN the oil runs out is not the point. It's when it reaches the point of maximum production that counts. It's a sobering thought to consider that EVERY recession (with one exception) in the post-war period coincides with a spike in the oil price. Our entire economic system is built on cheap oil, and in a globalized economy, transport is a key link in the chain. Many commentators estimate a peak between 2005 and 2013. After that prices will escalate rapidly. Even the International Energy Agency estimates that natural decline in oil fields now runs at 6.7%.

I see Protectionism is an answer to Peak Oil as it implies measures to rebuild an economic base that is primarily LOCAL and NATIONAL. It implies re-orienting supply and transport chains around fuel economy and shorter travel distances. It implies an agenda of food security and local food production, marketing and distribution structures. It implies trade and tariff barriers erected by a nascent Republic to protect and nurture indigenous industrial sectors. What sectors should they be? Is SOME trade with our neighbours (near and far) good? How practicable will it be as transport costs rise anyways? Can you be an Internationalist and a Protectionist? These are questions that I think are now very pertinent for us here in Wales.

Any Free Traders out there with a different take on things? :-)

As an example of "modest protectionist inclinations" we today hear that the American government is going to give $17.4 billion pounds in loans to the American auto industry. That's small change compared with the $700bn given to bail out the banking system, in fact it's actually going to be part of it.

http://news.bbc.co.uk/1/hi/business/7791999.stm

This industry is broke, the vehicles aren't selling and nobody could get a loan to buy a new one anyway. So GM have extended their holiday shutdown until towards the end of January (which dovetails neatly with Obama taking office - no coincidence, I'm sure) and the US government will pick up a hidden part of the tab by paying the workers welfare for the extra few weeks.

I think this will only be a temporary fix. Obama needs to do something much more radical to get the industry back on its feet. It needs to take a brand new direction. I'd like to see him link state aid to a programme of fasttrack design and production of green vehicles.

Draig 32, there's probably a difference between negative protectionism and positive help for home industries. Protectionism means using unfair means to keep other country's goods out. I think that's going too far. But there's nothing wrong with saying that losing hundreds of thousands of jobs will cost us money in benefits, and that it would be better to spend that money to subsidise the jobs in order to keep them.

Draig32 wrote:1) Globalization has not benefitted Wales. The GVA figures posted by MH partially testify to that, as Labour has continued an agenda that was initiated by the Tories back in the 1980s. Our traditional industries were stripped down, and gradually replaced with "inward investment" by foreign multinationals. These companies are attracted here with taxpayers money. The Assembly has continued the old Welsh Office policy and getting specific figures for specific companies is difficult. Some foreign firms like Sony and Ford have been here since the late 80s, albeit now reduced in size. Many others have come and gone. A lot are merely branch factories. And a lot are now closing down for good. Will the Assembly get the money back? I doubt it. Our economic base is largely at the mercy of a volatile global economy and in the current climate "inward investment" as a strategy will now be tested to the limit.

But there is an underlying reason for all that. It's the same problem as the disastrous economic policies of 1924-1931.

(For those who don't know, they can basically be summarized as: Winston Churchill (yes, the same guy who invaded the Rhondda fourteen years before) reintroduced the gold standard at the pre-war rate, massively overvaluing the Pound, creating commensurately massive competitive disadvantages for industry, leading to the General Strike in 1926 and losing the election in 1929; Labour then stick to the same policy (will they never learn?), then the Great Depression happens and amplifies the consequences, with 20% unemployment the result of the absolutely crass 1931 attempt at a balanced budget; after this, someone decided that it was very silly, and Neville Chamberlain spent most of the rest of the 30s telling the economists who were still advocating the gold standard to go away.)

Whilst we have not had a gold standard, we have had a massively over-valued currency, tied to a completely inappropriate outside factor (the City of London). The result has been a sixty-year economic disaster that trends toward getting worse. (And yes, it's shocking that Labour get away with blaming the Tories for this in the Valleys, when they themselves are just as much at fault.)

And this, incidentally, is also why I oppose a direct switch from the Pound to the Euro. There needs to be a period of Wales having its own currency so that its value can stabilize at an appropriate level (and in this age of plastic money, borders are much less of a problem, and we can legislate against bankers' extortion). Whether joining the Euro in the longer term is a good idea is a different question on which I have an open mind.

But as for protectionism, the rationale for anything beyond the sorts of policies that encourage enterprise (and ultimately in a successful economy, it's small businesses that make the biggest contribution) quickly diminishes once it is not just our competitors but we too who can devalue.