From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: Protectionism as investment
Date: Mon, 16 Nov 92 09:38:38 EST
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

In article <1e7fhgINNslq@network.ucsd.edu>, mbk@lyapunov.ucsd.edu (Matt Kennel) writes:
|> jwh@citi.umich.edu (Jim Howe) writes:
|> : |>  {I said}
|> : |> What is more valuable?  Cheap cameras, or a camera industry?  Its probably
|> : |> a tossup on that level---but what if 5 years down the line, you find that
|> : |> the camera manufacturers have unique facilities and abilities to manufacture
|> : |> nonlinear optics?
|> : |> 
|> : 
|> : How much are you willing to pay for the remote possibility that the lack
|> : of some industry will prevent some future industry from developing in
|> : this country?
|> 
|> : New companies start up all the time, particularly if there
|> : is a supportive capital market.
|> 
|> That's exactly the point.  Why is there only sometimes a supportive
|> capital market?
|> 

Government rules and regulations.

|> Is a new teeny company doing nonlinear optics going to do as well against
|> the full force of Nikon and Matsushita and NTT if all of a sudden this new
|> field arises?
|> 

Sure, why not?  GM is large and should be dominating smaller competitors,
right?  Small car companies have never been able to compete against GM,
correct?  Small computer companies have no chance against IBM do they?
Small has its advantages.

|> :  If the manufacture of non-linear optics
|> : is a good business to be in, someone will start one.
|> 
|> And if it's really good, foreign competitors might make sure by
|> 'any means necessary' that ours don't get off the ground.
|>

If foreign competitors want to keep prices so low that we don't
bother then I don't see a problem.  Taken to an extreme, foreign
competitors could *give* away products in the U.S. so their
country would have jobs.  Of course, we wouldn't need jobs because
foreign populations would completely subsidize our lifestyle.  The
key thing to remember is that we live in a global economy.  Just as
it would make no sense for every state or every city to produce the
goods used by people in that state or city, it makes no sense to 
worry that some goods are produced in foreign countries.

|> 
|> Because the 'capital markets' are so good at observing economic
|> trends, there won't be a supportive capital market here because
|> most of these new startups fail.
|> 
|> Bummer.
|> 
|> The capital markets will make their evaluations based on *existing* economic
|> factors, rather than "what could be".  The capital markets have already
|> taken into account trade policy when they make their decision.  Right now,
|> they place their bets on Nikon & Matsushita and not on Yoyodyne, Inc.
|> 

When government rules and regulations create disincentives for banks to
take risks small business will have problems.  When laws exist which
tax capital and investment, small business will be hurt.  These are
government impediments, not market impediments.

|> : The Japanese are already facing competition from the Koreans.  You seem
|> : to be making the 'predatory' argument, that a country will wipe out
|> : domestic industry with low prices and then raise prices.  Japan currently
|> : supplies most consumer electronics.  Why haven't prices gone up?  Global
|> : competition keeps quality high and prices down.
|> 
|> Yup. And the Japanese now have a huge, very efficient, low-cost, high
|> performance, high-technology industry and we don't. 
|> 

Actually so do we.  Mostly in industries that haven't been 'protected'.

|> 
|> They knew that we could compete against them, and did everything to make
|> sure we couldn't.  Maybe they didn't have time to deal with the Koreans, but
|> you know, I wish our country had that problem.
|> 

You seem to believe the hype that we are a completely inept country.  We
happen to have the highest worker productivity of any nation.  This doesn't
mean that we should be producing all products.  The law of comparative
advantage applies here.  We produce what we are good at, other countries
produce what they are good at.

|> : This is to the benefit
|> : of everyone.  If citizens of some country want to subsidize my purchase 
|> : of a product I'm all for it.
|> 
|> I'm touched by their generosity.
|> Like a drug dealer who gives out free samples.
|> 

Faulty analogy.  Obviously you are implying that low priced goods will
make us dependant on them and then they will be able to jack up the
price because we will be hooked.  Fortunately this isn't the case.
Successful predatory pricing (which is what you are describing) is a myth.
In a worldwide economy with true free trade, a monopoly position could
only be held if the company were providing a valuable product at a
reasonable price.  If the price was unreasonable, some other company
would find it profitable to enter the market and would drive the price
back down.

|> Here's the question: cheap VCR's give individual Americans $50 extra free
|> dollars.  Will that make us make more money in the long run or will
|> having all 10 billion working in one place?  I thought the point of
|> *capital*ism is that having alot of capital in one place can do a lot of good.

Artificially keeping prices high in an industry is hardly a good way to
economically ration resources.

|> 
|> Somehow, the Japanese still seem to have been able to acquire enough VCRs of
|> their own.
|> 

Check out the cost of living in Japan.  Compare their standard of living
to ours on a purchasing power basis.  You will find that we have a lower
cost of living and a higher standard of living.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943         
Newsgroups: sci.econ