From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: Protectionism as investment
Date: Wed, 11 Nov 92 13:52:45 EST
Organization: IFS Project, University of Michigan
Reply-To: jwh@citi.umich.edu

In article <1dpjm4INN7jm@network.ucsd.edu>, mbk@lyapunov.ucsd.edu (Matt Kennel) writes:
|> Re:  the articles that talk about how protectionism costs us 2x for
|> each job saved.
|> 
|> 
|> Could not one view this cost as an "investment"---in that if you save
|> this job now from foreign competition, then perhaps the industry will
|> survive long enough that sometime in the future it has the capability
|> to compete in some new product area not yet invented?
|> 

You could stretch the definition of 'investment' to mean what you say.
Unfortunately it's not investment, its simply a waste of money.  Past
history has shown that when industries are 'protected' they fail to
make any significant improvements.  You end up with a lower quality
product at a higher price.  The higher price prevents people from 
spending some money on other goods.  The only legitimate reason to
'protect' an industry is for national security reasons.  Unfortunately
it is all to easy to claim that a particular industry is necessary for
national security reasons.

|> By this measure, government protectionism and industrial policy is forced
|> investment by citizens in these industries.

It is simply a transfer from consumers of the products of the protected
industry to the companies and employees working in the industry.  It
is nothing more than a hidden welfare program.

|> 
|> 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.  If the manufacture of non-linear optics
is a good business to be in, someone will start one.  The U.S. was the
major producer of automobiles, did that stop other countries from developing
their own auto industry?

|> Notice that the Japanese trade practice appears desgined to completely
|> and qualitatively *wipe out* foreign competition, often at great initial
|> cost, in order to have a lock on entire segements of a future economy.
|> If the competition isn't fully killed off, then it can jump back later
|> on.

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.  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.

|> 
|> [...]
|>
|> Another idea,
|> Suppose the social security administration invested in the stock market,
|> with a buy-and-hold strategy?
|> 

Why not let workers invest their SS funds in a fund or plan of their
own choosing?  If you let the government invest in private investments,
who would determine which investments got the money?  The amount of
influence the government could wield over stock prices would be 
tremendous.

|> What if it invested in those companies with the maximal median wages
|> paid to workers, in order to support "high-wage high-growth jobs", and
|> the growth of business in those industries?

Who says that those investments would maximize the return on investment?
The thought of investment by political bureaucracy is a scary thought.


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