PROTECTIONISM NEVER COMPLETELY DIES

Remember the days of Fortress New Zealand when tight import licensing and high tariffs allowed domestic producers to sell goods at far above the price of competing foreign goods?

TVs, motor vehicles, whiteware and many other goods were often available only at twice or more the price which producers sold them for in other countries (and were often shoddy into the bargain).

One of the popular arguments for import protection was that it created or saved jobs in the protected firms.

However, such jobs came at the expense of jobs elsewhere in the economy, especially in internationally competing industries that faced higher costs (including wages that were bid up by the protected firms).  Policy makers finally came to understand that there was no free lunch in import protection and barriers were lowered.

Yet pockets of protectionist sentiment still exist.

Yesterday I read this letter in the New Zealand Herald.

At a time when the country needs a boost in morale and employment, why is the Government so reluctant to intervene and stop the building of KiwiRail locomotives and rolling stock going overseas, with the loss of 70 jobs.  Its intervention would preserve and possibly create jobs at both Hillside and Wellington.

And also this one:

Money spent in New Zealand to manufacture our railcars circulated in our economy.  Wages become purchases, savings, taxes and investments.  There is a multiplier effect, both economic and social.

Money spent importing Chinese railcars simply leaves our economy, increasing our debt and increasing our balance of payments deficit.  Importing, rather than building, railcars will have a negative multiplier effect, including increased foreign debt, lack of local venture capital, unemployment and related social costs.  

Even if it were to cost twice as much, though no one has said it would, to build the cars here we would be far better off.  What game is our merchant banker Government up to?  Where is it sense of national identity?  Perhaps they should change their party name to the Nationless Party.     

Here we are seeing the same old protectionist fallacy.  Assuming KiwiRail has got its numbers right, building rolling stock here at higher cost would mean its customers would face higher prices across the board.  They would grow less and create fewer jobs.

Many of the customers would be in the export sector.  The badly needed rebalancing of the economy would be hampered.  And of course KiwiRail would be an even bigger drain on taxpayers.

The lessons of economics have to be learned anew in every generation.