THE RATIONALE FOR GOVERNMENTAL INTERVENTION
THE RATIONALE FOR GOVERNMENTAL
INTERVENTION
Unemployment
Pressure groups are a real challenge to governmental policymakers and businesspeople. There is probably no more effective pressure group than the un-
employed because no other group has the time and incentive to write letters
in volume to congressional representatives or to picket, One problem with restricting imports to create jobs is that other countries
might retaliate. The most cited example occurred in 1930 when the United States raised import restrictions to their highest level ever. In a matter of
months, other countries countered with their own restrictions, and the United States lost rather than gained jobs as its exports diminished.2 In recent years, new import restrictions by a major country have almost always brought quick
retaliation. When automobile imports from Japan were restricted, for exam-ple, Japanese pressure groups forced import restrictions on American orange
Two factors may mitigate the problems of retaliation. First, there may be less tendency to retaliate against a small country (in terms of economic power) that places barriers on imports. Thus a small country may be able to increase employment more easily by means of imposing trade barriers. Second, if redistribution because of retaliation decreases employment in a capital-intensive industry but increases it in a labor-intensive industry, employment objectives may be achieved.
Even if there is no retaliation, the net number of jobs gained for the economy as a whole through producing domestically is bound to be smaller than the number of people who would be employed in the newly protected industry. That is because many people would otherwise be employed in handling the imports. In the case of the United States, for example, it is estimated that 194,000 jobs are directly related to the imported-car industry. These include such workers as employees of importers, dealers, and distributors of foreign cars and workers in U.S. plants that make foreign-car parts.3
Imports may also help create jobs in other industries that may form pressure groups against protectionism. Take the apparel industry in the United States. Such firms as Warnaco and Liz Claiborne joined retailers to protest textile import restrictions because they needed foreign-made variety and quality to compete against global companies. Or take Caterpillar Tractor, one of the largest exporters in the United States. It buys crankshafts from Germany and Japan to cut costs enough to be competitive in foreign markets.4 Imports stimulate exports less directly by increasing foreign income and foreign-exchange earnings, which are then spent on new imports by firms and individuals in the foreign country.
If import restrictions do result in a net increase in domestic employment, there will still be costs to some people in the domestic society through higher prices or higher taxes. The first three years of Japan's voluntary export restraint are estimated to have cost the United States $160,000 per job saved.5 If protection seems permanent, the domestic industry may lag behind in technical and product development as well.
Higher prices or higher taxes must be compared with the costs of unemployment resulting from freer trade. It may be preferable to find some means by which individuals are compensated for their losses and by which they move to new employment. These tasks are challenging: First, it is hard to put a price tag on the distress suffered by people who must either be out of work or change jobs, or move; second, it is difficult for working people to understand that they may be better off financially if part of their taxes go to help support people whose positions were lost because of imports; and finally, it may be equally difficult to convince people to accept handouts in lieu of their old jobs.
A complicating factor is that potentially displaced workers are frequently the ones who are least able to find alternative work. In the garment industry, for example, sewing and cutting jobs are being transferred in great numbers from industrial to developing countries. Canada is an industrial country that has been losing these jobs. Forty-one percent of its sewing and cutting workers speak English as a second language; and the record of retraining these immigrants has thus far not been very successful.6
Many countries assist workers who are affected adversely by imports. Assistance is provided in the form of supplements to unemployment benefits, and workers often spend the funds on living expenses in the hope that they will be recalled to their old jobs. Some observers argue that too little is done in the way of retraining and relocation.
INTERVENTION
Unemployment
Pressure groups are a real challenge to governmental policymakers and businesspeople. There is probably no more effective pressure group than the un-
employed because no other group has the time and incentive to write letters
in volume to congressional representatives or to picket, One problem with restricting imports to create jobs is that other countries
might retaliate. The most cited example occurred in 1930 when the United States raised import restrictions to their highest level ever. In a matter of
months, other countries countered with their own restrictions, and the United States lost rather than gained jobs as its exports diminished.2 In recent years, new import restrictions by a major country have almost always brought quick
retaliation. When automobile imports from Japan were restricted, for exam-ple, Japanese pressure groups forced import restrictions on American orange
Two factors may mitigate the problems of retaliation. First, there may be less tendency to retaliate against a small country (in terms of economic power) that places barriers on imports. Thus a small country may be able to increase employment more easily by means of imposing trade barriers. Second, if redistribution because of retaliation decreases employment in a capital-intensive industry but increases it in a labor-intensive industry, employment objectives may be achieved.
Even if there is no retaliation, the net number of jobs gained for the economy as a whole through producing domestically is bound to be smaller than the number of people who would be employed in the newly protected industry. That is because many people would otherwise be employed in handling the imports. In the case of the United States, for example, it is estimated that 194,000 jobs are directly related to the imported-car industry. These include such workers as employees of importers, dealers, and distributors of foreign cars and workers in U.S. plants that make foreign-car parts.3
Imports may also help create jobs in other industries that may form pressure groups against protectionism. Take the apparel industry in the United States. Such firms as Warnaco and Liz Claiborne joined retailers to protest textile import restrictions because they needed foreign-made variety and quality to compete against global companies. Or take Caterpillar Tractor, one of the largest exporters in the United States. It buys crankshafts from Germany and Japan to cut costs enough to be competitive in foreign markets.4 Imports stimulate exports less directly by increasing foreign income and foreign-exchange earnings, which are then spent on new imports by firms and individuals in the foreign country.
If import restrictions do result in a net increase in domestic employment, there will still be costs to some people in the domestic society through higher prices or higher taxes. The first three years of Japan's voluntary export restraint are estimated to have cost the United States $160,000 per job saved.5 If protection seems permanent, the domestic industry may lag behind in technical and product development as well.
Higher prices or higher taxes must be compared with the costs of unemployment resulting from freer trade. It may be preferable to find some means by which individuals are compensated for their losses and by which they move to new employment. These tasks are challenging: First, it is hard to put a price tag on the distress suffered by people who must either be out of work or change jobs, or move; second, it is difficult for working people to understand that they may be better off financially if part of their taxes go to help support people whose positions were lost because of imports; and finally, it may be equally difficult to convince people to accept handouts in lieu of their old jobs.
A complicating factor is that potentially displaced workers are frequently the ones who are least able to find alternative work. In the garment industry, for example, sewing and cutting jobs are being transferred in great numbers from industrial to developing countries. Canada is an industrial country that has been losing these jobs. Forty-one percent of its sewing and cutting workers speak English as a second language; and the record of retraining these immigrants has thus far not been very successful.6
Many countries assist workers who are affected adversely by imports. Assistance is provided in the form of supplements to unemployment benefits, and workers often spend the funds on living expenses in the hope that they will be recalled to their old jobs. Some observers argue that too little is done in the way of retraining and relocation.
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