False Economy - Alan Beattie [85]
It has often been remarked that governments trying to "pick winners" to support with public money often pick badly. But such an unerring tendency for rich countries to support failing industries with tariffs suggests that, rather than governments picking losers, it is losers that somehow manage to pick government trade policy.
Somehow, declining and shrinking industries seem to lobby harder for protection than do expanding and successful industries. Perhaps the best explanation lies in exactly what the returns for those industries are—that is, what they get for their time, effort, and money spent on lobbying.
Trade protection creates "economic rent," a concept we encountered in the oil and diamonds chapter, by holding domestic prices above world market levels. In expanding industries, new companies will enter the market if prices are kept high and compete away the rent of the incumbents. But in declining industries, where it costs companies a lot to enter the market—setting up steel plants, investing in research and development, building brand loyalty through advertising, and so on—the existing companies can appropriate some of that rent. And in some industries, like sugar farming in Europe, governments stop other domestic producers entering the market by means of quotas or other restrictions.
Steel producers protected by tariffs can enjoy a few more years of profits. Software houses protected by tariffs would merely encourage a lot more people to set up software houses. In fact, this asymmetry is so pervasive that protecting losing industries rather than successful ones is written into the rules that govern world trade. Under the laws of the World Trade Organization, the Geneva-based body that provides a negotiating chamber and a court of appeal for the rules of international trade, governments have several tools with which to protect their home industries. They can use special import tariffs known as antidumping and countervailing duties (the refuge of the American catfish farmers) if those industries can show they are being seriously damaged by subsidized or unfairly low-priced competition from abroad. They can impose emergency "safeguards" through duties or quotas (the resort of the European bra-makers), if there is a sudden flood of imports. No similar support is possible for exporters that might be expanding more quickly if trading partners were trading more fairly.
So industries that will fight hard for protection tend to be ones in which import penetration (the share of the market taken by foreigners) is increasing. Employing a lot of unskilled workers who might find it hard to get jobs elsewhere also helps, as they will all tend to vote solely on whether they are being protected. And once an industry does have protection, it tends to lobby harder to keep it, as the alternative is to undertake costly adjustment as it is undercut by cheaper imports.
This explains why certain industries ask for protection; it does not quite address why they get it. Success depends on their level of organization and their ability to threaten governments with political pain if they are betrayed. That in turn often depends on how many companies are in the industry and how geographically concentrated they are. It can also depend on how well a sectional special interest can pass itself off in the theater of press and public opinion as having the country's interests at heart.
Farmers tick many of these boxes. To fulfill the last criterion, they have become adept at wrapping their cause in the flag of nationhood and appealing, however misleadingly, to traditions of rural life. National identity often lives in the landscape. The hymn "America the Beautiful" celebrates "amber waves of grain." The French farmers, adept at scooping up big chunks of the European Union's generous farm subsidies, appeal to their country's reverence for the terroir in which the roots of their food and wine traditions are deeply sunk, even though the typical French subsidy recipient looks out onto a giant flat fertilizer-soaked agroindus-trial wheat