Challenging protectionism
It was good to see Lord Mandelson making a strong case against protectionism (http://news.bbc.co.uk/1/hi/uk/7863047.stm) in relation to the disputes that originated at the Lindsey Oil Refinery in North Lincolnshire.
In any circumstances protests against the use of foreign labour would have the stink of racism about them. In this case it is also part of a wider campaign for protectionist measures in Britain and in other parts of the world. If this really gains momentum, and if the politicians turn out to be opportunistic enough to put some of these ideas into practice, then the potential for damage to the world economy is enormous.
Some of the big US exporters are fully aware of this and are lobbying to fight the “Buy America” clauses in Obama’s proposed stimulus package (http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article5587443.ece). Obama had a tendency to play the protectionist card during his election campaign and some of the more astute commentators noticed the danger of this at the time (http://www.timesonline.co.uk/tol/comment/leading_article/article4597395.ece). We need to hope that sense starts to prevail before real harm is done.
The motor industry has already lobbied hard to gain support, notably in the US but also in the UK (http://news.bbc.co.uk/1/hi/business/7853883.stm) and elsewhere. The more astute policy makers have realized that there is no point in subsidizing industries to carry on producing cars that no-one wants to buy, but there is still a lot of pressure from trades union leaders and politicians who have forgotten that this kind of behaviour helped destroy the British motor industry in earlier decades.
There is a case, as has happened in the US, for government to take steps to secure the availability of credit to allow customers to purchase vehicles with finance in the usual way. Given the state of the financial markets this can be extended to support aimed at ensuring that all businesses have access to credit where justified on commercial grounds.
However, intervention in financial markets must not lead to the extension of credit to businesses that do not have a long term future. The practice of banks and other lenders of providing finance where there was a high risk of default is one of the things that got us into this mess in the first place.
Perhaps surprisingly, one of the glimmers of hope and sense on the issue of protectionism has come from Russia, where communities affected by an asinine increase in tariffs on imported motor vehicles have taken to the streets to protest (http://www.guardian.co.uk/world/2008/dec/22/russia-global-economy-cars). This is a good example of how stupid government policy can get, since the direct consequence of the politicians’ actions will be to damage a thriving industry based around the import of cars that helps provide jobs and pay taxes, while supporting domestic motor manufacturing that has proved incapable of restructuring itself and has no future as a viable business.
Firms that do not have a long term future should be allowed to go bust. Companies should be encouraged to restructure and drive down costs; this may well involve seeking cheaper or more productive sources of labour, quite possibly from other countries. The proper and only sustainable response of British workers and their unions is to work with business to help in that process, not to hanker back to some golden age of jobs for life in subsidized industries. The auto unions have played a major part in the destruction of the US car industry and a similar thing is happening with Alitalia (http://www.time.com/time/business/article/0,8599,1843390,00.html) in Italy. The same poison must be resisted wherever else it turns up if we want to stop the downturn becoming something much more serious.
Glenn
