Protectionism favours few, costs many

June 19, 2011

Unions and some of Dunedin’s citizen’s are agitating for KiwiRail to buy new wagons from Hillside Workshop.

Roger Kerr explains what’s wrong with that:

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.

More than 20 years after the painful but necessary reforms of the late 1980s and early 90s some people still haven’t got the message – protection favours few and costs many.

This is a lesson Candians have yet to learn too. Dan Gardner writes about Canada’s failure to make the most of its potential for increased food production:

Canadian consumers pay far more for dairy and poultry products than they would in a free market. Supply management also makes it difficult or impossible for producers to achieve the economies of scale needed to drive costs down. Perhaps worst of all, it impedes trade liberalization.

“Our government will also continue to open new markets for Canadian business in order to create good jobs for Canadian workers,” the Conservatives promised in the Speech from the Throne. That’s good. Canada is a trading nation and the steady expansion of free trade is very much in our interest. But then came this: “In all international forums and bilateral negotiations, our government will continue to stand up for Canadian farmers and industries by defending supply management.”

And what’s the affect of supply management?

Who pays? Consumers who often don’t know they are. Who benefits? A small number of farmers who are highly organized and concentrated in certain ridings. Politicians who swear to defend the status quo get the gratitude of the former without incurring the wrath of the latter — while any politician who dares to even consider change gets no gratitude and lots of wrath.

“Look at us,” Larry Martin suggests, “and look at New Zealand, sitting out there in the middle of the ocean, not close to anything.” In the world of food, New Zealand is a “superpower.” And yet, thanks to daring reforms in the 1980s, New Zealand’s farmers owe almost none of their income to government support. “You think, ‘if we could do even half of what they have done wouldn’t we be in great shape?’”

Yes, those “failed” polices of the 80s made our economy freer and are one of the major reasons we’re getting the benefits from increased demand for commodities.

Instead of producing things the world doesn’t want or need at considerable cost to the domestic economy through subsidies, we’re following market signals to produce what the world wants to buy.

Hillside  workers should stop wasting their energy trying to return to the bad old days of protectionism. Instead, they should concentrate on developing the flexibility to produce what someone wants to buy at a price they’re prepared to pay.

KiwiRail is already costing the country too much, we can’t afford to add to those costs by subsidising Hillside.

Hat tip: Offsetting Behaviour & Something Should Go Here who both discuss Gardner’s piece.


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