Protectionism revisited

Before the hiatus for NaNoWriMo I intimated that I was in two minds about the virtues of protectionism. Now that I've had some time to think about it I think I've unpacked the dilemma a bit. Euro-sceptics be warned, this post assumes a rather European perspective. This choice is due to the facts on the ground. The removal of trade barriers across Europe means that it would difficult to implement any sort of protectionist policy on a smaller scale.

The problem is that here (at present) in Europe there are tough standards around labour conditions. These standards do not apply more widely across the world. The 'need' for protectionism comes from the need to maintain the competitiveness of European labour against countries that derive an advantage from not recognising those standards. They can produce goods more cheaply by (from a European perspective) mistreating their workers. Protectionism is one solution to the problem of how we safeguard European jobs and European labour standards at the same time.

But if we stood up for those rights for all workers across the world than no country would enjoy a competitive advantage over European workers who do enjoy those rights. So we should be legislating to bolster those rights for all workers and introducing tariffs where those rights are not recognised and honoured – both to eliminate the competitive advantage to not doing so and to incentivise doing so. To frame it a slightly different way, the present situation is one where we do not enforce labour standards for workers outside of Europe. This means that to remain competitive either European jobs must be exported or Europe must import the laxer labour standards of the developing world. Neither is politically palatable. What we should be doing is exporting our own labour standards. We can do that by using tariffs to create a competitive advantage to adopting them.

Such a scheme would need a broad base of support from developing markets to legitimise it, otherwise it would not escape the charge of European protectionism. But it should be politically saleable. It is not a naïve protectionism – the tariffs would apply equally to European products and non-European. Developing economies, including much of Latin America, China, to an extent India, are governed by parties employing left-leaning rhetoric. An economic treaty 'for the workers' would be something they may find harder to argue against than previous laissez-faire free trade treaties (which have had a corrosive effect on labour standards by exporting jobs to those countries with the weakest standards). The purpose is not to generate revenue from the tariffs so they could be channeled back into development aid for emerging economies to motivate them to come on board.

The price is that it would be inflationary. It increases the costs of producing just about anything. And it increases the spending power of the working classes. In the long run, there is a limit to that inflationary potential but in the short-term it will create economic tumult. Recalibrating an economy is never painless. But the end result hopefully will be that Europe has a more diversified economy and a more equitable distribution of wealth.