PROTECTIONISM

When governments intervene in an effort to protect segments of industry or population
from the realities of the competitive economy, the result is always the same:
descent into the abyss of mediocrity. The clearest evidence on an international level
in my lifetime was the condition of the Soviet Union at the time of the fall of the
Berlin Wall. The Soviet Union, with abundant natural resources and a vibrant people,
had outwardly acted as a world superpower for 40 years. But on the inside, the
government pursued a noncompetitive socialistic economic policy and could barely
feed its populace. When the wall fell, none of the country’s producers were strong
or capable enough to assume a competitive role in the world economy. Fifteen years
later, progress is still slow. Once destroyed, the infrastructure and will required to
embrace competition is not easily cultivated.
The free market economy is the filter in techonomics providing natural selection
of best technology practices and causing them to proliferate. When markets are
contrived or unduly constrained, the long-term effects are analogous to creating a
zoo in the biological world. Animals confined to the protective environment of a
zoo for years or for generations lose the knowledge, cunning, and will to survive in
the “wild.” The zoo, where the weak and feeble are protected and allowed to
procreate, fosters a sort of inverse natural selection.
Some years ago, red wolves were reintroduced into the Great Smoky Mountains
National Park. These particular wolves had never lived in the wild. They were
reintroduced into a protected area and fed with meat thrown over a tall wooden
fence. After several weeks, the frequency of the feedings was reduced to encourage
the wolves to begin hunting. Instead, the wolves spent most of their waking hours
walking around the area looking up at the trees waiting for food to fall from the
sky! Only a small number made the transition to freedom. The reintroduction program
for the red wolf in the Smokies has been discontinued.
Protectionism in economic markets works the same way. The market cannot
protect itself; quite the contrary. A market left to itself will reward best practices
with economic success and punish poor practices with failure. Protectionist practices
have to originate outside the system. The laws of economics govern the marketplace
unless a powerful external influence dictates a modified set of standards. The outside
influencer of major markets is commonly a national government — no other single
entity has enough power over the market.
The U.S. government has, for example, used antitrust measures to protect the
market. Whether it was the breakup of American Telephone and Telegraph (the Bell
System), the paring down of International Business Machines, or the decoupling of
Microsoft’s key products, in the past when a company became (in the government’s
view) too successful and powerful, the government would act. In the age of multinational
corporations holding little national allegiance, techonomics anticipates that
this form of imposed corporate control will become much more difficult to impress.
Wal-Mart is a good example. With its significant nation-sized revenues, Wal-Mart
is capable of influencing the international balance of trade. Locally, Wal-Mart is
such a powerful provider of jobs, employment taxes, and local sales taxes that it can
frequently obtain assistance from local governments to procure desired land for new
outlets. Few government officials will take a stand to weaken such a corporation,
no matter how large it gets.
Will multinational corporations become so powerful they overshadow nations,
or will nations, with tariffs, taxes, and antitrust regulations manage to control businesses?
If Wal-Mart is any indicator, the multinationals are going to win if it comes
to a test. Why? Techonomics. The multinational corporation in the age of virtual
companies is no longer bound to location. It can move headquarters, distribution,
manufacturing, research, and marketing to any location on Earth. If the government
presses anticompetitive suits against a giant like Wal-Mart, they are hurting every
consumer in the nation. Just about every voter is a consumer! Excessive business
or employment taxes will have the same effect in the level playing field of this
century. Just as U.S. companies often incorporate in Delaware before a public
offering, due to tax considerations, multinationals will seek tax-sheltering countries
if the tax and liability costs of headquartering in the U.S. are significantly more
burdensome than in other nations.
When a nation chooses protectionism, which in turn encourages inefficient
organizational practices, organizations lose the ability, will, or both, to compete.
Economic protectionism is advanced by several methods: creating artificial trade
barriers, providing unequal access to resources (land right-of-way, water access,
broadcast frequencies, etc.) that result in an economic monopoly, or evaluating
“competitive” bids on a basis other than economic merit.

If such practices ultimately result in weaker economic organizations, why does
government perpetuate them? Most protectionist practices are an effort to gain
political power or financial capital from those protected, or to maintain the status
quo of past economic tradition (to maintain political influence with the general
populace). However, they can also result from the unintended consequences of an
action targeted at another market.

As observed with the ultimate demise of the economies of the Soviet Block
nations, protectionism leads to economic failure. In the U.S., protection of the steel
industry simply slowed its demise. In Japan, protection of the rice industry resulted
in higher prices for rice and other grains.