How protectionism hinders progress

Imagine you’ve been on a team with the same people for decades. You are well aware of the capabilities of your colleagues, and you are on good terms with your boss. More importantly, you have developed a working schedule for yourself, and have been sticking to it deliberately – repeating the same tasks day by day without attempting to improve the quality of their performance. You have been doing fine, just like everyone else on your team. 

One morning, your boss announces that there is a new employee or group of employees from abroad joining the team. Naturally, every well-established tribe is suspicious or even hostile towards newcomers, especially if it’s not accustomed to dealing with changes. You and your colleagues will, therefore, try to find a way to persuade your boss to change their mind. After all, why hire someone new, or why alter anything at all, if you and your consumers are doing fine

On their first day, the newcomers carefully examine your workplace and conclude that your team’s productivity and attitudes are completely outdated and have been far behind world progress for years. Added to that, they find out that the prices you charge are much higher than those in countries where they come from, and that your consumers are of course unaware of that. Their impression is that your boss has been consistently covering for you in order to “protect” you from competition. They are determined to change it: they suggest more innovation, lower prices to the benefit of consumers, and the elimination of the fine mentality. 

After careful consideration, your boss chooses to implement their recommendation of competition. They get excited about taking your industry to the next level and about the variety of choices they can offer to their consumers with the help of the new model. However, the chances of you and your colleagues getting fired are high.

Now, let me translate this into politics and tell you that the boss is the government, and they are choosing free trade over protectionism. You are, therefore, going to blame the policy of free trade for the loss of your job. But is that really so?

In 1942, Austrian political economist Joseph Schumpeter explained: “The opening up of new markets, foreign, or domestic … revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact about capitalism.”

However merciless it may sound, creative destruction underlines every stage of progress in every sphere of our life. We wouldn’t be able to enjoy Apple products or companies like Uber and Airbnb if they hadn’t succeeded in disrupted the established order of the time.

Most importantly, even though these businesses are on top of the tide right now, there will inevitably come the moment when they will get swept away by that very tide if they stop innovating – just as libraries are being replaced by Wikipedia, bookshops by Kindle, traditional taxis by Uber, and all sorts of driving cars by Google driverless cars. There are people behind these developments who have lost their jobs and who tried to oppose progress as much as possible – people who called for protection.

Progress has harsh means at its disposal, but let’s be honest, now that civilisation has progressed so far, can we all agree that the benefits of it are much higher than the costs? A hint: you’re reading this on your phone, tablet, or a laptop.

Plainly speaking, progress is any kind of development pursuing a better outcome than the existing order. Free trade, therefore, is another expression of progress, and that’s why it’s opposed by industries that stopped innovating long ago and are afraid of getting wiped out. These industries do fine thanks to government subsidies, tariffs, or quotas. 

The issue with free trade, as with every progress-oriented initiative, is that it’s difficult to draw a clear line between short-run costs and long-run gains. The short-run costs do include the destruction of some jobs. As mentioned earlier, progress comes at a price.

Let’s look at the manufacturing industry, which is usually the loudest in anti-free trade debates. Most of the job losses in manufacturing, according to Michael J. Hicks and Srikant Devaraj, didn’t come directly from the abolishments of import restrictions, but from progress in another closely related area: technology. According to the findings of the report, only 13 per cent of job losses in the US manufacturing industry from 2000 to 2010 were caused by international trade. 

Speaking of the long-run gains, while the employment in the manufacturing industry dropped, the number of full-time employees in the US has increased by almost 20 million people since 1991. Moreover, GDP went up as well.

Progress has a cost, and people swept off by its tide are generally unable to accept the benefits of free trade. However, while attempting to protect one group of people and focusing exclusively on short-run costs, protectionism only functions to hinder progress. Does any reasonable consumer want to be protected from lower prices and a greater diversity of products?

However, free trade has something for everyone. With market dynamics increasing, the disruption brought by free trade brings in countless opportunities to find our place in a brave new world. It’s high time we learned to welcome new competitive team members, not seek protection from their ambitions. Maybe then we won’t just settle for fine, we will strive for greatness.

Written by Maria Chaplia

Maria Chaplia is European Affairs Associate for the Consumer Choice Center.