All entries for Tuesday 03 February 2009

February 03, 2009

False Patriots

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So a lot of people would like to send them home – the foreign workers contracted to work in Britain. To judge from the tone, these people are not that interested in a level playing field. They want one that puts the foreign workers on a steep slope – preferably down to the sea.

How much better can that get?

As far as I can work out, there are about six million British citizens living abroad. In the countries where they live and work, they take up jobs, homes, schools, medical facilities, and even benefits – just like foreigners here. In those countries, jobs are going to be just as short as they are here. So, if we succeed in sending the foreigners home, our compatriots abroad are going to be equally vulnerable to the same pressure from the citizens of the countries where they live.

I wonder if these "patriots" are ready to see tens or hundeds of thousands of British citizens forced out of the countries where they have made their homes and sent back here to crowd the jobless queues and social security offices. That is the predictable consequence if they succeed.

We live in an interdependent world. How hard it is for us to weigh the benefits against the costs. All of us benefit, but at any one moment the benefits are imperceptible because they come in thousands or millions of tiny packages. Export industries appear and jobs are created by the invisible hand. Moreover, we do not benefit equally; some gain more than others. And some lose, but each job that is lost is clearly identifiable. At moments of difficulty, our common interest in free trade and movement can be all too easily drowned out by the vocal lobbies that want to block these things.

Take "Buy American." The current amendment to the U.S. fiscal stimulus package before Congress will protect the jobs of a few thousand American steel producers. A hundred million steel consumer in the U.S. will lose in higher prices. It's tragic, but unsurprising, that the U.S. steel lobby could win this one.

The same applies to "Buy British." If we all buy only British, that will cut our imports – but it will also cut our exports! How will foreigners have the means to continue to buy the goods and services we export if we buy nothing from them?

Worse, we will become poorer as a result. "Buy British" will make us buy more of the expensive goods that we are least good at making ourselves. It will protect the jobs that are of least value. At the same time, it will undermine the markets for the goods and services that we are best at, and so add most value.

Take Coventry, where I live. Once, Coventry was Britain's Detroit. It produced motor vehicles for a mass market and exported them across the world. No longer. But Coventry has not dropped out of the world market. Our city has a new export industry: higher education. Two universities, Warwick and Coventry, bring thousands of students from across the world to study here. They pay high fees and living costs worth many tens of millions of pounds to the local economy. The money they spend doesn't come out of thin air; it is financed by the pounds their countries earn by selling goods to us, cheaper than we can make them ourselves – Korean motor vehicles, for example.

"Buy British" means killing Coventry's new exports. It means rolling the clock back from the new to the old -- giving up on what we do with greatest success, and going back to what we once could do but then failed in.

Folly that cloaks itself in patriotism is still folly.

We need all the major countries to cooperate to keep trade and [policy coordination going. On that note, Jeff Frieden has written something that everyone should read. Frieden's point is the importance of political leadership: our governments must create social consent at home and political agreement abroad keep open the channels of international trade and movement. He says:

At the domestic level, governments need to work out an equitable and politically sustainable allocation of austerity across the population.

This means ensuring that those sectors of society hit hardest by the crisis are not also the ones asked to bear the stiffest sacrifices. ... Governments that ignore the social and distributional implications of the crisis are likely to find themselves either driven toward extreme and counter-productive policies, or swept away.

At the international level, governments need to work just as consciously to coordinate not just words, but actions.

This will not happen of its own accord ...

I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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