Common sense isn’t always right.
It is difficult not to agree with protestors at a giant oil refinery yesterday. “We have a growing problem in the engineering and construction industry where UK workers are being excluded from important projects. The Government must take urgent action to deal with this situation as tensions are reaching boiling point,” said Derek Simpson, joint leader of Unite.
And across the land, people munching on their breakfast, or driving to work, nod their heads in agreement. It is ludicrous to recruit workers from abroad, when there are British workers who can do the job just as well.
Gordon Brown called for “British jobs for British workers,” and yesterday, protestors echoed that call.
It is just that we are seeing the thin end of a wedge. We are now entering the most dangerous phase in the credit crunch. Governments across the world are now faced with conceivably their most important challenge. It is vital that the other side of the argument is put forward, or else the credit crunch really will degenerate into a full scale depression.
The challenge is not unique to Britain – far from it in fact. Across the world, countries are questioning the wisdom of recruiting foreign workers (including British workers), or buying foreign goods (including British goods). In the US, the Chinese currency is the subject of wrath – as workers Stateside demand retaliation against China.
Meanwhile, “buy American” is becoming a new hot topic in Washington. $810bn is being thrown at US companies, but the great US give-away includes what’s called a “buy American” provision. CNNMoney quoted Sen. Byron Dorgan who came up with the provision, as saying: “When taxpayer dollars are used, we should urge that money to support the things produced here at home.” So far, it’s US iron and steel production that will benefit from the Bill. But why stop there? It’s US taxpayers’ money, so why not spend it on US jobs? Or at least that’s what many senators are asking.
Then there’s bank bail outs. Last week, news emerged that RBS was actually planning to lend money to a Spanish company. How dare they? It’s British taxpayers’ money, it must be lent to British companies.
According to the FT, one of Dmitry Medvedev’s senior advisers told reporters in Davos that Barack Obama’s plans to throw money at the US economy mean he “expects the Chinese or Russians to buy US Treasury bills, and that he says is pretty selfish and philosophically it is protectionism.”
He added: “What is discouraging is Obama’s statement that he is going to run a $1 trillion deficit for years to come. For us, that means that all the free liquidity in the world will run into American Treasury bills.”
Trade is so often held up as the cause of all our ills. Globalisation, the greatest evil. But the truth is quite different. Trade promotes wealth. The law of comparative advantage shows that it pays for a country to trade, even if it does not have an absolute advantage in anything.
Globalisation stood behind the boom at the beginning of the 20th and then the 21st centuries. The end of globalisation and a return to protectionism led to the First World War. The Great Depression became much deeper after the Smoot-Hawley Act imposed tariffs on 20,000 US goods. This led to a deepening in the Great Depression, and it took another World War to put an end to that.
“We have a number of examples of contractors refusing to even consider applications for work from qualified local labour, with years of experience. This is now becoming a national problem.
“The Government has poured billions of pounds into the economy in an attempt at preventing unemployment reaching the levels seen in the early eighties.
“This strategy depends on employers playing their part,” said Derek Simpson.
Vladimir Putin spoke out against protectionism at Davos. Russia won’t be “isolationist and egotistic,” he said. Well, it is easy to say that, but at least the sentiments are right.
Global leaders must now accept the challenge of convincing their electorate and displaced workers that protectionism will make things worse. It won’t be easy, but it is the most important challenge of 2009, and it must not fail.
© Investment & Business News 2013