Free Market vs Protectionism
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by Gilroy
With the new Congress in place, several people have arguing against lower tariffs and for protecting domestic industries. After long discussions with several individuals , I finally decided to write and article to explain each one.
Protectionism
definition : "Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies."(Wikipedia)
goal : protect domestic industries
methods : tariffs on imports, subsidies to domestic companies
advantages : independence from global market, unaffected by global recessions, milder recessions compared to free market, better national security
disadvantages : lower standard of living, higher prices for certain goods, a lot longer recessions then free market, "Protectionism has also been accused of being one of the major causes of war. Proponents of this theory point to the constant warfare in the 17th and 18th centuries among European countries whose governments were predominantly mercantalist and protectionist, the American Revolution, which came about primarily due to British tariffs and taxes"(Wikipedia)
Free Market
definition : "Free trade is a system in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions"(Wikipedia)
goal : most efficient way to produce goods
methods : specialization, international market
advantages : higher standard of living, lower prices for goods, wages might go up(depends on competition), a lot shorter recessions then Protectionism
disadvantages : partial dependence on international market, affected by global recessions, a lot more severe recessions, lower national security
As some of you might now, I am a strong supporter of free market. I believe that's the direction eUSA needs to move in. I believe that the gained standard of living from free market is greater then loss of a few industries. Also, loss of industries doesn't necessarily means loss of jobs. Since free market is about specialization, new companies would be created in a country's most efficient sector. That would offset losses of jobs from losing a few industries.
And here is a comment I made at Kenneth Sutton's article that's relevant here.
When I mentioned all the things I wanted, I didn't mean to say the eUSA gov't is doing that right now. I just outlined the things I don't want any gov't to do in general.
I have seen several people suggest a gov't company to stock weapons during peace time. This is one of the things I was talking about when i said dictate production.
Gov't taxing every business the same would help the shortages of products we have in some way. Because when a person can choose to start a business in any field, he will chose the one he can make the most profit in. If one field is taxed more then the other then it will be chosen less.
"If we don't foster the growth of our own industries, we'll find ourselves in serious trouble if the international market ever shrinks." - well , that's the risk you take. In free market you have to take risk, the higher the risk the higher the payoff if successful. I want to explore this subject a little more.
In free market, a country will grow dependent(only in a few ways though) on international market. If international market suffers a downturn, the countries will enter recession. A very severe recession. But the recession will be very short because whatever caused it would be fixed quickly unless a natural disaster(which we don't have in eRepublic). That's the risk. The payoff is way higher standard of living. That's the ultimate goal of every citizen(except for political power).
In protectionism, a country will rely completely on itself(I am just picking extreme cases on both sides). However if one of the industries will grow weak(taxes, bubble bursts), the international market won't be there to help out. This leads to a recession that is not as severe as one in free market but is way longer as it will take some time to rebuild the failed industry. The payoff is the independence from international market. The opportunity cost is lower standard of living since you'll be relying on yourself to produce everything means prices will be higher for some industries.
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We don't have a strong enough domestic economy to be competitive in a global market. If we free our market up completely, we will slowly destroy our own country from the inside-out. We will become dependent on foreign countries which, in this very volatile world, could become our enemies. We need to strengthen our own economy before we can even think about the global economy.
this isnt real life. im a bigger reagan conservative than anyone, but the game doesnt follow our conventional rl economics. some 'protectionism' is needed here.
@ Jason
Exactly!
buy american, americans
Protectionism is a drug that we have grown dependant upon. take it all away at one time and we will die. But if we limit the dosage, our economy will slowly catch up to the global market and we will be able to compete. competition is competition whether it's global or domestic. Suffer for a time, but in the end the cost of living will go down and give noobs a chance.
So...I wrote a long comment last night and I'm not sure what happened to it. The gist of it was that a free-market system may well drive wages down instead of up; this is good for consumers, but not good for laborers (and most of us are laborers).
If international competition forces, say, most eMerican grain companies to leave the market, we'll lose a lot of jobs. You say we'll get the jobs back in our most efficient sector, but what if that sector is construction? This will force many unskilled laborers into a new industry, thereby making that industry less competitive.
I believe the best way to fight this lack of competitiveness is targeted tariffs. Full-blown, 99% perpetual import taxes are certainly a recipe for both war and reciprocal tariffs. Lower-level, targeted tariffs on specific industries could help our businesses grow without risking international trouble.
I believe some people are misunderstanding what I wrote here. Since I want transition to free market, doesn't mean it has to happen over night. Seems to me that's what some of you implying. A gradual transition will strengthen the economy and won't be devastating as some of you make it sound. And if for some reason the free market will fail in eRepublic, you can always take a small step back to protectionism. But you will never know if free market works if you never give it a chance.
and I do acknowledge that free market might drive wages down, that's why I wrote depends. However, laborers are consumers. So laborers still benefit. And if wages will be consistently going down. Deflation will occur which will lower the prices and strengthen the dollar. It's impossible to predict the amount that it would go down but if does the ratio between the prices and wages would stay the same at worst. So what you will have is the same purchasing power domestically and a stronger currency internationally.
Good call on the deflation. Lower prices can definitely benefit the overall economy in ways that wouldn't happen in real life. Debt isn't nearly as big a factor in eRep as in the real economy, and so the negative effects of deflation are mostly eliminated. A stronger dollar is good for everyone (at least eMericans).
That said, I'm still not sure what we would do if an entire industry failed due to foreign competition. If we get used to low prices after international firms flood the market, it will be difficult to react quickly enough to stop an industry from collapsing without also raising prices precipitously. You've raised some interesting points here; I hope those in power will take notice of debates like these when deciding how to rule our nation.