Our director Aldo Abram explains why protectionism hurts everyone.
The pressure from sectors that compete with imports for the government to protect them keeps increasing. These demands are related to the increasing arrival of products from abroad, an increase that cannot be seen in the total amount of imports but is significant in certain industries. We have to take into account that we are comparing a period, 2016, where some restrictions to exports were eliminated with a year, 2015, that was marked by a phenomenally closed economy. Is it reasonable to expect that inefficient businesses will see an increase in the competition from foreign imports?
Obviously, these sectors have centered their criticisms on the Secretariat of Commerce’s plan to gradually open trade. Who does this benefit? When a sector that competes with imported good is protected, in effect the government is allowing businessmen to charge more for their products than they otherwise would be able to. Hence, it acts like a subsidy that goes straight from the consumers to the inefficient businessman who gets rich. It seems incredible that some liberals defend protectionism, become a Hood Robin of sorts. It would be reasonable that, if they want to earn money, businessmen have to serve clients by providing better and cheaper goods and services.
The why are there protected sectors in other countries? Because in every country there are inefficient businessmen ready to guarantee they continue to increase their profits, investing millions to convince people and government officials they should be protected. Regrettably, millions suffer because of the increased prices these policies entail, but they don’t have a chance to get together to complain. Well, this is their chance to support the adoption of economic openness proposed by the Secretariat of Commerce in defense of all our pockets and make sure it gets deepened.
Furthermore, it is not true that protecting one sector saves jobs: it only destroys jobs in other sectors. If a good is protected, the demand for imports will decrease and, with it, the foreign currency needed to buy them. Hence, the exchange rate will diminish, complicating the situation for producers who compete with imported goods and weren’t lucky enough to receive the same perks. It will also hurt those sectors who could potentially export, whether they do it or not, because they will become less profitable since their products will be worth less. As a result, they will both reduce their production and the number of people they employ. In short, workers at inefficient protected sectors loose employment opportunities in more efficient sectors, which could potentially pay them more, because fewer jobs are created in these sectors due to protectionist policies that disincentive competition.
Let’s imagine we have a business that produces a very popular product that people are willing to pay good money to buy. Suddenly, the manager tells us he wants to produce a new product. We will have to produce less because we don’t know how to do it and we will have to sell it at a lower price because people are not as interested in the new product. Would we allow this? No, because shareholders would have less profit and salaries would be lower. However, we have allowed governments to do this for decades and act surprised when we are continually underdeveloped and have salaries with low purchasing power.
There is a persistent myth that says a country has to produce to be successful. This is not true. Who among us makes his own shoes, clothes or electrical artifacts? No one. We work doing something we know hoe to do and someone is willing to pay for. Afterward, with the money we earn, we buy whatever we need from people that know how to do it better than us and do it cheaply. This way, we guarantee the economic well-being of our family. However, when we are thinking about our country we want to do exactly the opposite. This is absurd, since it lowers the number of goods and services available for Argentines, creating poverty and preventing development and wellbeing.
The main argument used to justify the inefficiency of these sectors is the famous “Argentine cost” – the idea that it is worth paying more for national products. However, this is a problem that ends up affecting every producer of goods and services. Because some sectors are protected, and hence their products have high prices, some producers manage to transfer at least part of the burden to other sectors that weren’t lucky enough to get the same benefits and, on top of this, will now have to deal with increased production cost. This is extremely unfair. Hence, if the problem is the “Argentine cost”, we should work together to demand a reduction of tax pressure, lower and more efficient public spending and a reform of out archaic labor legislation. In this way, we will be able to improve the standard of living in Argentina and give all its inhabitants opportunities.