On the Other Hand...

Protectionism Doesn't

by Jim Davies

Back in the '60s, I was a young salesman for IBM, selling American computers to British companies in Britain. The work was hard and invigorating but enjoyable and rewarding, and - fortunately for me - did not require heavy salesmanship skills, for this was IBM's Golden Age, when the case for the sale (provided we made it intelligently) was overwhelming.

Let me tell you about our main competition.

There were other American companies there on the fringe, like Burroughs and Univac and Honeywell, but our biggest obstacle by far was ICL, a British company in the sense that most of its shareholders and employees were Brits.

Now, we in IBM enjoyed what's called "premium pricing"; we were generally more expensive than the other guys but our computers were so good, and the company so sound, that people would pay extra for our products. So the competition had a real hard time selling on performance and quality, and only one - ICL - had anything else to sell, and that was its "Britishness".

There I was, a Brit, busting a gut to help the US export trade, and I was accused of being disloyal and unpatriotic by our rivals in ICL. Precisely the same nonsense that we hear here today from the likes of Pat Buchanan and Ross Perot were being shouted around Britain a quarter of a century ago, except that the slogan was not "Buy American!" but "Buy British!"

One irony was that ICL was importing (from the US) many of its peripheral devices like disk and tape drives, and slapping a Brit label on them; while IBM had set up a Scottish factory from which huge volumes of computer components were being exported; by the mid-70s, it was a serious question as to which of the two rival companies was the net exporter and which, the net importer.

Such awkward facts did not, of course, distract the knee-jerk protectionists one whit. Imports were bad, exports were good, and don't bother counting, just read the label. So it is here, today. I'm still unable to understand how it is that "good" exports from Country A can become "bad" imports to Country B, just by virtue of transportation across an imaginary line drawn on the Planet.

Reality

The reality then there, as now here, is that free international trade - like free trade always is - was a win-win-win idea.

First I, as an employee of a successful US company, won because I had a more rewarding job than I could obtain from a British-owned company. So did thousands of my colleagues.

Then, our customers won, because by their own judgment, they were getting a better deal from the US import than from the home-grown product.

Then, the (British) domestic economy won, because by having better computers our customers themselves became more efficient and productive than they otherwise could have done; in aggregate, that boosted the living standards of everyone living in the country.

Naturally, IBM shareholders and employees in the US won, for we were creating demand for their products and sending home some extra profits. Accordingly, the US economy won.

Finally, even our competitors won, though it may not have felt like it; for the pressure of competition from abroad stimulated them to shape up or ship out. I hear that even today, ICL still survives. It would certainly never have improved as it did without the hammering we delivered them.

The Invisible Hand

In 1776, the very same year that the first American Tax Revolution began, a Scots professor of the new science of Economics published a masterful insight about how wealth is created, and why some nations get richer than others. Adam Smith's "An Enquiry into the Wealth of Nations" remains a standard textbook but has yet to be acknowledged as correct, in contrast to the ideas of government meddlers in free trade, domestic and foreign.

One of Smith's most important perceptions was that if everyone is free selfishly to pursue his own interests, everyone becomes better off; as if by the work of an "invisible hand."

Smith had no illusions about high moral purposes among businessmen; he rightly regarded them as thoroughly selfish and conspiratorial - but correctly realized that if each player in the marketplace succeeds, then presto! everyone has succeeded. The whole society benefits, even though not a single one of the players sets out to benefit anyone but himself.

This is true both within a country (which is why everyone would be much better off in the absence of regulations and taxes) and across country boundaries, as we saw above from my little example. Nobody whom I mentioned was setting out to benefit his country, or even his company; we were all greedily pursuing our own livelihoods. But because the import tarriffs were not high enough to prevent us, everyone became a winner. The invisible hand, at work. Marvellous!

So, what does this say about our next purchase of PCs, automobiles, VCRs or TVs; should they be domestic, or foreign? - should our decision be guided by love of country?

I certainly hope so. Our country - and everyone else's - will best be served if we ignore that factor altogether, elect only politicians who promise to rip down all barriers to trade and just buy the product that seems to us, in our selfish, sovereign judgment, to provide the best possible value for money.

© Copyright Jim Davies 1999

Jim Davies lives in New Hampshire,
and enjoys contemplating which way is up.

The above is Edition # 90

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