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Why has protectionism captured the imagination of policymakers?

Why has protectionism captured the imagination of policymakers?

By Vishal Kale

Worldwide, the rise of the so-called nascent protectionist tendencies has been covered extensively in the pink as well as white media. The hyperbole emanating from society, social media as well as the political sphere justifies the focus on this theme. And so long as this focus creates informed dialogue around this theme, it is a welcome development.

Let’s abandon the hyperbole and focus on the facts for a minute. Isn’t it a fact that protectionism towards developing economics by advanced ones has been the exception rather than the rule?

Advanced economies have had a history of protectionism. It also, however, seems justified enough to protect ‘domestic interests’.

Let us consider a few examples from history. Starting from the 50s, when Steel Plant technology was denied to India on flimsy grounds by the USA. What was that? Wasn’t that politics with a dash of protectionism? Recall the imbroglio over the AMS and Food Security? Solar Panels and Cells? Or Compulsory Licensing and Patent Rules? Preferential Market Access and localisation conditions?

Each of the examples above is a clear indication of a powerful western nation fiercely protecting its turf. Other examples readily spring to mind in various fields – IP rights in the Drug field is yet another very evocative example. This is the way of the world – and rather than cry about, let us accept it; and figure out how to fend for ourselves in the midst of these established tendencies.

Protectionism grew quite popular as American workers started losing jobs to other countries.

Protectionism grew quite popular since 2009 as American workers started losing jobs to other countries. | Photo Courtesy: Business Insider

[su_pullquote]Denying access to capital and/or technology is nothing but a loot to fight the ability of a state to provide for its own people as it may impact your profitability.[/su_pullquote]

There is nothing wrong with a globalised world; India thrived on free trade for over 4 millennia. However it’s different when a state, or a set of states, gang up on another, deny access to capital and/or technology on flimsy grounds. It’s a loot to fight the ability of the state to provide for its own people as it may impact your profitability. And that is precisely what the entire farm subsidy, greenhouse gases and pharmaceutical drug battles are all about.

What has changed to spur protectionism?

Nothing has changed. The trends in data continue to prove the advantages of free trade. Why, then, are we seeing the updates, events, news and happenings against protectionism? The answer is that, what we call protectionism is simple human nature. It is basic nature to protect your turf, even if it may not be fair.

Shanghai in the night. East has seemed to benefit the most from free trade.

Shanghai in the night. East has seemed to benefit the most from free trade. | Photo Courtesy: Commons Wikimedia

What has changed is that rising prosperity in developing nations, rising educational levels and favourable demographics combined with cheaper factors of production, especially labour, has led to two movements. Firstly, the emigration of educated and/or talented people to the West, who come with significant economic benefits in terms of lower wages and a harder work ethic. Secondly, stagnancy in the West as compared to rising lifestyles and infrastructure in the East.

[su_pullquote]Protectionism is surprising today as the East has benefited a lot from ‘free trade’ over the recent decades – growth, jobs and a far lower level of poverty. [/su_pullquote]

The size of overseas markets has made them attractive and better facilities and educated workers mean a lower cost of production at a comparable quality. Obviously, in a finite system, if a party manages to attract capital through superior factors of production, it is going to fuel political, economic and cultural undercurrents on the other. In some products – centers of jobs are going to shift, and a cultural & demographic change in worker profiles is upon us.

Combined with the inability of these economies to create new jobs, these factors are straining the free market system. The high burden of social expenses, by virtue of the freebies, that the population in these nations enjoy – creates its own problems for these countries. These factors taken together are bound to fuel short-term tensions and a spurt of protectionism. What can we do? Wait it out? We can hope for more sensible policies, ones that focus on the factors of production, making businesses easier. We have been focusing only on one side of the coin. Has anyone systematically tried to point out the benefits of free trade that have played role in eradicating extreme poverty?


Vishal V Kale has an MBA in Marketing with 16 years of experience in Sales, Marketing & Operations across various industries, with end-to-end specialisation in telecom sales and marketing.
Featured Image Source: Financial Review
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