Keep Your Localization Local

A story on NPR’s All Things Considered this week dealt with St. Lucie County, Florida, whose government is trying to counter high local unemployment by requiring that 75 percent of government contracts be reserved for local firms and that the firms employ local workers. This is true for both local tax revenues and federal stimulus package funds.

Even ignoring the legality of restrictions on the federal money, this is the kind of autarky behavior that leads to a reduction in production possibilities. In the name of job protection, local taxpayers forego efficiency — forego using the principle of comparative advantage — and waste tax dollars. Worse still, this can lead other localities to do the same. Even worse, if it were to spread so that national governments helped to “protect” local companies and employees even more than they now do, we would be headed rapidly down the protectionist road that helped produce the Great Depression. I hope this truly stupid idea is localized and does not spread.


Julie

Isn't this much like the restriction of foreign visas for companies who received the TARP funds? And like the restrictions on using only American suppliers for various projects? It seems to be happening in full swing already...

Disclaimer: I am a Canadian who is going to pursue my MBA in the US and very worried about job prospects on graduating.

M.B.

Such practices have been prevalent in NM for a long time. Preference on government contracts for local minority owned businesses. Also "Little Davis Bacon" laws so that taxpayers overpay for government construction projects.

Caliphilosopher

Protectionism caused the great depression? I might be wrong, but I thought it was the stock market crash.

can someone explain how protectionism caused the great depression?

Fundriving

The stock market crash didn't cause the great depression. The depression would have happened anyway as the great influx of rural folks flooded the cities due to dustbowl conditions. This coupled with changes due to the industrial age caused the depression.

I am also interested on how protectionism caused the depression.

Tim

Google "Smoot-Hawley Act" for a good primer as to how protectionism caused the great depression. It's not a lead-pipe cinch (nothing in something as complex as economics is) but it's close.

In short, it threw a wet-blanket on international trade, stifling growth and productivity. Our exports became as equally prohibitively taxed as their imports, and pretty soon everybody is just buying- and thus producing- less stuff, and we're twisting down the toilet bowl.

Read "Why Globalization Works" by Wolf or "The Power of Productivity" (Lewis?) for a good readable explantion.

Les Brown

This is, of course, putting the Babylonian idol "God the Economy" ahead of the Ghandhian concept of "The People First" (as in disallowing industrial equipment into India after the Brits left, slowing the national economy but protecting the livelihoods of the citizenry). What is a nation, state, or city if not the people it is comprised of.

If, perhaps, all nations, states, and cities first moved to protect their own citizenry they could then, informed by that priority, move to rebuild city, state, national, and international economies where people, not money, come first.

frankenduf

yeah, i'm with the skeptics here- not only is that line "protectionist road helped produce Great Depression" right out of the republican propaganda's greatest hits, but would question if Hamermesh even realizes our country was founded on protectionism- the early colonies' economies absolutely needed protection from London's- via tariffs- else we would not have survived independently (until we attained leverage in the cotton market)

J. Daniel Smith

As in nearly everything, there needs to be a balance.

Extensive out-sourcing/off-shoring/etc. can eventually hurt the local population as well as have hidden costs (transport, tax implications, etc.)

Conversely, keeping everything local can result in higher costs, less efficiencies, etc. even if does provide some short-term gain (and even vindication).

True compromise seems to be a lost art in America. You're either R or D, left or right, etc. and there is no room for in between.

charles

I'm the opposite of frankenduf here - and with the skeptics, not sure what he was reading.

And the colony thing is way wide of the mark, as is the Republican comment. Yeah, the GDP of the colonies was what? Lets use that model....lol then Sigh...

C. Larity

I'm not an economist, but I'm very good with my history, so I'm thinking Hamermesh isn't just referring to Smoot-Hawley (which came later), but the general attitude towards tariffs in general in the 1920s and 1930s.

At the time, America got large amounts of money via tariffs, and Republicans (of a very different variety than today's) supported tariffs as a means of protecting American workers. Thus, seeing a potentially increased budget deficit, Smoot-Hawley was passed to keep with another major Republican goal- a balanced budget.

Not only that, but Hamermesh's comment is that the protectionist road "helped" produce the Great Depression, not caused it. Many other factors were involved, including some that will sound quite familiar: too much leverage, a housing crash, failing banks, etc.

Susan Paxton

Our bowing and scraping to the god of "efficiency" has put millions of people out of work and more into junk jobs where they can't make anything resembling a decent living. Efficiency is not the be-all and end-all, and never should be. If a little inefficiency translates into more jobs and a higher standard of living overall - and I suspect it does - I'll take it.

ClydeK

Everything in any of these analyses s a function of excess capacity and price elasticity.
Saying that a community of taxpayers should hire outside people because it is "better for the economy" is so stupid as to defy belief. There is no community to community Smoot-Hawley---come on, get a grip.

MAL

Your point is not wrong, but your piece is only half an analysis - you do not even attempt to recognize that there may be some benefits to a protectionist policy. To me, this is intellectually dishonest because policy decisions are almost always about balancing pros and cons.

By the way, you meant to say "forgo" (to do without) not "forego" (to precede), in both instances.

hasturi

Susan: How could _less_ overall efficiency possibly create an increase in standard of living? More efficiency is is the sole thing increasing overall standard of living.

hal

Is the end of local small business a good thing?

Has the retail experience of the community benefited from having Walmart?

Would I rather my tax dollars be used to pay companies from far away, while the children of my local construction and service workers go hungry and on food stamps, welfare and unemployment?

We have a local government project worth over $500m in capital spending. The contractor is from Sweden and most of the workers are from Central and South America. I suspect that money would make a big difference in our local economy, rather than awaiting some global trickle-effect from Central American, South American, and Swedish executives'/stockholders' spending.

Keeping the world employed while social costs of unemployment, poor health care, minimum wage jobs, destroyed pensions, etc. continue to mount seems a poor policy. If the object is to have the American standard of living reduced to match that of the impoverished, while building the wealth of the already wealthy, then let the global open competition continue until we are all impoverished vassals of the giant corporations. For the individual worker, making a "profit" translates as home ownership, financial security, buying a car, paying for children's future education and health care, etc. For the Freakonomics columnist it apparently translates as "waste" because the rock bottom price was not paid.

The apochryphal story of Henry Ford's threat to the autoworkers' union that he would automate the production lines, thus throwing them all out of work, was appropriately answered by Walter Reuther of AFL-CIO fame: "Then who's going to buy your @#%$* cars?" Could there be a more appropriate comment for today?

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Robert Nelson

As a small business owner, I do not want preferences or protectionist policies. I just want to be asked. I have found that I am just as able to compete locally with the national big box companies and the out of town professionals. But many times local government gets into a rut and locks out the local guy. Just ask, you might be surprised.

NL

If something is efficient, it means exactly "a higher standard of living overall."

Davis

The Nevada state legislature is trying to pass similar ridiculous legislation.

Brian

I think you hard core globalization guys need to take a step back and look at the reality of the situation. Friedman was right, globalization IS a flood plain and everything we've come to associate with the American way of life and our standard of living is being eroded and destroyed by globalization and fleeing to the east as the differential between eastern and western wealth equalizes. Outsourcing and importing cheap guest workers from other countries only makes INDIA and CHINA rich it does nothing for America besides make a few wealthy stockholders rich in the short term. Even the mighty Paul Volcker had to step back and take an honest look at the situation and admit that globalization might not be all it's cracked up to be.

These were his words at Columbia University earlier this year: "We've reached the point where one aspect of capitalism - which I will call relatively unbridled financial markets operating on a global basis - has broken down. And it's broken down in a way that I don't think it can be replicated in the form that it took earlier. It's broken down right ... in the face of all expectations, of almost all policy and intellectual analysis which said 'This is a great thing - these free and open markets. And the thought that it would be so damaging to economic growth and stability right around the world was not in peoples' minds"

You know what happens when we outsource and offshore, we destroy the American tax base and the American consumer who after all is the one who is funding all of this economic growth. Capitalism in this manner is not a sustainable enterprise if we each successive iteration actually REDUCES the number and spending power of consumers.

This is a great article on how this economic situation happened on the labor side of things:

http://guestworkerfraud.com/globalization-is-good-for-us/#000349

Maybe America should be in the business of protecting American interests, not making Indian and Chinese corporations rich.

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jean young

you have to know PORT ST. LUCIE, florida, to understand why they are doing this.....it used to be an old ' GENERAL DEVELOPMENT' community...there are many of these throughout florida...it has no industry...its whole economy is based on building and selling more and more houses...now that this has dried up, there are NO jobs for the young sters...so it makes sense to keep as much tax money as possible in the local economy..which means hiring local people.....i wish our governor felt the same way.....floridians who call about unemployment benefits have their calls answered by a comapny in INDIA..it is ironic that these people in INDIA are paid with florida tax dollars....paid by these same floridians who now are unemployed........