On Protectionism

Protectionism, as a political policy, is not a hard case to make. All a politician has to do is complain about jobs being sent overseas, and if he or she is from a rural region, promise constituents subsidies up the wazoo. However, as an economic policy, protectionism does not help out nations in the long run. In a report from the St. Louis Federal Reserve, they point to protectionism as a hindrance to economic growth, especially affecting low-income Americans due to restrictive tariffs on goods such as cars, sugar and clothing. By imposing tariffs and trade barriers on foreign goods, Americans are therefore forced to pay costs, which are not truly set by the market. Take sugar for instance. Current sugar subsidies have been in place since the Great Depression, and artificially inflate the prices of the goods in order to keep farmers back then from going under, but now it has morphed into a protectionist policy to prevent large-scale foreign imports from displacing US sugar, mainly from Central and South America. However, attempting to change protectionist US policy for agriculture often ends in complete failure. For example, earlier this year the Tea Party attempted to block provisions in the farm bill (which sets US agricultural policy) which allowed for farm subsidies to continue for the next few years. However, their goals to end farm subsidies were blocked on all sides. Democrats were unwilling to allow cuts to food stamps (also part of the farm bill), which the Tea Party also wanted to happen. Non-Tea Party Republicans were unwilling to cut farm subsidies since farmers are a significant part of the party's base in rural areas. Therefore, Tea Party attempts to cut farm subsidies were thwarted. While not personally agreeing with the Tea Party myself, it's striking how difficult it is to either cut or reform subsidies which are, in effect, bribes to constituents. While agricultural subsidies are truly blocking access to free markets and hindering true competition on a global scale, the political reality about trying to change agricultural policy basically makes it impossible. From both a globalization and free-market policy, nobody really wins except for the subsidized farmers, since consumers are stuck paying a higher price, and farmers from developing nations are left out since they cannot break into the global market, and effectively are stuck being subsistence farmers.

This'll be my last post about Scottish independence, which did not succeed last Thursday when the Scots voted 55-45 to remain in the United Kingdom. It appears that the economic and political uncertainty which would have immediately followed the yes vote was enough to dissuade voters about voting for independence. Also, the idea for secession seems to have spread to other nations in Europe, namely Catalonia, the Basque country, Flanders, and the Northern regions of Italy. Unlike Scotland, however, these regions are more likely to vote in favor of secession, due to their linguistic, political and economic divisions with the rest of Spain, Belgium and Italy, respectively. Unlike Scotland, these regions are in fact the economic powerhouses of their nations, and would likely fair rather well on the global stage. They would be able to compete in a global economy as a result. A Catalonian vote is scheduled for this November, and while the Spanish government in Madrid considers it to be illegal, Catalonia's vote could indeed be a success.

First blog post for fall term International Political Economy what what. One issue in today's political climate where international actors in both the political and business world are interacting is the upcoming referendum on September 18th for Scottish independence from the United Kingdom. In recent days, the debate has centered on what large foreign companies based in the UK, such as RBS, BP and Lloyds, will do if the Scots vote to separate. These companies will choose to stay in the UK, instead of an independent Scotland, due to their uncertainty about new Scottish laws, taxes, regulations, etc. The Scottish National Party (the driving force behind the referendum) has not endeared themselves to business leaders with veiled threats of nationalization in recent days, and if the Scots end up voting for independence, the new nation may need to be prepared for a severe economic downturn.