Tuesday, 27 March 2007

Protectionism's insidious appeal to decency

I had a minor argument with an Aussie colleague at work today. We were discussing no-frills brands in supermarkets such as Woolworths' Home Brand and Franklins' (what else) No Frills. I'm all for these brands, by the way, because they give me commodity functionality at a lower price than traditionally branded products.

My colleague stiffened visibly. "I don't buy these brands because I believe in supporting Australian producers," he said, and there was an undertone of reproach in his voice. I should have bitten my tongue, I guess, but I couldn't help expressing my preference for Free Trade. That got me embroiled in an argument with another Aussie co-worker who also believed in supporting Australian producers.

I was a bit saddened by the exchange because these are people I like and respect very much. They're decent blokes, and if they've been conned by the protectionist argument, then it sadly means that protectionism is a tax on decent and patriotic people, just as lotteries are a tax on people who are bad at maths.

So what I understand from this is that it doesn't matter how inefficient and uncompetitive I am as a producer. All I have to do is wrap myself in the national flag, and patriotic people can be counted on to bail me out. Their well-meaning patriotism becomes its own punishment. And they don't seem to realise that their support of products on non-economic grounds does the country a disservice by taking away the incentive to improve efficiency and competitiveness. Over time, the country loses its ability to compete in the world market. Protectionism always hurts those it is meant to protect.

I remember a similar situation in India, where I spent the first thirty years of my life. There was a popular nationalistic slogan that I saw everywhere as I was growing up - "Be Indian, Buy Indian." (Not that it was possible to buy foreign goods, heh. The import tariff on foreign-made electronic goods, for example, was 400%! A pox on Indira Gandhi and her mean-minded, wealth-destroying mindset!)

The only cars available in India for many years were the Ambassador, the Premier Padmini and the Standard Herald. These were based on European designs of the fifties. The Ambassador was based on a British design, while the Padmini was based on a Fiat model. I don't know what the Standard Herald was based on. The interesting thing was that these models never changed over 40 years! Indian car manufacturers didn't even bother to try the old Detroit trick of "innovating" larger tail fins. They just kept making the same models year after year and sold them at exorbitant prices. Only rich people could afford cars in those days. And the cars were gas-guzzlers to boot.

Finally, in the late eighties and early nineties, the Indian economy began to liberalise. Indian companies began to tie up with foreign manufacturers to bring out newer models. Within 15 years, the landscape was transformed. Today, the old models are nowhere in sight on Indian roads, except as taxis (for some reason, taxis are still stuck in nowhere-land). All private cars are now based on modern designs and international brands. What's more, many of the models are affordable by middle-class people. They're also more fuel-efficient.

I feel anger whenever I think of this and similar stories. These car manufacturers took the Indian consumer for a ride for four decades because they were shielded from competition and never felt the need to innovate and compete. They remained stuck in the fifties while the rest of the world passed them by. It was only when the Indian economy was opened up did change happen.

So what did being Indian and buying Indian achieve? Limited choice, stagnant designs, ugly, gas-guzzling monstrosities and high prices. All these problems magically disappeared when the economy opened up and competition appeared (which ties this back to my earlier piece on Liquidism).

Why should we buy a product just because it is Australian-owned or Australian-operated? What is the message we are sending to these people? That it doesn't matter how uncompetitive they are, they can still have our money?

As an obvious aside, I wasn't "Made in Australia" myself, but a free-ish market in labour was responsible for my migrating to this country under Australia's Skilled Migration Program and adding my talents (meagre as they may be) to the Australian pool. At a visceral level, I cannot agree with the "Buy Australian" sentiment, because it would have kept me out. In fact, I find that sentiment personally offensive.

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