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February 01, 2006

Internal Protectionism

If you’re a fan of free trade and globalization as I am, then you should have liked the President’s renunciation of isolationism and protectionism in the State of the Union Address.  In an open world, America must be competitive if we are going to maintain our standard of living; we never had to compete with the WHOLE world before.  It won’t be easy.

But some industries are protected from DIRECT international competition.  Health care, education, transit, utilities, domestic communication, and government at all levels are among the industries which do not face foreign competition.  But those American workers who are competing directly with the rest of the world cannot afford to pay inflated prices or receive substandard service from the “protected” industries.

Price and not quality is the problem with our health care system.  People from everywhere who can afford to come to the US for treatment.  But some people in the US cannot afford basic health care.  As I blogged here, a big part of the solution to the cost problem for the employed is to eliminate employers as middlemen AND separate routine bill-paying from insurance to deal with emergencies.  Expanded Health Savings Accounts ARE a step in the right direction.  Right now competitors like China just don’t provide the level of health care we do.  We don’t want to degrade quality; their workers will eventually demand it as well; but we must do better on price.

The indigent require direct aid for medical expenses and an inducement to practice preventive care; but that problem should be kept separate from the problem of affordability for everyone else. 

Quality more than price is the problem with our public education system.  It’s not that we pay teachers too much; it’s that we pay too much to the wrong teachers.  We are critically dependent on the quality of our educational system to be competitive in an open world.  Shielding teachers from competition doesn’t get us there.  We need merit pay for teachers.  We need well-paid teachers who are comfortable with being competitive.  They need to teach our children both the skill and the will necessary to compete.

Transit workers can strike confident that their jobs won’t be out-sourced. Railway workers can be protected by antique work rules which – along with other factors – doom Amtrak to perpetual failure.  But the riders are going to jobs where wages are capped by foreign competition.  The alternative to transit is gas-guzzling cars.  Quality more than price is the problem with our public transit but, unless the rules are changed, quality including – all important – frequency of service can’t be delivered at a reasonable price.

As wages rise in the developing world – and they will as it continues to develop, we will have a chance at reasserting ourselves in manufacturing IF we have an educated (see above) workforce AND if our utilities can supply energy at least as cheaply as it’s available in the countries we compete with.  For economic, political, and environmental reasons, we do have to wean ourselves from fossil fuels.  That means both that we resume building nuclear plants and that we continue with the more politically popular wind and solar energy projects.  Note that in order to make any progress with wind or nuclear energy, we need to change our permitting process so potential neighbors of a project can’t kill it with excessive cost and delay. A recent post on nuclear power is here.

We have already become pitifully uncompetitive in domestic communication.  The broadband service available to American small businesses and residences is pitiful in price, bandwidth, and availability compared to the rest of the developed world.  Our telco-cableco duopoly would never be able to compete in most other developed countries with the miserable over-priced product they make available here.  Trouble is, since we are stuck with this product, our ability to compete internationally is degraded.  It’s essential that we break the power of this protected domestic duopoly. (Most recent rant here).

American government at all three, sometimes four levels, is actually pretty good compared to the rest of the world both in price and quality.  But it’s not good enough.  The influence of lobbyists is a growing problem.  Corruption can never be ignored.  It’s often hard to tell the difference between a campaign contribution and a bribe.  In some place like New Jersey and Louisiana local corruption is assumed.  The incompetence of FEMA and the recent apparent fumble of the new Medicare program are cause for alarm.

Bottom line (at least of this post) – there can’t be any “protected” industries domestically if we’re going to be competitive internationally.   

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