How can anything with the word "protection" in it be that bad?

There's been a lot of talk recently with regard to the "dangers of protectionism" (http://www.nytimes.com/2009/02/02/business/worldbusiness/02global.html?scp=2&sq=protectionism&st=cse) due to the U.S. Congress' inclusion of a "Buy American" provision within the proposed economic stimulus bill. After all, if the United States limits imports of certain materials, it is argued that this would cause other nations to place tariffs on American exports, which would result in a protectionist race to the bottom. However, the alternative championed by international financiers seems to be limited to greater globalisation and freer trade between developed economies (the United States and European Union) and the developing economies.

However, I would like to propose a defense of protectionism - and perhaps a justification for its continued, even greater, use in the United States economy. Though I hold some advance degrees, I'm not formally trained in macro economics and am not trying to repeat the excellent arguments of Nobel Prize winners (http://krugman.blogs.nytimes.com/2009/02/01/protectionism-and-stimulus-wonkish/?scp=1&sq=protectionism&st=cse). I just want to offer my own interpretation of the economic mess plaguing the United States, and a suggestion for a possible way out.

First, let's be clear that I'm not saying that all of globalisation is bad; I thoroughly enjoy eating fresh strawberries in February, listening to music from Morocco, or drinking Bavarian Bier. Easily and quickly obtaining unique goods from foreign producers is a marvellous thing. But when foreign producers of fungible goods (steel beams, cars, televisions) are able to undercut domestic producers of the same good - and sell that cheaper good in the United States - it necessarily creates pressure on the domestic producer, which ultimately results in a net loss of American jobs.

That's because there is an inherent inequality in the global economic system. That is, in a perfect market, the input costs for producing a good (let's say TVs) is roughly the same for everyone. Of course, some producers may have more ready access to the raw materials to make TVs, but the workers' wages would be the same, the laws and taxes imposed on the companies would be roughly the same, and even the commodity prices of raw materials would be roughly the same. In such a system, the only way to gain an advantage in the market would be to be more efficient (find a better process for producing TVs or encourage your workers to work harder) or create a higher quality good (again, through better planning or harder work).

However, the current global economy is far from a perfect market. Even though bankers and financiers extol how the economy would function so well if all tariffs and limitations on imports were dropped by everyone, the developed world would still suffer with staggering job losses. That's because the input costs (taxes, minimum wage and hour laws, environmental regulations, etc.) are so much lower in the second and third world, that, any company functioning in the West would be unable to compete - without, of course, moving their production jobs to a foreign country with lower input costs.

When I was a child I remember that my father was a big supporter of H. Ross Perot. I can recall watching one of his campaign commercials in which he discussed how the North American Free Trade Agreement (NAFTA) would destroy American manufacturing by allowing U.S.-based companies to use cheap labor in Mexico (do you hear that giant sucking sound?). The situation today is even worse as CAFTA, the WTO and a general relaxing of trade barriers with the developed world, combined with the greater ease with which technological goods and services can be transferred across borders, has caused companies to offshore thousands of previously United States-based jobs.

So what's the answer? As I said, in a perfect world, the input costs to produce fungible goods would be roughly equivalent. So, in this utopia, all nations would agree on (1) minimum wage laws; (2) maximum hour laws; (3) minimum environmental regulations; (4) minimum standards of goods (such as no lead in paint or melamine in milk); (5) minimum worker safety / workers' rights laws; and (6) property, corporate and sales taxes. In such a system, there would be no rush to the place or places that have the lowest input costs absent some natural advantage (such as the fact that it is naturally impossible to grow bananas in Alaska) or the efficiency of that place's labor pool.

But utopia is a no-place. Therefore, if nations will not agree to minimum standards to provide roughly equivalent input costs to businesses, those businesses that produce things in the higher cost - predominantly Western - nations will be at a disadvantage. This will lead to a continued increase in unemployment in the Western world, which will further erode our economies.

I recall that an answer that champions of globalisation often proffered against the pre-NAFTA Ross Perots, was that, "sure, some manufacturing jobs will be lost, but American entrepreneurs will invent new businesses in this hyper-free economy, which will create better jobs for our citizens." Well, they were partly right. The development of a technologically advanced information economy did arise in the late-1990s and early 2000s in the United States. However, we have seen even these jobs transferred overseas because of the large pool of educated, cheaper, labour in China, India, and other developing nations.

With this in mind, I think a little protectionism might be just what the United States needs to create greater employment. But this will require a more inventive situation than mere tariffs on foreign-produced goods. After all, what use is a General Motors or General Electric to the United States economy, if, while putatively American, all their research, development, and production is performed by foreign labour? (Okay, I know there would still be some good, but it would be limited to stockholders and the government).

Therefore, I humbly suggest a macroeconomic and microeconomic solution. First, the macroeconomic solution: The United States should provide a real tax incentive for employing a larger number of American workers. This should be both a carrot and a stick. That is, instead of the current proposals to give a corporation a few thousand dollars of tax breaks per worker employed in America, the government should offer a 0% tax rate for companies in which 100% of workers are employed in the United States, a 10% tax rate for companies with 90% American workers, and so forth. If, however, the business employs only 10% of American workers, their tax rate should be raised to 50% or more. Of course, to take into account the senior executive salaries that have been so railed against, this calculation should exclude senior executive staff, but you get the picture. If a 50% tax rate causes a business with less than 10% American staff to leave the United States altogether, that would likely be preferable to the waste of federal, state and local resources on such a business.

On the macroeconomic level, one possible solution in which we can all take part, would be to, not necessarily "Buy American", but, more specifically, "Buy Locally". Whether it's in-season produce, locally created crafts, local beer, or any other good, buying within your local economy (1) helps local businesses stay afloat; (2) possibly helps your friends and neighbors stay employed; and (3) ensures that the money you spend will assist others in your community rather than an international corporation or foreign government.