QUOTA QUACKERY

QUOTAS AND OTHER PROTECTIONIST devices work, but most often in ways opposite to those intended. That was demonstrated in this space with eight illustrations from the steel industry.

But what about essential industries? Is there no place in a high-tech economy like that of the United States for such basic industries as steel, shipbuilding, construction equipment and cement - if only for defense? Shouldn't such industries be given an opportunity to modernize and rebuild? Shouldn't the flood of imports be held back until such industries once again can become competitive?The problem with this argument is that, unfortunately, quotas are always temporary. Like the Man Who Came to Dinner, they arrive for a day and stay forever. Steps taken to save endangered industries - assuming we can find a genuine reason for saving them - should include sunset provisions. And they should be made conditional on improvements in efficiency and productivity.

You're a widget manufacturer, for instance, and you have succeeded in convincing Congress that widgets are essential to the national defense (or some equally compelling justification.) In turn, Congress has imposed quotas on imports of widgets from abroad.

First, you should be given five or seven years, a finite period, to put your house in order.

Preferably, the quotas should decline as the years advance. Quotas should be conditioned on your modernizing your plant and equipment, getting unit labor costs down, and otherwise bringing your industry in line with lowest costs worldwide. Any evidence that you won't or can't achieve this objective should cause the quotas to be lifted at once.

The same time limits and conditions should be placed on other salvage efforts, a bailout for instance.

Actually, most economists agree, it would be far better for the government to provide direct grants or subsidies. Then the costs would not be hidden. And they could be weighed against the benefits.

This is a rational approach to the use of protectionism to save essential industries. What chance is there it may be employed?

Not much. Steel quotas have been in place 17 years, the integrated industry has grown steadily sicker, and the cry - from the industry and its representatives in Congress - is for more protection, not less.

The medicine is killing the patient. But, says Dr. Quack, let's up the dosage. In any other situation, we'd fire the doctor.

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