Should American Business Give Up Smoking; G. North

More than this\ it has led to a re thinking ofjust 'what it is that Amer ica's economy is supposed to do in or der to compete in world markets. We have been told that America's "smokestack i~dustries" are threat ened, and that this nation is losing its competitive abilities in the field of heavy manufacturing. I am sure this analysis is correct. Now, why am I supposed to worry about this? Let me ask you a question. Are you worried about America's loss of com petitive ability in basic manufactur ing? Let us lay aside the military © Gary North, 1985. Gary North, Ph.D., is President of the Institute for Christian Economics. The ICE pUb lishes a newsletter, Biblical Economics Today. A free six-month trial subscription is available by writing to Subscription Office, ICE, P.O. Box 8000, Tyler, Texas 75711. 658 strategy questions for the moment. (I will return to this topic later.) Are you worried about the economic ef fects of the loss of manufacturing ca pacity in the smokestack industries?

Are you worried about the loss ofjobs in these industries? Are you worried about "our" competitive edge being dulled? Why? I would hazard a guess that you are not really very worried about these possibilities. In fact, if you heard that a factory was going to be built across the street from your home, you might start worrying about that threat even more than you are wor rying about the loss of America's smokestack industries. There are some of you who might even be tempted, however momentarily, to file a complaint with your local zon ing board to keep that factory out of your neighborhood.

SHOULD AMERICAN BUSINESS GIVE UP SMOKING? 659 Let us say, just for argument's sake, that you live on Peaceful Street in the town of Upward Mobility, U.S.A. What I am trying to point out is that your fears concerning smoke stack industries as a resident of "Peaceful Street" are different from your fears as a resident of the hy pothetical "Nowhere in Particular, U.S.A." In fact, they are almost op posite fears. As a "Peaceful Stree ter," you want to keep smokestack industries out, but as an American, you want to keep smokestack indus tries in. This seems a bit peculiar. Of course, you may just enjoy worrying. All right, let me broaden the geo graphical perspective. You live in the "Suburban Acres" tract. (All right, we won't call it a tract. We'll call it a development.) Now, what about smokestacks somewhere within the development, but on a different street? Still a bit nervous? Not what you had in mind? Fair enough. I am just trying to find out what you have in mind.

Let us continue. What about build ing new smokestacks in your town? Still not impressed? But you say that you're not opposed to business. You appreciate business. It creates op portunities. So if a computer man ufacturing firm wants to come to town, you would not have any objec tions. Also, if a college wants to open up just across the city line, that would be all right, just so long as it is a small, private college for engineering majors. (Mter all, who ever heard of a campus riot by engineer ing majors?) Smokestacks? No smokestacks! Nevertheless, you are worried about America's future. America is losing its smokestack edge. We may be beyond the point of no return. (But in "Upward Mobility," that's good!) The Question of Geography I have no quarrel with smoke stacks, since the nearest one to my house is five miles out of town-on the west side, where I seldom visit. In fact, I would not be brokenhearted if the nearest smokestack were six miles out of town. Or sixteen. Or, for that matter, 16,000. I just don't like smoke that much. So when I read that we are "losing our smokestack industries in America," I have a ten dency to read a different editorial.

There is another argument which seems to be implied in the debate over smokestacks. We are warned from time to time that "they" will get "our" manufacturing jobs. You know who "they" are. Them. Those ... people! Over there! You know the kind of people I mean. They talk funny. They talk too fast. Quite frankly, they jabber. You just can't understand them. And they wear funny-looking clothes. (Anyway, those over 50 years old do. The younger ones wear Levi's .and polo shirts-all over the world.) I suppose this fear is correct. Those 660 THE FREEMAN November sorts of people probably will get "our" manufacturing jobs. They seem to appreciate manufacturing jobs. For them, such jobs seem to be the best deal in town. Ofcourse, their town may be 16,000 miles away. But I don't care. That's their business. They don't bother me. I suppose we could all get together and lobby Congress to pass laws that would use tax money to keep "our"

smokestack industries smoking. But I think there is a real possibility that if we do, there will be a lot of people trying to come to the U.S.A. to work here. I guess "those people" just like to work in factories. I don't, so it's no sweat off my nose. Let them work where they want to. The odd thing is that so many of those who are opposed to sending "our" jobs abroad also are opposed to opening our borders to allow for eigners to come here to work. But if we try to keep "our" manufacturing jobs here (for instance, by passing quotas or tariffs against imports), and we also try to keep foreign work ers from coming here to work, then we are saying that only Americans have a legal right to such jobs. Not a legal right to bid for these jobs, but a legal right to keep them at the high bid. Trade Union Restrictions I have seen a similar argument in a slightly different context. Defend ers ofcompulsory trade unionism use such arguments to justify the ac tions of the unions. What if a worker who is not a union member asks for the legal right to bid for a job? He doesn't demand a right to the job, only the right to bid for it. The union leader argues that this opportunity to bid for a job "hurts labor," and he then seeks government legislation to prohibit employers from hiring people who bid on jobs at wage rates under those that are preferred by union leaders and union members.

When governments go along with this sort of political pressure, the high bid wins. I will go farther. I think the main arguments in favor of "keeping America's smokestack industries smoking" were originated by people who on the whole are also defenders of the arguments favoring coercive trade union activity. They want to keep the above-market wage levels that are demanded by the unions and enforced by Federal law (such as the Wagner Act of 1935), and they do not want foreigners-them-to be al lowed to make market wage bids against the trade unions. First, they do not want American laborers to be allowed to make such bids, which is why they also promote minimum wage laws, so that "foreigners" in places like Texas and Alabama can not make wage bids at market lev els. Second, they also do not want foreigners in other nations to be al lowed to make such bids.

1985 SHOULD AMERICAN BUSINESS GIVE UP SMOKING? 661 What amazes me is that American citizens who clearly understand that coercive (government-protected) trade unionism is a threat to their interests as consumers and as free men, do not recognize the danger of very similar legislation to keep America's smokestack industries "competitive." Legislation to achieve this will, in fact, keep Amer ica's uncompetitive smokestacks smoking, not the competitive ones. The competitive ones are competi tive, after all. Should We Give Up Smoking or Freedom? Even more amazing is the fact that millions of the same middle-class voters who are worried about the loss of the smokestack industries are also fans of the ecology movement, which is an anti-smokestack movement generally. People are subjected to fears that are frequently conflicting. We should give ourselves a break. We should try to worry about the same problem only one way at a time, either not enough smoke or too much smoke-but not both alterna tives at the same time!

Let us examine the logic that most suburban Americans are not being shown. We are being asked to sup port political decisions that do not make sense. The promoters of these ideas apparently have not thought through the logic of their position. We should. For example: 1. We Americans need to save our factories. We need to keep them here in the U.S.A. Not in Upward Mobil ity, of course. Not even very close to Upward Mobility. Somewhere else. But right here in the U. S.A. 2. We do not want to have all Hthose people" come here to work in "our" factories. We need immigration quo tas to keep them out. (This raises the cost of labor, and therefore the cost of operating the factories.) 3. (implied, but not stated:) We know that we are unwilling as con sumers to "buy American" simply in order to keep "our" factories smok ing. We know that we keep buying foreign products if "the price is right."

4. We therefore need government legislation to reduce our freedom as consumers to buy what we want at market prices. In other words, "let's not make a deal!" In short, we are being told that we need subsidies for business, or tariffs (an invisible subsidy) or import quo tas (another invisible subsidy). We need to give up our freedom in order that we can breathe more smoke. If people really faced the implica tions of what the "save the smoke stacks" propaganda is all about, they would not be very likely to get on board this particular bandwagon. The problem is, people have a ten dency to get excited about dangers that they do not really understand, 662 THE FREEMAN November and at the same time ignore dangers that are a very serious threat to them. If "save the smokestacks" were being promoted as "give up your freedom of choice as a consumer in order to save the smokestacks," or "raise our taxes in order to save the' smokestacks," I think fewer people would get involved in promoting the political schemes that are being touted to save them.

Which Form of Exclusion? It gets even more silly. Americans argue as if foreigners were in some inscrutable way stealing our facto ries, simply by offering to work so cheaply. What is the response that some editorial writers want us to make as voters? They want us to pressure Congress to vote for con trols on the export ofjobs. They want to make it illegal for certain people outside the borders of the United States to have the right to hire American agents (salesmen) in America who will come to American consumers and offer to make a deal. These editorial writers see many kinds of voluntary agreements as a form of theft, if the deal is done across a border. Not every deal, of course. They want some trade al lowed. But not trade that might "hurt" a factory located in the U.S. The problem is that any transac tion with one person makes impos sible that same transaction with someone else. You cannot buy two items with the same money. All vol untary exchanges are inherently ex clusionary. Anyone who says "let's make a deal" is inescapably saying, "let's you and I make the deal by ex cluding our respective competitors. I will exclude my competitors by of fering you the best terms you think you can get, while you exclude your competitors by making me the best offer that I think I can get."

This form of exclusion is the very essence of freedom. It is exclusion by service. But it tends to make the ex cluded parties angry, if they are un willing or unable to make a compa rable competitive offer. So they get the government to step in and sub stitute a different form of exclusion: exclusion by coercion. Instead of pit ting buyer against buyer and seller against seller, they reduce every one's opportunity to make ex changes. It becomes illegal for oth ers to come in and offer a potentially better deal. Governments make ex clusion by service illegal. The Trade Deficit People are worried about the trade deficit. The odd thing is that so few people understand what a trade def icit is. Consider this: Do you think foreign manufacturers are giving us their goods? Are they doing it for free? Of course not. Then we must be exporting something to pay for it. What are we exporting? Money.

What is money? The definition is: 1985 SHOULD AMERICAN BUSINESS GIVE UP SMOKING? 663 "the most marketable of all goods." We send them money, and they can do whatever they want with it. Specifically, we send them dollars. They can buy oil with it (the oil mar ket is denominated in dollars). They can buy U.S. manufactured goods and services with it (farm goods, wood products, American educa tion), or invest in America with it (farms, corporate shares, Treasury bills). We keep running those sav ings bond ads: "Invest in America." So that's what foreigners are doing. The next thing you know, someone writes a scary editorial about "for eigners are buying up America." Then why are we worried about a trade deficit? If we traded, then we must have traded something. Then why do we call it a trade deficit? It is defined as a deficit in the value of the manufactured goods that have been exchanged within the time pe riod of one calendar year. It is not a trade deficit of value. Value is given for value received. (In other words, trade is trade.) What foreigners have valued is investment opportunities in the U. S. But the government stat isticians do not count the value of these investments in the figure called "the trade deficit."

Are we worrying too much? Exports We keep hearing this answer to the trade deficit problem: "What we need is exports. We have to increase U.s. exports. We need to send more American goods and services out of the country." In short, we need to in crease productivity. I'm all for that! I have an idea. Why don't we ex port smokestacks? Well, why not? We can tear them down, and then ship them overseas. Let someone over there buy them and put them back up and start pumping smoke through them. Of course, our smokestacks may be too old. Maybe nobody overseas wants them. Maybe we could just tear them down (they're ugly, after all), and put something in their place. How about a computer fac tory? Or even better, maybe a soft ware development company to pro duce programs to run the computers. Or what about this? Let's build smokestacks over there. We will own them-those who invest in the com panies that build them-but we will get the smoke out of Upward Mobil ity, U.S.A. Then we trade with "them." They send us the goods, and they keep the smoke. We send these smokestack industry job opportuni ties to "them," and they send us the finished goods.

But why do they want to do this? Why would they build a bunch of smokestacks, or allow us to build them for them? Why would they want to live in "Blue Collarsville" instead of the kind of town we live in, "Upward Mobility"? Incredible as it seems to us, our discarded "Blue 664 THE FREEMAN November Collarsville" is their "Upward Mo bility." Our discarded "smokestack jobs" are their yellow brick road to the Emerald City. In short, they can't afford to move to our version of "Up ward Mobility," so they move to the best approximation they· can pres ently afforda smokestack version. (I wonder if there may be someone in Monte Carlo-or even Balboa Island, California-who cannot understand why you and I live in a place like ~'Upward Mobility, U.S.A."). No Sweat What I'm trying to say is that not many of us really are that fond of smokestacks. If we don't like them in our neighborhoods, why do we worry so much about them? As far as I can figure it out, what the U.S.

is exporting is opportunities to work in places where most Americans pre fer not to work. Americans who live near smokestacks send their kids to college so that the children can move away from the smokestacks, to places like Upward Mobility. We associate Upward Mobility, U.S.A. with service industry jobs: education, telecommunications, medicine, law, theoretical physics, break dancing-that sort of thing. If that isn't Upward Mobility, what is? So then, after decades of savings, af ter two or three generations of pay ing college tuitions, most of us fi nally got into Upward Mobility, U.S.A. We have now started exporting the job opportunities that we have worked so hard to get away from. Why not? We really don't want these opportunities for ourselves, or for our sons, our daughters, and our grandkids. I think the reason why we are los ing our smokestack industries to for eigners is that we don't want to work in smokestack industries, except maybe as accountants. To get us to go work in such places, factory own ers would have to offer us high wages that are just too high, compared to the wages that foreign workers are willing to accept. Quite frankly, those accountants who work in var ious smokestack industries in the United States have looked at our wage demands and have decided to shop elsewhere. When it comes to wage demands, we "have been weighed in the balance and found wanting."

This brings me back to our original topic: your worry about the loss of our smokestack industries. Why? Why not worry about something else? Try something new. World War III Are you worried about World War III? That seems like a reasonable fear. What if the Soviet Union uses its fleet to· cut off our shipping with South Africa, or the Middle East, or Venezuela, or a lot of other places? What if we can no longer import the things we need from "over there"?

1985 SHOULD AMERICAN BUSINESS GIVE UP SMOKING? 665 Then what will happen to America? There is no question about it, it is a bad thing to lose a war to the So viet Union. There is no question about it, the Soviets do appear to be planning to cut off the West's trade routes. There is no question about it, the massive coercion which is in volved in military conflict is painful, expensive, and fearful. But is this an argument to keep alive all of our smokestack indus tries? The free market says no. We, as buyers and sellers, keep telling the market that we want to buy our manufactured products from abroad. Well, not all of our manufactured products. Well, not even a sizable majority. About 16 per cent of our gross national product is involved in trade. Not all of this trade is man ufactured goods, either; a lot of it is the import of raw materials, such as oil. And of course our largest trading partner is (and always has been) Canada. I feel confident that the So viet navy will not soon cut off our shipping routes to Canada. Never theless, we do buy a lot of videotape machines from Japan. And 35 mil limeter cameras. And about 22 per cent of our cars.

In fact, when you think about it, the major threat to the U.S. by the Soviet Navy is the threat to im ported raw materials that we cannot produce in the U.S. I am thinking about things such as strategic in dustrial metals that only South Africa and the U.S.S.R. appear to have in abundance. That really has noth ing to do with our smokestack in dustries, except insofar as their own ers will be forced to close a lot ofthem ifthey can no longer buy certain crit ical industrial metals from the U.S.S.R. or South Africa. Now, if there really is some abso lutely crucial manufactured product that our military forces need to fight a war, then I have a suggestion. Let the military service which has de termined that this manufacturing process is vital to national defense set aside funds from its annual ap propriations in order to subsidize this critical industry. If that is the best judgment of the national de fense strategists, it can be put into effect at the time of the debate over the military budget. Let the gener als and admirals pay for the decision.

The Trek to Washington But I am suspicious-and remem ber, I specialize in suspicions about requests for Federal legislation. There are some increasingly uncom petitive manufacturing industries in this country that pay lobbyists to go toWashington and argue national defense, when they really mean "in efficient production methods" de fense. They are trying to get taxpay ers and consumers to finance a military strategy that the military establishment would not be willing to pay for out of their own budgets.

666 THE FREEMAN November Maybe the military experts really do need to keep the whole U.S. steel in dustry operating at full capacity. I have a suggestion: they can pay for this industrial strategy by reducing expenditures on military retirement benefits. You say that they don't really think the steel industry is that crit ical to national defense? Well then, please don't ask Americans who pur chase consumer goods to pay higher prices, so that American manufac turers can buy domestically pro duced steel which is produced by in efficient American firms, in order to finance a military strategy which the experts who are supposed to plan the nation's defense do not think is really that crucial to their strategic plans. There is no doubt in my mind that the world would be better off if there were no military aggression. Smoke stacks could then be distributed freely across the face of the earth in terms of economic criteria (including For Free Trade ecological criteria). If trade routes were open to all shippers without fear of aggressive navies, we would see a far more efficient distribution of smokestacks. The point is, mili tary considerations are important, but it is not the responsibility of free market institutional arrangements to support a hypothetical and un announced U.S. military strategy concerning industrial mobilization in time of war.

Conclusion I have no great attachment to smokestacks. I can take them or leave them. If they are competitive, and consumers by their unhampered vol untary purchases indicate that "our" smokestacks are better than "their" smokestacks, that is good enough for me. But at the same time, if consumers "vote" for "their" smokestacks in preference to "ours," then that is also good enough for me. It should be the decision of consum ers, not political planners. @J (DEASON LIBERTY IN every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry ofmerchants and manufacturers confounded the common sense of mankind. ADAM SMITH, The Wealth of Nations Classical Liberalism Reconsidered: A Symposium.