A Closer Look at "Dumping;" S. J. Cicero

There are many reasons for selling merchandise at or below "cost." One of the most common is the attempt to secure a greater market share. Further more, a foreign market may be much larger than the home market, givingrise to economies of scale for goods shipped abroad which do not apply in the home market, so that even such price differen tials as these are not sure signsof predatory intent. Second, the sole purpose of production is con sumption. This means that goods not consumed are wasted, and represent a loss of profit opportu nity. In a competitive market, this prompts each manufacturer to concentrate on what he does best, Mr. Cicerois a computersoftwareengineerin California. and to continually improve his production tech niques to hold the competition at bay. Profit is the essential link that drives this process. The profit incentive encourages innovation, and reinvested profits enable innovations to be brought on line.

To operate deliberately at a loss is a risky strategy that, in the absence of government "assistance," can be kept up only for a short time. Third, while it is true that a country's govern ment may subsidize a favored industry, enabling that industry to outdo its rivals, this can be done only at the expense of other industries, rendering them less competitive. The net effect is to reduce overall productivity, putting the country as a whole at a competitive disadvantage. This is so because the taxation required to shift capital to the favored industry tends to reduce incentives in both the favored and the taxed sec tors. In addition, the act of collecting and distribut ing the tax is costly,with no offsetting increase in production. When the state diverts resources to its favored industries, the whole economy is rendered less efficient. Fourth, the "dumping" of goods into the Amer ican market benefits U.S. consumers, who enjoy lower prices and thus increased purchasing power.

The particular industry that competes with the cost-cutter does, of course, face a challenge. But rather than calling for tariffs and import quotas, a better strategy would be for the threatened com pany to cut overhead where possible, shift produc tion to more profitable lines, and emphasize qual ity and/or promote product differences when advertising. Given this, an industry which is still uncompetitive will contract in favor of its rival, freeing up workers and capital for more profitable and therefore more productive endeavors. If U.S. industries can't compete, it is largely due to misguided policies, both within the industries themselves and inflicted upon them by our own government. Before we blame Japan or Germany for our troubles, we would do well to get our own house in order. Taxation and inflation hurt our ability to compete, as do burdensome regulations. Pro-union legislation, pitting labor against man agement and nonunion workers, drives up costs.

Tariffs and import quotas, which enable a compa ny to continue operating in an inefficient manner, hurt overall productivity and thus harm con235 sumers. In the case of Japan, we are foolish to accuse the Japanese government of subsidizing their industries, when we subsidize virtually all of Japan's defense, thus freeing much of their tax rev enue for use in subsidies. Economic principles are always the same, whether we consider trade across national bound aries, state borders-or across the street. People benefit from unrestricted trade. Attempts to restrain trade always reduce overall prosperity, particularly for consumers who would otherwise find the imported goods less expensive. It would be helpful if we could remember that the Japanese people trade with the American people, to the mutual benefit of both. We are partners in trade with the Japanese, not adversaries. 0 THE JOHN TEMPLETON HONOR ROLL FOR FREE ENTERPRISE TEACHING The Foundation for Economic Education is pleased to anounce the publication of its descriptive survey detailing The John Templeton Foundation Honor Roll for Free Enterprise Teaching for 199 1.

Copies of the honor roll are available on request by contacting: Janette Brown The Foundation for Economic Education Irvington-on-Hudson, New York 10533 telephone: (914) 591-7230 fax: (914) 591-8910 236 BOOKS LORDSOF POVERTY:THE POWER, PRESTIGE,AND CORRUPTIONOF THE INTERNATIONALAID BUSINESS by Graham Hancock AtlanticMonthlyPress,19 Union SquareWest,11thFloor, New York,NY 10003 -1989 - 226 pages - $17.95cloth Reviewedby David Osterfeld F oreign aid has reached immense pro portions. If one excludes the billions spent yearly by private voluntary organizations such as the Hunger Project, Oxfam, and World Vision, and looks just at money raised by taxation and distributed by government agencies, the figure hovers around $60 billion a year. The budgets of most multinational corporations, including Stan dard Oil, IBM, Phillips, Nestle, and Volkswagen, pale in comparison. And yet this figure, Graham Hancock, a former aid worker for the British Overseas Development Administration, points out, doesn't even include the billions more in gov ernmentto-government loans, unless they are "soft" or concessionalloans. The question Han cock asks, and answers, in this explosive book is just whom is this "aid" aiding.