The Mises Institute monthly, free with membership
November 1997
Volume 14, Number 11
To Market, By Jingo!
Sarah Foster
As the Cold War wound down, opinion elites discovered a new
menace: "unfair trade practices." These are the subsidies,
protectionist tariffs, and various regulations and business
practices other countries use, which hamper the export of
American goods.
A new threat, a new crusade, and this one in the name of free
trade. The people behind it view commerce as a war to wage for
access to, and dominance of, the markets of the foreign
countries. Victory is appraised in terms of the balance of trade.
The U.S. is supposed to export to a country the same dollar
amount we import from it.
A good example is the fight between Fuji and Kodak over film
sales in Japan. The U.S. says Fuji, a Japanese manufacturer, is
conspiring with Japanese distributors by giving them special
discounts that U.S.-made Kodak film cannot offer. The U.S. is
demanding that the Japanese government outlaw the discounts,
thereby giving Kodak a better chance for sales.
None of this implies that the U.S. has a similar obligation to
stop discount sales of U.S. companies at home. Let's say an
American shirt maker gives WalMart a discount for bulk orders of
shirts. The government of Singapore complains that Singaporean
shirt makers can't compete. Of course, U.S. trade officials would
dismiss the complaint, and rightly so. These officials have one
standard for the U.S. and another for everyone else.
Oddly, the people who complain the loudest about unfair
foreign practices are the biggest advocates of protectionist
policies at home. The theory is that we are not supposed to
import, but every other country in the world is under a moral
obligation to purchase unlimited amounts of our exports.
In this war, the Department of Agriculture is playing a major
role, particularly its Foreign Agricultural Service (FAS). "This
is not the time to get weak-kneed about American agricultural
exports," FAS head Gus Shumacher recently told reporters. "It's
time to stand up to our competitors. What are we supposed to
do--unilaterally disarm?"
Frankly, yes. The best way to help American exporters, and
boost the American standard of living, is to reduce production
costs at home by scrapping regulations, price controls, taxes,
and subsidies in this country, starting with the New
Deal notion that domestic prices and wages ought to be kept high.
After that, it's up to exporting businesses to find and
protect their own markets. The mix of jingoism and trade is
potentially explosive. It leads to an escalation of conflict and
unnecessary entanglements between business and government. There
is no economic or constitutional justification for this.
Of course, the government doesn't see it that way, and neither
do the recipients of subsidies and other perks. FAS s Market
Promotion Program (MPP) gives millions to well-heeled,
"non-profit" trade associations and agricultural cooperatives,
which in turn channel the money to a few private firms. Many of
them are Fortune 500 companies, who get paid for the cost of
promoting their products at taxpayer expense, with overseas media
campaigns, promotional tours, exhibits, in-store demonstrations,
posters, and market research. More recently, the program even
underwent a name change to Market Access Program (MAP); its
previous acronym inspired critics to dub it "More Perks Please."
Between 1986 and 1994, taxpayers forked over $1.25 billion to
hawk such items as Chicken McNuggets in Turkey, Gallo wines in
France, and KalKan dog food in Mexico. These giant companies are
more than able to pay the full cost for any advertising and
market research. Why go to the taxpayers? One rationale is that
this money underwrites marketing experiments a company might
otherwise be reluctant to undertake.
Indeed. Like the $1.6 million given to a Japanese underwear
manufacturer to advertise his product to Japanese consumers. U.S.
officials say it is intended as an incentive for them to use more
U.S. cotton. Then there was $3 million to the California Raisin
Board to promote raisin sales in Japan. The campaign bombed when
children were frightened by the animated figures of dancing
raisins.
In economic terms, the definition of "worthwhile" is
"profitable." If a company isn't willing to undertake a certain
advertising program, it is not worth undertaking. At best it is a
sheer waste of resources, and at worst an imperialist imposition.
The FAS was founded in 1954, although its roots go back to the
New Deal, but it had not played a very visible role before the
1980s. The first wide use was in response to a slump in
agricultural exports from 1981 to 1985. The slump was caused in
part by a strong dollar, and, more importantly, the price support
system that made it more lucrative to sell to the government than
to private buyers in other countries.
Storage warehouses were overflowing with rice, wheat, barley,
corn, and other bulk goods. Typically, rather than remove the
price supports, which would have solved a number of problems,
Congress created something new. To empty warehouses, the FAS
subsidized the exporters.
California's fruit and nut growers then claimed they too were
victims of unfair trade practices, and got a program. Then dairy
farmers wanted a piece of the action. Next were cotton growers
and sunflower exporters, all of whom were rewarded for their
complaints.
Today, the FAS maintains a worldwide intelligence network in
132 countries. And there are credit programs that FAS uses to
guarantee very low-interest loans to buyers in poor and
not-so-poor countries. When a buyer defaults, the American
taxpayers get stuck. These defaults will cost $5.5 billion in
1997.
The FAS has become a major tool of U.S. power around the
world, even while it helps keep political pressure off the U.S.
government to allow freer markets at home. For example, it
badgers Pakistan to buy U.S. cotton, while the U.S. keeps high
walls on the importation of final products.
To hear the government tell it, the FAS is in the business of
creating jobs; for every dollar spent, two to seven dollars in
sales result. Of course, we're in a war; and in war the first
casualty is truth. In fact, selling goods is the job of business.
Whether at home or abroad, it should use its own money.
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Sarah Foster is a California journalist
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