Companies & Industries

The Return of Protectionism


The G-8 meeting should have focused on the unemployment crisis, not climate change and free trade. Instead we get old-fashioned protectionism

The recent G-8 meeting in Italy was a failure, an event with an agenda looking for a purpose. While unemployment is the dominant issue in the West, reaching agreement on climate change and free trade dominated the talks.

Climate change is the great social democracy issue of our times, promising well-being while selling fear of the unpredictable and the hope that governments can protect people. It gets a lot of vocal support. But dealing with climate change is expensive. The developing world asked for $150 billion to do their part, but the G-8 refused to foot the bill.

On the other side of the traditional ideological divide stands free trade, the defensive line of free market loyalists. State capitalism, as practiced in China, has recently proven more effective in achieving growth than have free markets in the West. Private companies, especially the banks, are now trusted even less than public bureaucracies at preserving wealth. It was government guarantees that kept the banks going and—unlike many people in the private sector—civil servants didn't see their jobs disappear. But what keeps free marketers in the market of ideas is free trade. In the past 20 years, hundreds of millions of people were elevated from poverty and consumers enjoyed incredible buying ability because governments lowered tariffs.

Missing: New Ideas to Create Jobs

The problem with free trade, as with all ideas of its ilk, is that when taken to extremes it produces change that approaches anarchy. And the problem with climate mitigation, as with all socialist ideas, is that it costs money. The immediate problem with both ideas is that neither addresses unemployment in the West, which is the big problem of our time. Politicians are downplaying this, and for good reason. They are ashamed that they don't have any ideas about how to solve it. Central bankers prefer to fight inflation. After all, nobody was ever fired for trying to prevent a problem that hasn't surfaced.

The green revolution—attacking climate change—is the strategy of the left for creating employment. However, the dirty little secret is that in the short term only a trickle of jobs can be produced—and in the longer term, most of them will need to be subsidized. On the right, the strategy for dealing with unemployment has been to encourage innovation. However, this seems to have failed as well. After years of emphasis on innovation, competitiveness, and the like, the U.S. and the U.K. are each experiencing unemployment of about 10%, while unemployment in Spain is around 20%.

We are clearly at an impasse. The new jobs being created don't begin to make up for the jobs being lost. Companies die, but humans survive—unemployed with no prospects.

Protectionism Unites Right and Left

What is the next episode in the drama? History would suggest protectionism, an inflammatory word that G-8 cooperation was supposed to relegate to the dustbin of ideas. In fact, protectionism is already being practiced. According to President Barack Obama's new energy bill, products from countries that do not cap carbon emissions and trade carbon credits will face tariffs. Other countries came earlier to the party. Months ago the Chinese earmarked their huge stimulus package to help only domestic companies. Russia abandoned its ambition to join the World Trade Organization a year ago.

Significantly, protectionism is now bringing together the extremes on the right and the left. The former welcome it as a reinstatement of national sovereignty. The latter can practice it under the mantle of advancing climate mitigation, as the U.S. is doing. Protectionism is back as the main lever of policy against unemployment, without any of the G-8 governments admitting it. Protectionism—though not pronounced for reasons of political correctness—is written in the fine print of all bailouts, stimulus packages, and stabilization plans introduced by G-8 members.

There is still some hope. Employment has always been a lagging indicator of recovery. But because most of the lost jobs are not coming back, managers and policymakers alike must tackle the prospect of a jobless recovery as priority No. 1. If we fail in this challenge now, we will be confronting matters of national security next year.

A leadership consultant, Nikos is author of the book Purpose: The Starting Point of Great Companies and can be reached at Nikosonline.com.

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