In response to a slew of recent e-mails, few of which I have time to respond to individually, I here repeat – using slightly different words – a point that I made earlier.
Buyers will not bind themselves in this way in exchange for nothing.
No law or legislation prevents businesses from demanding, as a term of their selling outputs to consumers, that consumers continue to patronize these same businesses for a minimum number of years – or, indeed, until death (or bankruptcy) do them part. No law or legislation prevents workers from demanding, as a term of their agreeing to work for employers, that employers continue to employ these same workers for a minimum number of years – or, indeed, until death (or bankruptcy) do them part.
Of course, for, say, General Motors to persuade buyers to agree to this contract term, it will have to offer to sell its cars, trucks, and vans at exceptionally low prices. Buyers will not bind themselves in this way in exchange for nothing. And for auto-workers to persuade General Motors to agree to this contract term, they will have to offer to work at exceptionally low wages. General Motors will not bind itself in this way in exchange for nothing.
Why Long-Term Commitments Are Rare
And yet, we see very few contract terms of this sort. The most plausible reason we see so few such terms is that the costs to buyers of so contractually binding themselves to patronize sellers long into the future are greater than the benefits of any price concessions that sellers are willing to offer in exchange for such a contractual commitment from buyers. Put differently, the benefits to sellers of securing such long-term commitments from buyers are not worth, to sellers, the amounts that it would cost sellers to secure such commitments from buyers.
But these workers chose instead, in order to be paid higher wages today, not to seek such employment guarantees.
This fact implies that the benefits to sellers of securing such commitments from buyers are less than the benefits to buyers of the maximum reduction in prices that sellers are willing to offer in order to secure such commitments from buyers. Were this reality different – that is, were the benefits to sellers of securing long-term commitments from buyers greater than the costs to buyers of contractually binding themselves to long-term commitments to sellers – then we’d witness many sellers (firms and workers) purchasing such commitments from buyers (customers and employers) with offers to sell at lower prices (in the case of firms selling their goods and services to consumers) and to work at lower wages (in the case of workers selling their labor to employers). But, again, we witness in reality very few such contractual arrangements.
No Right to Complain
This above reality is one reason why workers have no ethical or economic right to complain about losing jobs to other workers, be they foreign or domestic, or to mechanization. Likewise, this above reality is one reason why firms have no ethical or economic right to complain about losing sales to other firms, be they foreign or domestic, or to mechanization.
Domestic steel workers, for example, could have extracted as a term of their labor contract a commitment from steel producers to keep on employing these workers for some minimum number of years or even decades. But these workers chose instead, in order to be paid higher wages today, not to seek such employment guarantees given the price that such guarantees would have cost these workers in the form of lower wages. Likewise, domestic steel producers could have extracted as a term of contracting with steel buyers a commitment from steel buyers to keep on buying these producers’ steel for some minimum number of years or even decades. But these domestic steel producers chose instead, in order to be paid higher prices today, not to seek such long-term purchasing guarantees given the price that such guarantees would have cost these producers in the form of lower prices.
Protectionism is akin to changing the rules of a game in the middle of a game. It’s unfair. It’s unproductive.
Yet too often when buyers shift some of their patronage from domestic producers to foreign producers, domestic producers – both firm owners and workers – insist that the state is morally obliged to force buyers to continue to purchase their products and their labor without any reduction in the prices and wages charged by sellers. These producers greedily and falsely insist that it’s bad policy for the state to allow buyers to shift their patronage to other sellers. Because those other sellers happen to be located abroad – or in the case of immigrants happen not to have passports issued by the domestic sovereign – such greedy and false insistence by domestic producers and workers is remarkably seen as legitimate, despite the fact that there’s nothing remotely legitimate about such insistence.
Tariffs and other forms of ‘protectionism’ are means of forcing buyers to act and to pay as if they agreed to terms of contracts with sellers that these buyers never agreed to and that the sellers who benefit from the protectionism were unwilling to pay for in their contractual dealings with their customers.
Protectionism is akin to changing the rules of a game in the middle of a game. It’s unfair. It’s unproductive. It’s theft wrapped in flags, and too-often faux-sanctified by specious theorizing.
A version of this article was first published by Cafe Hayek.