Trade protectionism and cartels threaten democracy

Andris Piebalgs, Member of the European Commission in charge of Development, went to Asunción to represent the EU in the ceremony of inauguration of Horacio Cartes, who was elected President of Paraguay in April this year. (EC Audiovisual Services 15/08/2013).

Andris Piebalgs, Member of the European Commission in charge of Development, went to Asunción to represent the EU in the ceremony of inauguration of Horacio Cartes, who was elected President of Paraguay in April this year. (EC Audiovisual Services 15/08/2013).

Trade protectionism is a very dangerous medicine for economic illnesses. On most occasions it is like a drug that kills the pain and the symptoms but at the same time it dilutes the possibility to cure the illness that causes them. If an economy loses its competitiveness in a certain sector or in the entire productive machine, protectionism is usually the first cure that the administration and the government put on the table.

Incidentally the European Commission published yesterday a report on trade protectionism across the world. According to it “There has been a sharp increase in the use of measures applied directly at the border, especially in the form of import duty hikes. Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”. It’s not by chance that in all those countries their bigger or smaller democratic deficit goes hand by hand with the protectionist attitude in applied economic policies. The common denominator is that all of them suffer from a pronounced ‘statism’ in politics and the economy.

At the beginning protectionism has no political cost internally because foreign producers do not vote in the country. On the contrary it ‘sells’ easily under a nationalistic banner. At the same time however it undermines slowly but surely the abilities of the local producers to become more competitive and stand out in local or foreign markets. Protectionism is also an addictive drug and usually the patient needs all the time increased doses.

Then a time comes when the commercial partners of the protectionist country decide to do the same. It’s not exactly a trade war but the consequences are equally devastating. At the end of the day international trade is drastically reduced and every country produces only for internal consumption using expensive resources and outdated technologies. The higher cost to produce more internally, leads invariably to a fall of the overall output after some time because consumers cannot afford to pay dearly for everything.

From protectionism to rationing

If the logic of protectionism is dragged to its limits then a large part of the home markets becomes ‘black’ with smugglers of cheap foreign products gaining the advantage. Then severe administrative measures are needed and the inadequate internal production ends up being rationed. This is the end and the country will soon collapse not only economically but politically too.

Argentine and Venezuela are the closest examples of this process. The monetary part of the Argentinian crisis was the last act in the sequence. After years of protectionism and inadequate internal production to cover the needs of the country and increase exports, the government tried to maintain artificially the parity of the peso with the dollar, in order to indirectly subsidize the internal consumption of imported products. A negative external account however brought soon internal monetary disintegration and crisis.

Still today Argentine is trying to restart its economy on the same protectionist principles and the small success it achieved during the past few years cannot be attributed to a betterment of the economy and an increase of internal productivity. It was the rise of raw material prices in international markets that helped Argentine, because the country is well endowed in this domain. But this blessed with abundant natural resources country can today barely feed its population.

It is true that the abundance of natural resources in many countries has become a ‘curse’, because it nurtures a rentier attitude to the local elites even to entire populations. In Argentine and more so in Venezuela this tendency led to ‘populist’ politics and semi totalitarian rule promising everybody to live as a ‘rentier’ on a public employ’s salary. In Venezuela where an army officer, the late Hugo Chavez, governed the country as President for fifteen years, promising everybody to live like a rentier. The result is that this country also blessed with huge deposits of oil, coal, bauxite and even gold to barely be able to feed its people. Both Argentina and Venezuela applied and still impose severe trade protectionist measures, while the governing elites cultivate also a chauvinist and xenophobic attitude in politics and the economy, to facilitate the longevity of their closed political systems.

Democratic deficit

All in all the free economic play needs also a free political system. The problem is that our world doesn’t suffer only of ‘statism’. Our free and democratic western economies are now threatened by the alarming trend for more and bigger monopolies and cartels in key industries. The latest acquisition of Vodafone’s operations in the US by Verizon for $130 billion stands out in this respect.

Protectionism and ‘statism’ in the developing world and monopolies and cartels in the West present increasing threats to democracy and the economic liberties.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Internet of Things: a Force for Good or Evil?

Preserving biodiversity vital to reverse tide of climate change, UN stresses on International Day

FROM THE FIELD: One teen’s journey from refugee camp to US school principal

Here’s how to bring agility into the boardroom

ACP-EU Parliamentary Assembly: strengthening the partnership

Hollande protects the euro from the attacks of extremists

Ebola fight ongoing amid evidence of ‘several massacres’ in DR Congo’s Ituri province

At last a solid base for the European Banking Union

Climate Change and Human Health: Two Faces of The Same Coin

6 ways to future-proof universities

A Sting Exclusive: Disaster risk resilience, key to protecting vulnerable communities

COP24: Paris agreement remained alive but fragile while the EU attempts to slow down CO2 emissions for new cars

FROM THE FIELD: Balancing act for Philippines farmers

Scientists have created biodegradable microneedles to fight eye disease

‘Unique opportunity’ to resolve border dispute between Sudan, South Sudan

EU growth in 2015 to be again sluggish; Can the Juncker Commission fight this out?

They won this year’s Nobel for economics. Here’s why their work matters

Renewal of cross-border aid operation critical to northern Syria: UN relief chief

Developing countries should not be liable for emissions ‘accumulated throughout history’, key UN development forum hears

Why enterprise risk management is the future for banks

The Commission breathless behind the horsemeat scandal

Eurozone close to agreeing on a Banking Union

JADE Romania Celebrates the 4th Anniversary

Cyprus Parliament says no to blackmail

African economies sustain progress in domestic resource mobilisation

MEPs propose more transparent legislative drafting and use of allowances

Moscow’s Eurasian Union lost significance after the crisis in Ukraine

African cities will double in population by 2050. Here are 4 ways to make sure they thrive

The refugee crisis seen through the eyes of a young doctor from Turkey

New identity cards deliver recognition and protection for Rohingya refugees in Bangladesh

Prosecution of Paraguay judges over peasant ‘massacre’ ruling could undermine rule of law: UN expert

EU to Turkey: No other ties than €3+3bn to upkeep refugees

This 12-year-old built an underwater robot to fight plastic pollution

Is the ECB ready to flood Eurozone with freshly printed money?

Syrian Government’s ‘different understanding’ of UN role, a ‘very serious challenge’ – Special Envoy

Germany is the world’s most innovative economy

Our healthcare systems are ailing. Here’s how to make them better

Terrorists potentially target millions in makeshift biological weapons ‘laboratories’, UN forum hears

This New York store is selling Christmas presents for refugees

Oslo leads the way in ‘Breathe Life’ campaign for cleaner cities in climate change era

Who really cares about the 26.2 million of EU jobless?

MasterCard at European Business Summit 2015: A focus on innovation will drive inclusive economic growth for Europe

Women vital for ‘new paradigm’ in Africa’s Sahel region, Security Council hears

This is the critical number that shows when housing breaks down

Venezuela: MEPs demand free presidential elections and an end to repression

Security Council downsizes AU-UN mission in Darfur, eying eventual exit

Draghi strives to control the unruly exploitation of financial markets by banking leviathans

Plastic is a global problem. It’s also a global opportunity

‘No country, no region’ can tackle global challenges alone says UN’s Mohammed

EU cross-border payments outside Eurozone: MEPs scrap excessive fees

Will Qualcomm avoid Broadcom’s hostile takeover post the 1 bn euro EU antitrust fine?

Hungary: Commission takes next step in the infringement procedure for non-provision of food in transit zones

Uncovered liabilities of €5 billion may render EU insolvent

Trump to run America to the tune of his business affairs

EU members commit to build an integrated gas market and finally cut dependency on Russia

End ‘cycle of violence’ in Gaza, UN deputy chief tells forum on Palestine

Protect women’s rights ‘before, during and after conflict’ UN chief tells high-level Security Council debate

German and French bankers looted the Irish and Spanish unemployed

Yemen update: UNICEF chief condemns attack in Taiz that claims lives of seven children

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s