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Great ideas: unintended consequences

By Henry Lamb
web posted July 14, 2008

It sounded like such a great idea: a minimum wage for all workers – enforced by the government.  During his first 100 days in the White House, President Franklin Roosevelt and a Democrat-controlled Congress enacted the Industrial Recovery Act, which established the minimum wage and guaranteed labor unions the right of collective bargaining.  They enacted the Agricultural Adjustment Act, which started farm subsidies.  Social Security, including unemployment insurance, was added in 1935.  These were seen to be wonderful solutions to the effects of the great depression of the 1930s.

It sounded like such a great idea: a safe work place for all workers – enforced by the government.  Republican president Richard Nixon introduced the Occupational Safety and Health Act of 1970, which Congress quickly enacted.  This law was designed to protect all workers from harm in the work place.

It sounded like such a great idea: an environmental impact analysis before land could be developed– approved and enforced by the government.  The National Environmental Policy Act sailed through Congress in 1970 putting government in charge of specifying how, and if, private land could be developed.

It sounded like such a great idea for government to retain one-third of the nation's land for the federal government, rather than to continue disposing of the land to state and private interests.  By keeping the land, the federal government could manage the land's resources and earn needed revenue by charging private interests royalties for the use of the resources.

It sounded like such a great idea: no net loss of wetlands – enforced by the government.  Republican President George H.W. Bush established this policy that required private land owners to set aside an equal or greater area of land to compensate for any wetland that development might affect.

These and many, many more similar "great ideas" are the reasons why the economy is in a downward spiral, why jobs have been flushed into foreign countries, and why factories are standing idle in every state in the nation.

The simple fact is that American producers are constrained by "great ideas" such as these; and producers in other countries are not. 

James Copland, chairman of Copland Industries and Copland Fabrics of Burlington, N.C., says that curtains imported from China sell at retail for less than his cost of materials.  How can this be?  The Chinese companies are not forced to pay a minimum wage; they are not forced to pay overtime; they are not forced to pay for unemployment insurance. They are not required to spend years and millions of dollars on Environmental Impact Statements, or comply with OSHA standards.  Consequently, Copland says, nearly 80-percent of the fabric industry has moved offshore.

What a dilemma!  Americans love all the "great ideas" Congress has enacted over the years.   Americans also love the low prices of imported merchandise.  But they hate the fact that jobs are flowing off shore, to countries that enforce no "great ideas" that drive up production costs.

America cannot force her trading partners to impose on their manufacturers, all of America's "great ideas," with their attendant increases in production costs.  America is not about to abandon all the "great ideas" enacted by Congress.  Consequently, American manufacturers cannot compete in America, so nearly 80-percent of the fabric industry has moved off shore.  This same situation applies to furniture, steel products, electronics, and almost everything else. The absence of standards on imported goods has flooded America with inexpensive merchandise that all too often includes toxic food, toys, pet food and other products.    

The underlying problem is this: what politicians call "free trade," is not free trade at all.   It is managed trade.  The government "manages" and manipulates domestic production costs through the enforcement of all the "great ideas" it has imposed.

The so-called "free trade" agreements, such as NAFTA, CAFTA, and others, exacerbate this problem by opening the American market to foreign goods without requiring foreign producers to meet American production standards that include all these "great ideas" American producers are required to meet.

This process of globalization is great for China, India, Mexico, and the other developing nations that flood our markets with their goods.  But as the economic tide rises in these nations, it ebbs in the United States. 

The economy has become the top issue in the upcoming elections.  McCain wants to expand the NAFTA "free trade" model; Obama wants to renegotiate NAFTA.  Neither will solve the problem because they treat only the symptoms of the real problem.  The real problem, of course, is excessive government intervention in the market to achieve social objectives.  Both candidates embrace the flawed notion that government's job is to manage markets, and the affairs of its citizens. 

This backward thinking can only continue to destroy the wealth-making machinery that must continue to move to other nations – or simply shut down operations. ESR

Henry Lamb is the executive vice president of the Environmental Conservation Organization (ECO), and chairman of Sovereignty International.

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