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Why Protectionism is a Fools Paradise

I'm going to discuss the economic institution called protectionism. How that is inherent in Intellectual Property rights(aka IP) and what its effects on the general macro economy are. And I'll forecast confidently how those benefiting from it will resist the analysis fiercely, devoting a great deal of intellect and capital to that resistance.

We're not saying protectionism is either a good or bad thing. We are just pointing at it for you to analyse yourselves and decide. So please do not project any 'terms of endearment' onto us. Just look at it as independently of worldview as possible. Its better done in a quiet moment after taking a deep breath.

Protection in the economic sense, is where your business gets privileged help from the state, so that other business are prohibited by law from competing with your business, under free conditions. 

It comes in several forms. The form most widely discussed but the smallest in value is Intellectual Property. The largest form is taxation of sales, typically as a border tariff, or within borders a tax on the sales of goods and services to protect your own people from themselves. Economically all forms of it deliver an 'economic rent' to the beneficiary much like state provided welfare.

Its important to recognise that a business which receives these state benefits, also has other income which is 'earned'. That is, they have committed the inputs of labour and capital for the outputs in profit, and this is certainly a good thing and by rights belongs to them. And in contrast to IP this income indeed should be protected by the law, simply by abolishing the institution of protectionism. But this earned income is not what we're talking about. We're talking about the un-earned income in IP. It's an easy thing to separate the rent seeking from the capitalist profit.

Who pays for these state benefits or some might say 'corporate welfare'? Astonishingly no one seems to care that un-earned incomes received from protectionism must be a socialised cost to a nation. Because the law costs a lot to uphold. And the costs of these protected benefits are paid in full by the hard work, skill and free enterprise of anyone who does not receive them. So, everyone, except the beneficiary must pay for it, by force. Or do we all know this very well already and secretly aspire to the protection ourselves one day and this is the reason no one places it under proper scrutiny?

Following are some questions to ask a rentier seeking protection from the middle class:

  • On intellectual property, why the need for this protection, if so brilliant an entrepreneur and innovator. Surely your invention is unbeatable already?
  • If you worry that your IP is quite beatable, then why don't you welcome the better version as soon as possible for the world, rather than seek the benefits of protection from the state?
  • Why the sudden concern about others using your idea - you already did this to those before you. Who did not apply for protection or do not have the capacity to fight it in court? Sure, that is their problem. Nonetheless, you sought protection yet you're claiming innovation and free enterprise.
  • Is this really your lack of confidence. Are you worried that others who are smarter than you, will soon have your poorer quality idea shelved anyway, and quickly develop a much better version?
  • Or do you believe that no one else will ever think of a better way of doing things than you, a historic first, in which case why seek protection?
  • Image a situation where protection is the general case for every business. So that every business receives the benefits at zero cost to their personal economy and full cost to political economy. An inevitable great recession must be priced into the economy by virtue of its own policy? Wait... is this not where we are today?
  • Imagine how high an economy would climb if there were no protectionism like this - for new ideas, for goods and services, on sales within and on our borders, for greater revenue and larger tax base?
  • Could a market still be cornered without protectionism. Could monopolies like Big Tech still emerge if the institution of protection were abolished. Think about it, no complex and difficult new policy needs to be formed. Parliament simply 'burns the pieces of paper' which originally made it law?

Free from protectionism, especially in IP, would truly great people find it easier to rise to the top. Would they actually start trying again after 40 days in the wilderness. 

Leadership of purity and thrift might regain its foothold in our societies.