Because the White House wants to bring the United States more production with its bludgeon of a disastrous rate policy, most economists have focused on the short -term hits for the profitability of American companies.
It is more difficult to imagine how a protectionist policy does such corrosive damage in the long term, because we may never observe what could be there.
In its history, the United States has been the place where people try out new ideas and take risks. It is a better place to fail and try again than any other country in the world. In recent years we excelled in retail and distribution, in many cases that can handle heavy production other countries. But our central comparative advantage has always been fresh new ideas like nowhere else in the world.
In 1998, former Federal Reserve chairman Alan Greenspan spoke the faculty at the University of California with a question: “Is there a new economy? “His fascinating observation was that creative destruction leads to the GDP of the United States that weigh less over time. Better for a new customer. This is part of the reason why we have evolved into services and away from production.
The White House rate policy is intended as a time machine, which apparently brought back well -paid and heavy production jobs as we had in the 1950s. But it is a time machine that keeps a society frozen in Barnstige, never evolves or improves because the manufacturers have much less competition. For some Americans like me, a trip to Cuba offers a window on how life would have been if cars had never evolved- the American taxis from the 1950s who still use the streets in the streets with none of the modern characteristics of safety, ergonomic design and computer support, due to a 60-year embargo on trade.
But India offers an even better comparison, because Cuba has never made cars. The Hindustan ambassador, built in India between 1957 and 2014, is perhaps the worst car ever built, from a perspective on serving the wishes and needs of consumers.
The idea of India, just like President Trump today, was to build cars in India to create domestic production paths. However, as soon as a government decides to which industries to protect and give special exceptions (see the case that Apple receives a postponement of iPhones from rates), it is a smooth slope about how involved the government is involved in industrial production.
The Indian government decided That, not the free market, it was most suitable to choose which aspects of the economy needed protection against foreign competition. Apart from trade protection, a Industrial licensing system kept private companies under control, and it required all private companies outside of a certain small size to obtain a license when they wanted to do something, such as moving a factory, expanding capacity or producing new products. The system therefore placed the activities of the private sector under considerable control over the government.
This protective argument for ‘baby industry’ enabled the Hindustan company to crawl ahead with slow changes, even while other car companies sprint forward with new functions such as cruise control, air conditioning and disc brakes in the early 1960s.
By 1990, the ambassador was miserably behind his counterparts built abroad. After 33 years under the oppressive regulations and trade protection of India, it was lacking in Power-String and Braking, as well as an automatic transmission. One BBC reporter noted that:
YOu needed really strong triceps to edit the ridiculously heavy control, the agility of a surgeon to throw home the spot column shift in each gear (shifted from the second to third gear was an art form) and immense strength to stop the car – you almost had to stand on the brakes.
The car constantly broke and India forbade foreign parts, so instead improvisations of poor quality had to be built. In the summer the heat would close the car and owners should put a wet cloth on the fuel pump to cool it before they could be on the road.
The car was so slow That a person could probably avoid it for a while- accelerated the car from zero to 60 km / h in just under 50 seconds, which fell approximately the length of a runway in the airport. The top speed was 65 mph with its smoky diesel engine that spits on harmful smoke from the exhaust. And the leaf springs resulted in a hard ride, not unlike a horse car from 1800.
In a country of nearly 1 billion people, the ambassador sold only around 24,000 vehicles per year at its peak, making this terrible car only available for the well -connected. For the relatively rich, the waiting time for a new ambassador was just over 8 years at its peak. But Prime Ministers, bureaucrats and MPs came to the head of the line with specially equipped cars. Taxi drivers were the following on the list.
It was not all fault of the car company. Under the oppressive regime that regulated many aspects of the free market, car manufacturers could not increase the prices or make more cars without getting a government bureacrate. They could also not import technology from other countries.
By 2014India had foreign car companies on the market and only 2,214 ambassadors were sold. By that time, the productivity of the factory was taken and the company was saddled with debts. After 56 years, the car that was never modern stopped production.
The ambassador serves as a reminder of the dangers of the rate policy. It puts a country on a different track where the government, not the free market, dictates what people need and want, and under what time frame it delivers the goods. In the absence of the threat of losing customers, car companies with tariff protection are inclined to behave more than the Ministry of Motor Vehicles. That is a loss not only in the short term, but for generations of potential entrepreneurs and customers who come.
A popular television commercial for the Peugeot 206 made by Giovanni Porro, known as “The Sculptor”, concerned a young Indian man who deliberately damaged a Hindustan ambassador (including having an elephant on it) and then spending the night welding. The next day the car appeared as a thinged replica of the outdoor shape of the 206, to the great envy of his friends.