Wednesday, February 4, 2009

Protectionism vs liberalization

Read an aritcle recently on protectionism where a country protect their infant industry by imposing high import duties to products of similar nature from competing with the locally made products.

This is evidence in Malaysia where car industry, for example, is protected by high import duties and approved permits (AP, where only AP holders are allowed to import cars at a quota).

Since 1980s, the then Prime Minister Mahathir Mohammad driving the nation to industrial age by creating the first car manufacturing industry, Proton.

Proton was given preferences and priority when the nation formulated it's economic policy.

This is a clear example of protectionism where industry are protected and hence enjoy extraordinary benefits as compare to other industries. The benefits includes low cost on raw materials, high selling prices yet lower than competitors' artificially created prices due to unfair import duties and restrictions on number of units to be imported.

The government, when defending their move on protectionism, also giving the excuse where local industries is to be cultivated and nurtured before it faces competition. Eventually the consumers are the one who stand to loose as they are forced to pay higher for often sub-quality products.

This, it is the consumers who protects the industry, not the government as claimed by many.

But is this the best way to cultivate a given industry?

Should the nation suffers for an industry or two just because they need to be protected?

Let's look back on how Spartan train their kids. Upon growing up to a certain age, the kid is thrown to a jungle and if he survive, he is declared as a grown up man, else he is not fit to live on earth.

We may not go to this extreme but we shall review whether we need protectionism to maintain our industry?

If the given industry is too costly to maintain, shall we still go on to protect them and consumers in turns paying thru their nose?

If there's no barrier for foreign products to compete with the local products, the local manufacturers will either do their best to improve the quality of their products; or they failed and be eliminated from the game. This may sound cruel but it is the game of survival that we are talking about. Instead of dragging the whole nation, like what was happened to India until the 90's where most industries are protected, at the expense of the people, we should allow our industries to face the real world instead, and it should not cost the nation generations to pay for the industries.

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