Gabriel Posted June 4, 2004 Report Share Posted June 4, 2004 Lately, I've been considering the role of the state. I'd like to share with you a scenario I've been examining: Let's say that CountryA starts subsidizes 55% of the cost of producing cars, therefore car manufacturers in CountryA can afford to cut prices with up to 50% Let us also supose, for clarity, that CountryA only exports cars to CountryB. CountryB is also a manufacturers of cars. There are 2 likely scenarios: 1) According to laissez-faire economics, the state of CountryB has no business intervening in import/export matters, therefore it will let the market realign itself: Car manufacturers in CountryB are unable to compete with the much cheaper products imported from CountryA, therefore they declare bankrupcy, their entire staff is fired and all their industrial equipment is sold abroad very cheaply, due to the influx of such equipment on the market. Basically, due to market condition, all car production shifts to CountryA, while the workers from CountryB retrain themselves for new jobs, emigrate or turn to crime. 2) The second choice is for the state of CountryB to have a protectionist/mixed economy reaction and increase import tarrifs to match, or excede, the price drop generate by CountryA's subsidizing. In this case, the scenario goes a little differently: The car manufacturing industry of CountryB will be protected and stable, but citizens of CountryB won't benefit from cheaper cars they would have otherwise got. CountryA's answer is to either drop the subsidizing, because it is unprofitable if sales cannot be boosted by exports, or match the tarrifs of CountryB and start a trade war. Considering this scenario, I'm not interested in the behaviour of CountryA's government, whose initial subsidies generated this situation. I'm interested in CountryB state's best response, considering its role. If the citizens of CountryB are agreeing with the Objectivist theory of the State, then they'll only require the state to protect their individual rights and not intervene in matters of economics. In this case, the results are: cheaper cars, on short term, at least until the indigenous industry goes bankrupt, a few thousand people unemployed, a statistical rise in crime and social upheaval and a major loss of capital in that country due to the selling of industrial equipment at low prices. If the citizens of CountryB are adhering to the mixed economy principles, according to which the role of the state is to provide a safety net againt social upheaval and extrem variation in living condition between individual and in time, then the results are as follows: The citizens of CountryB won't get cheapers cars. The car industry of CountryB won't go bankrupt. The situation is basically the same. We should also consider that the use of tarrifs doesn't imply any bugetary issues, since the government of CountryB doesn't have to divert funds to impose these tarrifs, therefore no tax payer money is used. The only thing which the citizens of CountryB are loosing is the opportunity to get cheaper cars, at least while the gov. of CountryA keeps its subsidies. Free market theory supports the idea that companies should fight it out, on the market, and let customers, prices and individual rights and decision generate the outcome. Unfortunatelly, when the state supports one particular company or groups of companies, the other companies are unlikely to survive. In an Objectivist state, the gov. won't be able to offer special treatment, due to constitutional restraits (if only they'd work), but how are citizens of capitalist state deal with foreign states supporting foreign businesses? Should the state be able to impose tarrifs and subsidies, to counter simillar foreign measures or even use them as bargaining tools? Would you give up some of your individual rights so that your local car industry doesn't go bankrupt, living much of your community in turmoil? In other words, would you pay for social stability? Is that a value for you? Is it in one's best interest, from an individualisting perspective, to adhere to a state where your taxes buy you not only protection for basic individual rights, but also a minimal safety net, so you can pursuit different interests in life without the constanty wory that the arbitrary decision of a collectivist state can ruin you? I haven't reached a conclusion on this issue, but I'm starting to lean towards minimal state intervention, only to prevent major social catastrophies, such as the collapse of entire regions or industries. I do understand that this might imply the violation of the rights of the other citizens, but this is only true if they don't agree with the policy of mixed economy. Much in the same way we use the state for collective millitary protection, could we profit from a state which is also concerned with collective economical protection? Is there a way for the private sector to address the issue of trade wars, without state intervention, and still follow market behaviour? Quote Link to comment Share on other sites More sharing options...
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