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Job creation in the global recession: A challenge for us and many others
Handri Tanjung , Islamabad, Pakistan | Fri, 03/13/2009 11:50 AM | Opinion
Finance Minister Sri Mulyani Indrawati recently warned that protectionism
during this global recession would harm both the national and global economy.
“Indonesia continues its attempt to fulfill international commitments and hopes
all countries will do alike. By killing the flow of international trade all
countries will feel the effects,” she said.
She stressed the message to the 15 new Indonesian ambassadors present at her
office on February 3. She also asked them to increase cooperation on bilateral
trade.
Similar statements were made by Pascal Lamy, director general of the World
Trade Organiza- tion (WTO). He said, “If you start killing imports, you will
kill exports”.
The argument is obviously comprehensive. If one country reduces its imports by
imposing high tariffs, it will spoil other countries’ exports. And if all
countries do the same, trade will come to a halt.
Britain’s business secretary, Peter Mandelson, also warned that “protectionism
would be a sure-fire way of turning recession into depression”.
The “Buy American” provisions in the US$819 billion stimulus bill passed by the
US House of Representatives on Jan. 28 have proved that “protectionism” is not
wrong at all, although it will reduce free trade.
The Senate went further, requiring all stimulus funded projects including
highways, bridges, energy grids and school to use only American-made steel,
iron and goods, even if they are more expensive.
Since Chinese steel is cheaper than American steel, steel factories in some
cities like Indiana, Ohio, Pennsylvania and Alabama have been running at only
45 percent of their capacity.
The impact will be that many people lose their jobs. This act will convey to
the world that there is no longer free trade. It seems that the sentiments
defeated rationale.
The sentiment ignores efficiency if it creates unemployment in the country. If
we count unemployed people in the US, the amount will be 2.6 million in 2008
alone. So, the reason why America resulted to this protectionist measure was
very realistic.
Other countries have attempted to do the same. French trade unions attacked
President Nicolas Sarkozy, demanding both public and private-sector jobs be
protected.
In Germany, Ernst & Young indicated that 78 percent of small and medium sized
companies favored the state embracing “protectionist measures” to shield them
from the global recession. Russia has increased duties on imported cars by 20
percent. Many other countries have followed suit.
Referring to the stimulus bill, Japanese prime minister Taro Aso said, “we will
resolutely fight protectionism”.
What has been said by premier Taro is indubitable. In an autarchy system, when
there is no trade between countries, the price of a commodities will be higher
compared to the price in free trade.
In other words, there are gains from free trade to involved countries. If a
country tries protectionism then all countries will be affected and as a
reaction, they too will result to protectionism.
At the end, the effect on a given country’s economy will be detrimental because
of market inefficiency. This is what the theory says. But when we put into
practice, there are so many factors which fly in the face of the theory.
Prior to that, in July last year, The New York Times reported that the US
refused any kind of protectionism, which caused the Doha Round of talks to
collapse after seven years of negotiations.
India and other developing nations proposed protecting sensitive agricultural
products from competition in the event of a surge of imports which would harm
their own farmers.
The United States argued that such protectionist measures, which are now not
permitted, would mean moving backward on current world trade commitments.
Responding to the US, Indonesian Trade Minister Mari Elka Pangestu said the
failure of the talks reflected the inability of the rich industrial powers to
deal with the growing influence of China, India and Brazil in the global
economy. She complained that what she called, “a reasonable request,” had been
blocked because the United States, “is not going to show flexibility.”
In a situation when America protects their market and other countries begin to
do the same, should Indonesia maintain its international commitment to free
trade?
This question is not easy to answer, and it is not simple to maintain the
commitment in view of the fact that global financial turmoil has hit every
country. If we uphold the commitment in a lieu of protectionism, unemployment
will explode.
Most developed countries have closed their markets to our exports; our exports
will decline. The firms will reduce their production and ultimately,
unemployment will increase.
If use protectionist measures in the short run, we have to bear the costs,
which in the future will be felt by the tax payers.
This is a lesson from American experience. In rebuilding the San
Francisco-Oakland Bay Bridge in the 1990s, the use of domestic steel was
required by the California transit authority, even though it was more costly
than imported steel. Because of the abundance steel used in the project,
California taxpayers had to pay $400 million more for the bridge.
But we have to make combating unemployment the first priority. As other
countries have done, we should provide incentives to our economy. The reason
is simple; human beings are more valuable than wealth.
We sacrifice wealth for human lives and not the reverse. President Obama was
right when he said that the enticement was aimed at creating jobs and reducing
unemployment.
Furthermore, he stated that this kind of inducement was a short term investment
for maintaining equilibrium in the long run. There is also the fear that we
cannot solve unemploy- ment the long terms costs will be greater.
So, what American did is understandable and could be followed by Indonesia.
Indonesia should initiate a more tangible stimulus bill than the unsubstantive
Rp 71 trillion ($6 billion) currently on offer.
Another way to create jobs is to engage in beneficial trade. This can be done
through bilateral trade. We should cooperate with other countries with a
spirit of “helping each other”.
Indonesia for example, can ex-port furniture made from wood, bamboo and rattan
to Pakistan because Indonesia is rich in forest products and Pakistan cannot
afford those products from its own resources.
At the same time, Pakistan can export leather products like jackets, shoes and
so on since Indonesia lacks the necessary resources to make these products.
Many other export products can be traded between Indonesia and Pakistan. If
each country can boost exports based on beneficial trade, both sides will
create more jobs and ultimately will get better economically. A similar spirit
can be made with other developing countries.
Therefore, what Indonesia should do is to apply the concept of beneficial
trade. Instead of competition, we should build our trade relationships based on
regional cooperation in which economies of all participating countries will
improve.
The writer is PhD Economic scholar, International Islamic University Islamabad,
Pakistan.
