"Good" Protectionism? Perhaps not...

There was this article on Straits Times which I wanted to reply to, so much so that I started drafting my reply to it. That is, until I realised that as a public servant, I'm not allowed to write to the public without seeking clearance internally. So let my draft response lying gathering dust, until today, decided to finish it up, and post it. Hey, no point wasting those brain cells, man.

First the actual article...

March 2, 2005
Protecting jobs?
It may not be a bad thing
by Chua Mui Hoong

ADAM Smith, the 18th-century proponent of the free market, would have turned in his grave.

The dreaded 'P' word popped up repeatedly yesterday, on the second day of debate on Budget 2005.

Several MPs wanted measures to encourage employers to protect jobs for Singaporeans, especially older workers; measures to favour Singapore companies in government procurements; and measures to get consumers to 'Buy Singapore'.

Issues of protectionism of one kind or another cropped up at least half a dozen times in the seven-hour debate.

There was the stark warning by labour MP Halimah Yacob (Jurong GRC) that unless something is done for the legions of 40-somethings laid off one job and told they are 'too old' for another, pressure will mount for legislation to prevent discrimination against older workers, as in Australia.

Then opposition MP Chiam See Tong (Potong Pasir) jumped in with a call to have a minimum wage for 'dirty' jobs, so workers will want to take them up.

Dr Amy Khor (Hong Kah GRC) echoed a call from participants of a feedback group recently which advocated a 'Buy Singapore' campaign to boost demand for local goods and services.

Consumers and government agencies alike should be urged to 'Buy Singapore'.

'I urge the Government not to view this as protectionism, but rather as a means to nurture our SMEs,' Dr Khor said.

Mr Chay Wai Chuen (Tanjong Pagar GRC) wanted incentives to encourage companies to redesign jobs.

He said: 'Tax breaks can be given for effectively employing more Singaporean workers and raising productivity. Favouring local content and raising productivity are not sins of commission even in a globalised market economy. They make good sense.'

The fact that some MPs chose to advocate some form of protection of jobs for older workers is a sign of the severity of the problem.

In Singapore, only 25 per cent of those aged 60 to 64 hold jobs. Among those above 65, only 18 per cent are employed. In Japan, the figures are much higher: 55 and 29 per cent respectively.

But how feasible is it to reserve jobs for this group?

MPs were not slow in coming up with a range of creative proposals to encourage employers to hire older workers.

Take the suggestion from Mr Chay to give incentives to companies to redesign jobs, and Mr S. Iswaran's (West Coast GRC) call on Monday for double tax exemption on older workers' salaries.

Both of these have the advantage of using free market principles to protect jobs, and are what I would call 'good' protectionism (if such an oxymoron can be said to exist).

Fiscal tools like these are flexible in spurring companies to innovate, yet not too burdensome on the economy as a whole.

Good protectionism allows market forces to play out in the larger arena, but targets specific sectors, or jobs, with measures.

For those who may decry any labour protection as distortion of the market, let me just point out that the labour market in Singapore, with its state-mandated provident fund contribution by employers and complex system of levies and quotas for foreign workers, is not exactly free.
Even Nobel prize-winning economist Robert Solow has acknowledged that the labour market cannot be judged on purely economic considerations because of issues to do with equity and fairness.

Bad protectionism, in contrast, seeks to impose blanket bans or requirements which stymie the profit motive or work incentive.

An example would be banning the hiring of foreign workers in the retail sector, to force companies there to hire older workers.

Ms Ho Geok Choo's (West Coast GRC) well-meaning proposal on Monday to require those vying for government contracts to hire older workers, is another example of bad protectionism, because it imposes an additional cost on contractors which will ultimately be passed on to the purchasing Government.

Good protectionism, in contrast, will reward companies for hiring older workers.

A tripartite committee has been set up to look at ways to help older workers stay employed.

In addition, several MPs have proposed that a multi-agency committee of relevant ministries be set up to address the needs of the older Singaporean.

Setting up a committee is an easy task.

Coming up with workable solutions that save some jobs for older workers without crowding out efficiency or investment, is the tough part.

To Chua Mui Hoong,

This is in reference to your piece, "Protecting jobs? It may not be a bad thing" that appeared on 2 March, 2002, in response to various calls by MPs to implement various protectionism measures to protect jobs of the elderly, etc.

Your article suggests that "good" protectionism measures "have the advantage of using free market principles to protect jobs" and "are flexible in spurring companies to innovate, yet not too burdensome on the economy as a whole."

I may not have studied economics formally before but I do disagree with your point.

First on the issue of protecting the jobs of elderly. Although not stated explicitly, the article seem to support measures to protect the jobs of elderly using "good" protectionism. However, it would seem like any measures, "good" or "bad", to help the elderly retain their jobs would on the hand deprive the rest of the working population jobs, if the job market is not similarly expanded. Employers in choosing to let go an older worker versus retaining a younger one does so in consideration of the economic benefits of doing so. Thus, in addition to shifting the disgruntleness from the elderly to the general population, protectism (of any kind) would also increase the operating costs of the employers.

The other labour pool to "protect" the elderly from would be foreigners. Creating disgruntled foreigners in this case would probably be fine, at least for us Singaporeans, but this does seem to go against our policy of attracing foreign talent. Besides, the types of jobs that the elderly are losing are not quite those that foreigners are taking over.

It would seem to me then that the ensuring jobs for the elderly should not lie in a noble yet simplistic mission to "protect" their jobs but in enlarging the job market through growth of the economy, and in job restructuring to make hiring the elderly as attractive as, if not more than, hiring foreigners (and possibly even younger generations).

A second, more fundamental, point I wish to make is regarding your article's distinction between "good" and "bad" protectionism. It implies that "good" protectionism consists of providing incentives for companies to act in certain ways (hiring elderly in this case) while "bad" protectionism involved banning or increasing the costs (e.g. taxes) of doing the undesirable (not hiring older workers, in this case). Well, I feel that "good" protectionism is not necessary such a good thing for everyone after all.

The provision of incentives to companies would come at some cost to some other entity, i.e. the government, through providing tax breaks, etc. This incentive to the companies (and cost to the government) to hire older workers would have to be at least as high as the cost incurred by said companies if they were instead taxed for not hiring older workers. This cost would be paid for in terms of increased taxes by the government on the people. In other words, the average person on the street is paying companies to hire older workers, including those younger ones who lose their jobs to the elderly. I think people usually forget that the government doesn't actually make any money, but simply move money from one group of the population to another.

I would also like to argue that the final costs to the society of "good" or "bad" protectionism is prety much the same, and could possibly be worse.

Case 1: To illustrate, if a company incurs $5 more in hiring an older worker as opposed to a younger one, e.g. higher expected income, slower productivity, etc, it would need to be incentivise with at least $5 to hire the older worker. This $5 comes from the government, and ultimately you and me in terms of taxes. Net result: employed older worker, unemployed younger worker, unhappy you and me (for higher taxes), and a neutral company (remember that the $5 the company gets compensates for the higher costs).

On the other hand, if "bad" protectionism is implemented, what would have been the amount needed to tax the company to "force" it to hire the older worker? Well, at least $5, too, or otherwise, the savings from hiring the younger one would more than compensate the tax.

Case 2: If the company chooses to go ahead and hire the younger one, good for us! That $5 that company pays as tax to the government would (presumably) be used to fund programmes to benefit you and me. Net result: umemployed older worker, employed younger worker, happy you and me (because of increased programmes), and unhappy company (for paying the $5).

Case 3: If the company chooses instead to hire the older one to avoid the tax, that is not cost-free, too. Remember that the company would incur $5 more in hiring the older worker as compared to the younger (otherwise, there wouldn't have been a need to incentivise them). Net result: employed older worker, unemployed younger worker, neutral you and me, and unhappy company (for having to incur the $5 cost).

So if the end result is to ensure the older worker is employed (at the expense of an unemployed younger one), i.e. comparing case 1 and case 3, it is merely a difference of whether you and I are unhappy (case 1) or the company is unhappy (case 3).

And I had discussed the issue of whether it is good to deny the young employment at the expense of the elderly.

My point is that the cost of the "good" vs "bad" protectionism is the same. The only difference is who pays for that cost. In fact, "good" protectionism may not be that good. The tax burden is shifted from one company to every single individual, not exactly a popular move.

I also want to add that protectionism of any form is bad. Whether through incentivising companies for desired behaviour or taxing them for undesired ones, to take my illustration above further, the economy would have lost $5 either way, if we desire the end result of an employed older worker. In case 1, net loss is $5 taxed from the whole population. In case 3, , the company, in avoiding the tax, would have lost $5 due to greater cost in hiring the older worker. Only in case 2, in which the company ignores the tax and hires the younger one, would it balance out, i.e. $5 from company goes to us. Why? Simply because the fundamental problem is not solved - older workers incur greater costs. And that is the issue that needs to be tackled, not whether to protect there jobs or not. Which was the very first point I was making.

Okay, there it is. Welcome comments, especially from those trained in Economics. Well, at least from those who had the patience to read through the entirety. :-)

Virgin Territory

Well here I am. Yet another foray by yours truly into the untamed wilderness of the internet. Since the advent of the web, I've taken the occasional dips. Can still remember the first website that I did, which then languished in obscurity for eternity. Wonder if it's still floating in the internet limbo anywhere? Wonder if that would also be the route taken by this blog?

Of course, there are the somewhat more successful web presences on Fridae and sgboy, but admitably, those are for quite different purposes. :-)

One wonders though why this drivng need faced by millions(?) of us to stake a territory in the vast unknown of internet? Perhaps it is indeed the very last frontier for us, at least one in which the average Mr Couch Potato can still aspire to conquer his own territory, albeit a virtual one. Perhaps it is part of human nature to see what is over that next hill... And stake claim to it.

Or perhaps, it is a random and wild cry into the vastness of humanity to say "Hey! I'm here! I exist! I'm unique! I'm me!" 6 billion people. Can anyone actually twist your mind around that? I can't even imagine 600 people in my head. So perhaps this cry is futile indeed. Yes, you are here but so what? Who cares? 1/6,000,000,000 is a very small number. Most people would simply round off that error. To round off you. And me.

So then why am I here? Despite everything, well, all of the above reasons I guess. I am human after all. The rationale mind can boom and thunder with its chains of logic, but we are fallible. And thus human. It's nice to know that when things get to me, there might be someone out there, a 1/6,000,000,000 that might stumble across this, read and maybe for a second or two, empathise before moving on. Other than myself, that is.

Welcome me.