One poorly stood conclusion of economics is that "Buy American" campaigns
(or as Doug recently suggested, "Loyalty Polcies") are actually highly
counterproductive.
Consider for example, an American firm that produces a good or service for
$20 and a foreign firm that produces a competing product a for $19. Now,
you may decide to be patriotic and choose to purchase the slightly more
expensive American product for $20. After all, you say, "its only a buck."
Unfortunately, as Doc Brown would say - "You're not thinking fourth
dimensionally!" If the foreign firm is not attracting significant
amounts of business at $19, competitive pressures will force it to find
cost savings to begin selling this product at $18.*
O.k., you say, "its still only two bucks extra to support my country and
hard-working Americans." So, you still buy American.
Well, this process then repeats, as the foreign firm continues to compete
for business and lowers its price again, to say $17.... and then $16....
and then $15. All the while, however, the American firm is not facing
similar competitive pressures. After all, people are continuing to buy
its products despite the price.
Well, eventually the difference in price between the two services becomes
too large to ignore. You're willing to "Buy American" after all, but
everything has its limits. So, you finally break down, hold your nose,
and switch to the cheaper foreign product.
Well, to put it mildly, this is disastrous for the American firm.
Suddenly, it is losing business for its products in droves, and moreover
the American firm is now *many* rounds of improved efficiency behind its
foreign competitors. Assuming that it can still catch up to its foreign
competition, the resturcturing and transition is bound to be quite painful.
Indeed, it may be forced to simply shut down altogether.
How much better, then, to be forced to compete as quickly as possible when
the gap is still narrow? This produces more efficient domestic companies
producing superior products competitively. Moreover, keep in mind that
the lesson of the above example always dictates competing as quickly as
possible.... ultimately all sorts of protectionism prove unsustainable as
the gaps between the domestic industry and the foreign competition become
simply too large (and the potential savings too great) to ignore.
Thus, the best possible thing you can do for American businesses - and
therfore American jobs - is to always purchase the best combination of
quality and price that you can find, and make sure that Americans *win*
your business. Otherwise, you are playing with fire, and creating a
potentially dangerous competition gap that could devastate an industry.
JDG - Well, they do call this "The Dismal Science", Maru
* - Note, in economic parlance there is no difference between lowering
prices or improving quality. If you sell a higher-quality product at the
same price, this is tantamount to a price decrease.
P.S. In general terms, if the American firm sells a product at price D and
a foreign firm at price F, then X, the competition gap, is D - F. When X
is small, you may decide to buy American. For each time period T,
however, X grows by some factor. Such that, after N time periods T, Xt =
Xo + N(A) and is sufficiently large that you break down and buy the
superior product.
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John D. Giorgis - [EMAIL PROTECTED]
"The liberty we prize is not America's gift to the world,
it is God's gift to humanity." - George W. Bush 1/29/03
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