The Real Cost of Protectionism

By George Will

Wednesday, January 25, 2017

When the president speaks of closed factories scattered like “tombstones” across America, has he noticed the shuttered stores in shopping centers, and entire malls reduced to rubble? He promises “protection” to prevent foreigners from “destroying” manufacturing jobs by exporting to America things that Americans want to import. Does he know that one American company might be “destroying” more American jobs than China is? And that this supposed destruction is beneficial?

The company is Amazon (market capitalization: $388 billion), created by Jeff Bezos. He owns the Washington Post, which syndicates this column, but it is for revolutionizing retailing that he ranks in the pantheon of American business. He belongs there with Richard Warren Sears, Alvah Curtis Roebuck, Aaron Montgomery Ward, and Sam Walton, all of whom were constructively disruptive retailers, and were as important in the nation’s commercial history as were Henry Ford, Steve Jobs, and Bill Gates.

In 2016, online buying during the holiday season surged 19 percent over the year before, which is one factor explaining this: Macy’s, after announcing in August that it would close another 100 of its remaining 730 stores, now says it will shed 10,000 jobs. Sears, which is 13 decades old and still has 1,600 stores, has lost $9 billion in five years, has closed 500 stores, and is closing another 150 (including some Kmarts).

Sears stores in American downtowns, and the Sears catalogue that put downtown goods within reach of rural America (3 million catalogues were distributed in 1907, when the nation’s population was 87 million), caused difficulties for older retailers. In the second half of the 20th century, Walmarts at the edge of towns caused difficulties for downtown retailers with pre-modern — meaning pre-Walmart — global supply chains. Now Amazon is forcing Walmart to master online retailing.

Although e-commerce was just 8 percent of all 2016 retail sales, it came disproportionately at the expense of Sears, Macy’s, and other “anchor tenants” that draw foot traffic from which other mall retailers benefit. When Amazon recently announced that it is going to create 100,000 warehousing and other jobs in the next 18 months, the New York Times reported that online retailing “has destroyed many times that number of positions at malls and shopping centers across America.”

The Times quoted specialists’ calculations that traditional retailers have shed more than 200,000 employees since 2012, and that there are 1.2 million fewer retail workers than there would be if there were no online retailers. But Henry Ford, too, “destroyed” lots of jobs — those of blacksmiths, buggy makers, etc. — the holders of which moved on, and usually up.

Writing at MarketWatch, Rex Nutting argues that as Amazon revolutionizes consumer behavior, it “is going to destroy more American jobs than China ever did.” If so, the “problem” is productivity. Nutting says “Amazon needs about half as many workers to sell $100 worth of merchandise as Macy’s does.” The Times reports that “the typical online retailer generates $1,267,000 in sales per employee versus $279,000 at bricks-and-mortar stores.

All of which raises a question: Why should manufacturing jobs lost to foreign competition be privileged by protectionist policies in ways that jobs lost to domestic competition are not? When an Applebee’s or Olive Garden, powered by a national advertising budget, opens next to, and causes the closing of, Madge’s Diner, why does Madge not merit protection? Or the Trade Adjustment Assistance that is available for workers, firms, farmers, even communities that can plausibly claim to have been otherwise injured by foreign competition or outsourcing of jobs?

The reason is this: Domestic protection of Madge and millions of others unsettled by the constant churning of a dynamic domestic economy would mean slow economic growth — and rapid growth of government as it regulates consumers’ choices and their consequences. But protection from imports also means this.

Reactionary liberalism has long held, and today’s faux conservatism agrees, that existing jobs should be protected by policies that reduce the economic dynamism that threatens those jobs. Such protection means a net decrease in jobs but an increase in the self-esteem of blinkered protectionists who see the jobs “saved” but not those that, as a result of lost dynamism, are lost or never created.

Macy’s flagship Manhattan store was one reason Gimbels’ nearby flagship closed, after 76 years, in 1986. This, even though in 1945 Gimbels had been America’s first merchant to offer “a fantastic, atomic era, miraculous pen.” It was a ballpoint.

Will the winner of the once-famous Macy’s-versus-Gimbels rivalry always be with us? Probably not, which is probably good.