MR. CHARLES BOOTH’S very temperate and moderate article on Fiscal Reform in the current National Review contains an entirely new scheme, which differs very widely from Mr. Chamberlain’s. It seems most improbable that this scheme will find favour, since it has less of the appeal to sectional interests, which has given such success to the Glasgow plan. But the great weight which justly attaches to Mr. Booth’s opinions makes an examination of his arguments important.
His proposal is, to place a perfectly uniform tax of 5 per cent on all imports from foreign countries with which we may hereafter conclude commercial treaties, and an equally uniform tax of 10 per cent on imports from other foreign countries; these taxes to be imposed for the sake, primarily, of imperial preference, secondarily for the sake of protection and thirdly for negotiation. The duties on materials are to be refunded by a drawback to exporters of manufactures employing the materials.
This plan, it must be confessed, would be to a certain extent free, if it worked, from the most objectionable feature of Mr. Chamberlain’s propaganda, namely, the struggle of private interests to acquire public money by means of political pressure. It is strange that Mr. Booth should, under these circumstances, have joined the “Commission” which inaugurates the scramble for plunder caused by tariff-mongering But an arithmetical barrier against corruption is indeed a pill to Cure an earthquake.
It is difficult to criticise Mr. Booth’s article, since no proof is given or even attempted that the adoption of his scheme would cure the evils which he fears, or secure the benefits which he claims. In replying to his contentions, however, the following division may be made:
I. The case for Free Trade is not adequately stated in Mr Booth’s Opening Paragraph, and is not open to the objections urged by him. II. The objects which he aims at would not be achieved by his scheme. III. Internal difficulties render the scheme impracticable, and would prevent its adoption from having the finality which he desires. IV. Special evils, not anticipated by him, would result from any Protective Tariff.
I. Mr. Booth affirms that the case for Free Trade is “cosmopolitan in its ideal, laissez-faire in its philosophy, and individualist in its principles.” This statement seems by no means correct. The Free Trader’s contention is that, whatever other nations may do, a nation profits, both in regard to the amount and to the distribution of its wealth, by avoiding that kind of state interference which is constituted by Protective import duties or export bounties. As regards other kinds of State interference, Free Traders as such have no opinion; and as a matter of fact, not only many individualists, but also the Socialists of all countries are in favour of Free Trade. The only cosmopolitan element in the Free Trade case is that Free Traders are unwilling to forgo an advantage to their own country merely because the securing of that advantage incidentally benefits other countries also.
It is customary to accuse Free Traders of being doctrinaire, but what could be more doctrinaire than the argument, advanced by our modern Protectionists, that, because some forms of State interference are beneficial, it is therefore illogical not to favour any and every State interference that may be suggested?
Mr Booth asserts that Free Traders do not count the cost of friction. This is totally contrary to the facts: as a matter of fact, almost all the mitigations of friction which have resulted either from legislation or from trade unionism have been achieved by the efforts of convinced Free Traders. The assumption seems to be that a Protective Tariff tends to diminish fluctuations; and this assumption also underlies the contention that Protection would make employment more regular. For this view there is no warrant either in theory or experience: as regards experience, the seven volumes on “The Disturbances in German Economic Life in 1900-2” give a sufficient refutation.1
It is true that Free Traders, while regretting the hardships incidental to all economic transactions, are not willing to adopt the plan enforced in the ancient kingdom of the Incas, where every man was compelled by law to follow the same trade as his father. Most of the arguments used on this point by protectionists would have applied, and were applied, against the introduction of machinery during the industrial revolution of a hundred years ago. If the most profitable trades grow faster than the population, they must grow at the expense of others which are less profitable, and there must be “ruined industries” to lament over. The town of Coventry, formerly devoted to silk, finds now a far more profitable employment in bicycles and motor cars; is this to be matter for regret?
Mr. Booth’s remarks on the balance of trade do not contain any material criticism of the Board of Trade memorandum on the excess of imports. It is not claimed by Free Traders that the part of our imports which comes in payment of interest on foreign investments is paid for by present exports, though it is the return on capital formerly exported, which was presumably the produce of British labour. But this part of our imports would not be checked by an import duty, unless it were so imposed as to ruin those among us who have invested money abroad. The part of our imports which would be checked would be the part paid for by our exports, or by the earnings of our shipping, which Mr. Booth unduly ignores. The desire that the returns on our foreign investments should come in the shape of raw materials, in order to give employment to British labour, is one which, to begin with, would in all likelihood not be furthered by a uniform tariff; and the view as to the causes of unemployment which it involves is mistaken. In 1899, in spite of a considerable import of manufactures, there was practically no unemployment in England; and the fact is that unemployment is not caused by this or that distribution of industry, but by fluctuations. Wars, by diverting industry, temporarily, into abnormal channels, always cause unemployment when they cease; and the present lack of employment is presumably traceable in a great measure to the disturbances caused by the war in South Africa.
A most curious charge of inconsistency is brought against the Free Traders (p. 690) on the ground that, having adopted Free Trade at home, we submitted to “humiliating ourselves by resorting to persuasion.” It is suggested that we might have let the policies of foreign nations alone, since, “according to the theory we upheld, they could only result in loss to those who pursued them.” This implies the vicious theory that what injures other nations must be advantageous to us. As a matter of fact, Foreign Tariffs, on the Free Trade theory, are injurious both to us and to the nations imposing them. Why persuasion should be considered “humiliating” it is impossible to see. The greatest diminutions of Foreign Tariffs ever effected were due to Cobden’s persuasions. Is it contended that it is disgraceful to succeed by the appeal to reason, but honourable and desirable to fail with the “big revolver?” This is a strange view, truly. And it is forgotten why Peel abandoned the weapon whose value is so extolled. “Weary of our long and unavailing efforts,” he said, “to enter into satisfactory Commercial treaties with other nations, we have determined at length to Consult our own interests.” But Peel, of course, was a cosmopolitan doctrinaire with no practical experience of Government
“Our unqualified reception of imports,” Mr. Booth says (p. 690), “has done much to encourage the Protective system of others, especially in Europe, and a change in this respect might now do much in the opposite direction…. Stripped of its ideals Free Trade may still triumph.” He gives no grounds for this paradox, which will be generally admitted by students of commercial negotiations to be the opposite of the truth. The only way in which such a result may conceivably happened is through the more dominant position which we acquired by Free Trade. Had we remained Protectionists, our manufacturers would have prospered less, and tariffs might have been less essential to their exclusion. Is this what is meant? Mr. Booth’s prophecy for the future appears as groundless as his statement concerning the past. If we become convinced that Protection is essential to a nation’s prosperity, how will that lead other nations to Free Trade? This is an instance of that lip service which is (to modify La Rochefoucauld) the homage that Protection pays to Free Trade. If Mr. Chamberlain’s followers believed that his scheme would in the end further Free Trade, nine-tenths of them would cease to desire it, since Protection is the haven in which they hope to find rest.
II. The objects aimed at by Mr. Booth are: (1) Imperial unity; (2) Protection; (3) reduction of Foreign Tariffs. With regard to the first and third, it is unnecessary to repeat arguments which have already been urged ad nauseam, and have probably by this time convinced those who are capable of being convinced by them. But with regard to the second, there is a good deal to be said.
Mr. Booth’s reasons for desiring Protection are: (1) To cause a larger portion of our imports to consist of raw materials; (2) to increase the amount and regularity of our employment; (3) to enlarge the market for our manufactures, and (4) to stimulate enterprise through the security of the home market. Let us examine whether his scheme is likely to secure these objects.
1. To increase the proportion of our imports consisting of raw materials, it would be necessary, prima facie, to tax manufactured articles at a higher rate than raw materials; but Mr. Booth proposes a uniform tariff, to be imposed even upon raw cotton and iron ore. There is therefore no reason to think that his tax would check finished goods to any greater extent than it would check the materials employed in the manufacture of such goods for the home market. And on this point, Mr. Booth himself offers us no argument.
2. The next object is to increase the amount and the regularity of employment. This assumes that a tariff will prevent fluctuations, whereas the experience of all Protected countries shows the exact opposite. In France, on the average, the number of unemployed is about double what it is in the United Kingdom. In Germany, though exact statistics are hard to obtain, it is well known what a widespread collapse has occurred in recent years. In America, the Steel Trust alone has lately reduced its payments of wages and salaries by £3,000,000. These facts show that regularity of employment is not to be obtained by tariffs. And especially the imposition of a new tariff always causes dislocations. At first, it injures trades incapable of Protection, such as building, railways and shipbuilding. Capital and labour are attracted into the newly Protected trades, very soon there is a great over-production, a slump follows, a large proportion of employees are thrown out of work, a trust or cartel is organised to restrict output and keep up prices, and a higher tariff is demanded to remedy the evil. If the demand is granted, the whole cycle is repeated. This is not a fancy picture, but plain history, verified over and over again. The variations in supply and demand which must result from commercial wars, even on the modest scale suggested by Mr. Booth, will also greatly increase the irregularities of trade and industry.
3. It is difficult to see how the markets of any industry which has an export trade can be increased by increasing the cost of production. As a matter of fact, taken all round, the market for our manufactures is larger than that of any Protected country, except in special lines stimulated by export bounties. Drawbacks will not avoid an increase in the cost of production of most manufactures, since, besides actual materials, all the tools and machinery employed will become dearer, and in any case the capital invested in paying the duty on materials is locked up until the product is exported, and this capital must bear interest. Moreover, all such arguments make the assumption – perfectly valid, but most inconvenient – that there is no truth in Mr. Chamberlain’s promise of higher wages. There is every reason, therefore, to expect a shrinkage in our exports as a result of Protection, and to reject the assertion that Protection will in general give a larger market.
4. It is possible that, in a few trades, the first effect of Protection might be to stimulate enterprise; but it is at least equally probable that it would cause contentment with ancient methods and antiquated plant, reliance upon the tariff replacing improvement in processes. And it is certain that, with the inevitable growth of monopolies that would result, the stimulus of competition would be removed, and the public would be forced to contribute, through higher prices, to the support of the inefficient.
It is, therefore, to say the least, exceedingly unlikely that the results desired by Mr. Booth would be secured by Protection, or, more particularly, by the tariff which he advocates.
III. There are grave internal difficulties in the way of Mr Booth’s plan.
It is claimed that the tariff of 5 per cent all round, and 10 per cent in the absence of a commercial treaty, is “based on simple and intelligible principles,” and that uncertainty from lack of finality is not to be dreaded (p. 693). This claim is surprising, since no principles whatever, whether simple and intelligible, or complex and unintelligible, are assigned for fixing the duties at the amount suggested. The arguments in favour of the plan, if valid, would point to a higher scale of duties on manufactured articles than on raw materials, and would seem to justify a very much greater measure of Protection. Professor Ashley advocates, in certain cases, duties of 50 or even 75 per cent; and if Protection is as useful as we are told, it is hard to see why it should be so restricted.
The beneficial results which Mr. Booth anticipates from his tariff in regard to employment can obviously only occur in so far as imports are actually excluded; and, therefore, if his duties do not in any case prove prohibitive, his own “principles” would justify and require a higher rate.
That such a plan as Mr. Booth’s should have any finality is quite incredible. Indeed here, as so often in the arguments of moderate Protectionists, there is a curious disregard of human nature. In the first place, a tax on raw cotton or wool would not be tolerated, and is outside practical politics. With these exceptions go many others; thus the simplicity of the plan is at once lost. Again, ad valorem are an inevitable source of fraud, since the Customs cannot discover the true values of goods imported. If, in place of ad valorem duties, specific quantitative duties, aiming at an average of 5 per cent, were introduced, discriminations would be necessary, and the door would be opened to corruption, the fear of which, apparently, is Mr. Booth’s motive in desiring uniformity. In a democratic country, it seems impossible to devise any scheme of Protection which shall avoid this danger; as soon as the electoral machine can be used by private interests for their pecuniary profit, campaigns of misrepresentation and of appeals to cupidity make political purity impossible. In the same number of the “National Review,” in which Mr. Booth’s article appears, there is an article on “The Most Corrupt City in the World” – Philadelphia, which is also the most Protectionist city in the World. Perhaps hereafter we may be able to show cities in this Country able to dispute the prize in this proud contest.
Another reason which would make the maintenance of a uniform tariff impossible would be the desire for retaliation in tariff wars. If the imposition of the 10 per cent duty did not cause a foreign nation to come to terms, but provoked instead discriminating dues against our shipping and prohibitive duties on our exports, is it likely we should merely sit still and wring our hands? Surely it is obvious that we should reply by similar measures, provided that were possible. And the duties imposed for retaliatory purposes would cause vested interests to grow up, which would render their subsequent removal difficult or impossible.
Export drawbacks on products employing materials subject to import duties are attended with many difficulties. In the first place, is a drawback to be paid only on such as employ materials which have actually been imported, or on all exports employing dutiable materials, whether these materials have been actually imported or produced at home? If the latter plan is adopted, this causes an additional protection to the home producers of the material employed; moreover, if, as in the case of iron and steel, the home production is much greater than the importation, the expense to the Exchequer becomes great, and the Budget will be impossible without the imposition of more taxes than are contemplated. If, on the other hand, as is customary where an export drawback is given, no allowance is made except for materials actually imported, new difficulties arise. If actual proof is required of identity of the materials contained in the exported goods with the materials imported, the door is opened to frauds which are almost impossible to prevent. But if proof of identity is not required, then, wherever the export of finished goods is as great as or greater than the import of the materials employed, there is no longer any protection of the home producer of the material, since the whole of the import duty paid can be recovered by exporters. And it must be remembered that all these schemes involve the result that the foreigner will be able to buy our produce more cheaply than we shall.
Surely those who advocate such a policy, rather than the Free Traders, deserve to be called “friends of every country but their own.” On this policy Professor Brentano, in a recent article in favour of Free Trade in Germany, remarks: “Perhaps in no point does the contradiction show more crassly between the separate interests pursued under the banner of protection of national labour and the interest of the national economy.” 2 When he advocated English Free Trade in the Fortnightly Review, in August, he was said by our tariff reformers to have been ordered to do so by the German Government. It would be equally legitimate to suppose that his recent article, addressed exclusively to the Germans, had been inspired by our Protectionists.
IV. It remains to consider what evils would be likely to result from the adoption of Mr. Booth’s scheme. The first and obvious evil of all Protection is that it tends to increase the cost of living without any corresponding increase in wages. Mr. Booth, though he maintains, for reasons which have been already argued to be inadequate, that it would increase the regularity of employment, does not assert that wages would be raised. He does, however, contend that the cost of living would not be increased; and, in spite of his great authority, it is impossible to avoid the conclusion that he has overlooked some of the most important factors in deciding this question.
In Germany, food and almost all the necessaries of life are dearer than in England; hardly any important commodity is cheaper, except human beings.
Mr. Booth’s contentions in this respect are curiously contradictory. He urges, on the one hand, that Protection, by leading to trusts and cartels, affords manufacturers the advantage of selling dear at home and cheap abroad; on the other hand, that internal competition and the stimulus to production will prevent prices from rising by the amount of the duty. These two mutually destructive contentions occur in the same paragraph (p. 697). The fact is, of course, that the former is true in all those branches of production which permit the organization of trusts and cartels, while the latter, though it may have a measure of truth to agricultural produce, will usually cease to apply before the stage at which a commodity is ready for consumption. It is impossible for a trust to own all the cattle or sheep in a country; yet, as is well known, the supply of meat in America is in the hands of trusts. Thus, by Mr. Booth’s own admission, his plan will stimulate the formation of monopolies, and will cause the foreigner to obtain our products more cheaply than they can be obtained at home.
Mr. Booth asserts that the cost of living will not be appreciably increased by his scheme, and that whatever increase there is might be adjusted by lowering the duties on tea, sugar, and tobacco. The two former, at least, ought to be lowered in any case. But when we remember what Mr. Chamberlain always forgets, that the price of manufactured articles will be increased, and that generally a trade combination will succeed in exacting the full duty from customers, it becomes impossible to accept the view that the cost of living will not be raised; it seems evident, on the contrary, that it must be raised in all classes.
It would seem that one effect of protection would be to produce the very result which Mr. Booth wishes to avoid, namely, to diminish the proportion of our imports consisting of more or less raw materials, to which British labour is applied in the way of finishing manufactures. Mr. Booth admits that dumping is not wholly an evil, and he does not claim that his scheme wll prevent it. But the point is that when a trust or cartel sells a half-manufactured product more cheaply for export than for home consumption, it causes the later stages of manufacture to flourish more with us than in its own country. And this result of the policy of cartels is shown to be powerfully operative, as regards Germany, and in the last Consular report for the district of Frankfort-on-Main.
The evils to be feared from Mr. booth’s scheme may be summed up as follows:
1. The policy of selling dear at home and cheap abroad, which he admits to be the result of Protection, involves, in addition to the obvious loss to the consumer, a diminution of his purchasing power, thereby restricting the home market for all commodities except, perhaps, the barest necessaries.
2. If dumping is an evil, Mr. Booth’s scheme will not prevent it; if it is not an evil, what purpose will the scheme serve?
3. The scheme will encourage monopolies, with all the tyranny and corruption which they foster.
4. There is not a shadow of a reason for believing that, as is asserted without argument, the scheme will make employment more regular; on the contrary, there is every reason to think that, by restricting people’s purchasing power, it will have the opposite effect at first, and will involve permanently either lower wages or longer hours.
For all these reasons, it is to be hoped that those who desire the national welfare will resist the adoption of any such measures as Mr. Booth recommends.