Protectionism in Europe

States were quick in accusing tax evaders and tax-heavens as a cause of their financial woes in in the financial crisis of 2008. The truth is capital flights are no more of a problem than any other movements of capital guaranteed by the European Union. Like tariff barriers on imports, capital flights subject to restrictions limits economic growth. Instead, governments should look at ways to increase free trade. Consider the following virtual examples to illustrate proctectionist measures:

Austrians are upset with their German neighbours, because they sell expensive and polluting cars in Austria. The sale of these cars means less disposable income for domestic consumption. The expenditure of Austrian households in locally-manufactured goods and services would support the economy better than buying these same products from foreign producers. The fact is, any purchase of foreign product or service is a capital flight abroad. And so, a commerical war rethoric between both countries ends up with a black listing of Germany. This list states that for as long as Germany will continue to sell cars - even if in Germany - to Austrians at a high price, and will not make them CO2 emission-free, Austrian authorities will punish by law any Austrian driving a German car. It will also seek international warrants to arrest Austrians driving in German cars abroad. The result is, a spread of beliefs that German car-makers are immoral because they cooperate with Austrian drivers to let them acquire their expensive and polluting cars. The absurdity of this story is similar to the case of bank secrecy in the world. In reality, any excuse could be imagined to mask one's own inability in dealing with the real issues. If Austrian authorities had been fair-play, they would have found ways to either produce their own electric cars locally or export more of their own products and services to Germany to balance their trade. Recommendations for the purchase of smaller cars to protect the environment may have been sufficient to curb German car sales in Austria and convince car-makers to produce more environmental-friendly cars.

Take this other example: a French shoe-maker expands nationally, but soon realizes he could double sales and profits if he delocalized to Roumania. Informed about the owner's intentions, local authorities intervene to nationalize the company and avoid a shut-down of the business in France. While the company continues to sell expensive shoes in France, a Roumanian competitor enters the market with exactly the same product at twice the price. Before it invades the market, local authorities intervene again raising tariff barriers against the imported shoes that force the new comer out of the market, affecting the revenue of local distributors and retailers. French consumers are left with fewer brands and lower-value products than their counterparts in Europe. While economic growth follows its course abroad, everything remains equal in France. The market lacks competition. There is little or no innovation and dynamism. Economic growth is weak. Had the French shoe-maker been allowed to move to Roumania in the first place, it might have sold shoes in France for cheaper offering higher value to French consumers, and might have kept its design center in the country. Proceeds from the sale of shoes on international markets may have flown back to France depending on tax issues.

While it is a natural reaction to protect immediate economic interests when they seem threatened, these interests cannot be protected over time without economic liberalism. Economic growth, lead by a higher demand for goods and services, wherever that happens, generates an overall higher standard of living. Regulations, taxes, tariffs or state interventionism hinder economic growth. Therefore, a positive feedback-loop of economic growth and fiscal revenues can only happen with more liberalism or free trade.