Big economy protectionism is the “lump of labour” fallacy gone global
Adam’s opposition to big economy protectionism has proved controversial in some quarters. Yet it seems to me that protectionism is the mirror image of “I’m not a racist but they come over here and take all our jobs”. And in turn is related to calls to fight unemployment through a shorter working week.
All of these come from what economists call the ‘lump of labour fallacy’. This is the idea that there is a fixed amount of work to be done and the key questions are how to share it out and who gets to do it. But the amount of (paid) work done in any economy is dependent on the demand for the products of that labour and that is determined by many, many factors.
Of course that does not mean that shorter working weeks are not desirable in themselves for those working long hours, or a way of driving productivity gains. Nor does it mean that particular companies may indeed have a fixed amount of labour to be done that depends on the size of their order book. Sharing out short term working at a time of high unemployment may well indeed be fairer than making redundancies, and in the long term better for the company as it makes it easier to respond to any upturn in orders.
The most obvious example of the lump of labour fallacy is opposition to immigration and migrant workers. A new supply of workers doesn’t simply displace existing workers but is likely to stimulate economic growth and lead to more demand and more employment.
Again this needs qualifying. A sudden increase in the supply of labour can cause dislocation in a local labour market. Employers can use a supply of migrant workers to drive down wages, which reduces their purchasing power. But that is an argument for better union organisation and legal protection against exploitation. If we take the ‘lump of labour’ to its illogical conclusion we should call for the birth rate to fall to ensure that there was less competition for jobs.
Protectionism is the mirror image of hostility to immigration- rather than being concerned about the migration of people, it wants to stop work moving around the world.
As Adam says this is not to argue against developing economies protecting fledgling industries or to say that our current free trade system is fair, or even very free. But the way to deal with recession is to increase demand (for the right kind of work) not pitch workers of one country against those of another in a competitive protectionism, which we know prolongs recession not helps counter it.