by Rick Lowe
The argument is often put forward that infant industries need protection by the government to survive international competition. In the case of The Bahamas, light manufacturing seems to fit the bill, so they might be offered import duty/excise tax reductions on raw materials and equipment to "help" them compete.
But in 2010, (if memory serves correctly), the government of the day, struggling with the longest and deepest recession in decades, decided to rescind a 10% import tax reduction over a five year period for the industries that fall under the terms of the Light Industries Encouragement Act.
In May 2012, the newly elected government has gone along with a recommendation from a sub-committee of the Bahamas Trade Commission and the "incentives" have been reinstated.
There are a couple issues that require clarification:
- How long does an industry remain an "infant"?
- What makes light manufacturing any different than other industries that they are entitled to "incentives" and other industries are not?
- How does the government get away with picking one group of business people to "win" over another?
The investment that manufacturers make in their businesses, while important, is not more so than the investment other business people make in theirs. And other business people even have to buy the property they construct their business on if rental property is not available or unsuitable.
Manufacturers decide to go into business just like other entrepreneurs. They make their business plan, borrow the money or invest their own capital, buy their equipment and inventory and go to work. But for some reason "manufacturers" believe they are entitled to these tax breaks and other business people aren't?
Now they even suggest that they should pay less for electricity!
Another point they make is this will increase employment in their industry. Of course none of this is ever quantified. How many people are in the industry now for example so this can be measured in 12 months?
The country is not informed what the cost of all this is. How many people or companies benefit from the tarrif reductions today would also be important for the government to share if they wish to be transparent.
In one case they say the reintroduction of the tariff reductions will help them introduce a new product line. Most entrepreneurs take this risk as part of doing business. Sometimes the product line is a hit. Other times it's a flop. That's the risks and rewards of going into business.
It begs the question, why are manufacturers the "fair headed boys" of government when other businesses have to face the consequences of going out of business if they can't compete?
As has been shown with this about face by the incoming government, when policies like this are adopted they become political fodder for all involved and in many instances additional "incentives" are found "necessary" that only create more dependency on bailouts and handouts.
Excellent questions and food for thought, Rick. Perhaps I could help to illuminate the issues you highlight?
1.How long does an industry remain an “infant”?
Industry dynamics suggest that industries, like firms and products, are born, grow, mature and then die, so a typical lifecycle would include all of these stages. How long a firm remains in any one stage depends on a variety of factors but whether a firm is at a particular stage such as ‘infancy’ could be evaluated based on performance metrics (turnover, profits, balance sheet, etc). If a firm remains in this stage, however, the obvious question begs as to whether they should still be supported – me thinks not!
2.What makes light manufacturing any different than other industries that they are entitled to “incentives” and other industries are not?
The presumption (and for me, it is only this) is probably that manufacturing firms make things that can be exported? On another note, I have seen ‘light manufacturing’ in every Bahamian Party Manifesto since 1973 yet never seen the term defined in any meaningful way.
3.How does the government get away with picking one group of business people to “win” over another?
There is a well-documented danger in ‘picking winners’. I was lucky to work with SMEs in London for >10 years, during which time, our work was often frustrated by Government’s change of focus; one day auto manufacturing, the next day, textile firms. It is something all Governments (current row here in UK) try, but with minimal success.
Exactly S3S.
So the infant industry support mechanism should not be considered in the first place.
Interestingly enough, we have Government doing the opposite also, with regards to Alternate energy.
Drafting legislation in which I understand a “franchise fee” would be payable to BEC based on Kwh privately produced and paid for.
Of course, Water and Sewage is already “Taxing” private water production (West Nassau?), and I believe there is an “Excise tax” on bio fuel locally produced and consumed.
Seems a bit policy confused no?
Cookies on the one hand, penalties on the other…..
No wonder most are confused.
Rick and S3S right on.. The less the government, the better the government.. The classic failure of big government today is the foolhardy policies pursued by the Obama Administration in trying to invest (subsidize) in uneconomical alternative energy schemes.. After hundreds of millions in waste and financial losses, combined with kickbacks in the form of political contributions to the Democratic Party, one has to wonder if this was a deliberate sham or an out right fraud.. Just more collective control and centralized planning using the tax payer’s pocketbook with no accountability what so ever.. Big government in action with perhaps more of the same to come and the people just not giving a damn..
So true Tradewinds,obama is taxing the US to death to pay for his “redistribution” & whats happening is the US people are paying for his re-election because in effect,he is just buying votes.The government grew to much with Bush but obama is taking it way up there.I sure hope the USA comes to its senses & votes him out before its way to late,if it is not already to late.
Well manufacturing companies provide the most jobs and when entrepreneurs knows they provide a ton of jobs they can make politicians do things. I mean GM was able to get 20 billion from the government just because they have hundreds of thousands of people working for them.
Thanks for stopping by and commenting.
For the record I oppose the bailouts, even if I thought they made sense, there are bankruptcy laws in the US that should have taken precedence.
For the record, a quick search of the Internet reveal that GM had about 71,000 in the US before the bankruptcy.
Finally, no government has anything to give that it does not take from their taxpayers.
And that is a sure thing Rick,death & taxes.
I found this interesting:
Why Feds Won’t Sell GM Stock
Wednesday September 19th, 2012 • Posted by Lloyd Billingsley at 9:21am PDT •
Source: http://www.mygovcost.org/2012/09/19/why-feds-wont-sell-gm-stock/
The U.S. Treasury Department has invested $50 billion in the General Motors bailout and now owns 26.5 percent of GM stock, about 200 million shares and more than one-fourth of the company. GM was happy to get the taxpayer dough but now wants the government to sell its stock. Trouble is, the government won’t comply. What’s the deal here?
According to news reports GM executives complain that the heavy government ownership “hurts the company’s reputation and its ability to attract top talent due to pay restrictions.” So apparently even $50 billion federal bailouts come with strings attached that are not beneficial to the company. That reality apparently got lost on the front end.
The Feds say selling the GM shares would mean “huge investment losses,” according to one report. At current share price of about $24.14, the feds would lose about $15 billion. To break even on the bailout GM stock would need to more than double to $53 a share. GM sales are up only 11 percent over last year, according to the company, so such a jump is unlikely.
The bailout may have hurt GM’s reputation, “Government Motors” and all that. President Barack Obama, however, relies on the bailout to enhance his own reputation as The Man Who Saved America. So no mystery he’s not eager to sell. His view of the role of government also comes into play.
He doesn’t want the government to maintain a level playing field. Rather, he wants the federal government to pick winners and losers in the marketplace. That comes through in the GM bailout and Solyndra, an outfit that failed spectacularly despite more than $500 million in stimulus money. Another Obama connection got stimulus money for biofuel, which the Navy buys at many times the cost of conventional fuels.
The President of the United States likes the idea of Government Motors. That’s why the Treasure Department won’t sell its 200 million GM shares. This development comes as GM shuts down production of the Chevy Volt, an administration favorite, due to slow sales.
By the way, the company I work for represents Chevrolet, a GM product but before the bailout, GM was already on the road to much improved product so they would have probably survived a normal bankruptcy procedure and the taxpayer would have been spared.
Also, if they had failed, other manufacturers would have acquired them.
There’s too much good stuff there for it to have vanished.
The President flipped American bankruptcy laws upside down.. Secured creditors were moved to the bottom of the debt heap and unsecured creditors, the labor unions, were moved to the top.. Over 200 years of bankruptcy law was just pushed aside so Obama could pay off his labor union friends.. You guessed it, nonunion labor got the shaft along with the secured bond holders who walked away with empty pockets..
Shame on you President Obama, you proved once again that your word is an empty bond.. You were trusted once and you shamed the people that put you in office.. You are untrustworthy and in November should be removed from office.. All this talk about “hope and change” was pure fiction.. For many General Motors creditors there was no hope and they only got change in their pockets as settlement with the GM reorganization..
As for me I wonder how long General Motors can compete in the international marketplace and I for one shall never purchase a GM product.. A recent look at your financial statement shows there is trouble ahead.. Some experts even say that GM is heading back into bankruptcy if recessionary conditions continue to expand in Europe and Asia, but lets hope that will not come to pass for Government Motors..
One other point.
All the “fuss” about healthcare, there are no exemptions for hospitals and clinics bringing in equipment duty free etc.
Does it just depend on who has the political clout?