Tariffs or trade?

Recent moves by the United States government to protect its domestic steel industry show just how poorly the idea of free trade has worked its way into the general consciousness.

Tariff protection has been pushed through the U.S. legislative system by an unholy alliance of steel producers, the United Steelworkers, and politicians from steel-producing regions of the U.S. It was not resisted by an ostensibly free-market White House.

Part of the protection lobby’s sales pitch was that steel is central to the U.S. economy, and a healthy steel industry is a sine qua non of economic growth. Other sectors, such as doing the laundry, are peripheral: steel is the glowing heart of industry.

A number of economic sectors can be trusted to talk like this when someone else is eating their lunches for them. The economist and writer Samuel Brittan properly (and wittily) dismisses this talk as “structure snobbery.” It comes at mining in two different directions.

Sometimes it’s pro-mining. There is a school of thought that mining is an essential for the economy, either because basic materials are thought to be necessary for self-sufficiency or because the sector itself “creates wealth” from nothing.

Self-sufficiency — like various other not-very-bright ideas — is popular both with the rugged-individualist school of “conservatism” and with Marxists. The idea, it seems, of holing up with a rifle and a box of waterproof matches and depending on nobody crosses some otherwise quite definite political boundaries. Any principle that unites Kim Chong-il and the Montana posses can’t be entirely sane.

The mineral industry has used this sentiment to good political effect in the past. More prominently, in the last half of the 1970s, its cousin, the energy industry, turned energy self-sufficiency into every nation’s number-one economic policy goal — with unpleasant (and presumably unintended) consequences, such as the National Energy Program, in producing countries.

Not wholly unrelated to the self-sufficiency argument is the special case pleaded for gold production, that it stabilizes a country’s currency. For that to work, the mint has to buy it, of course: preferably at a premium to the market price.

The sermon that extractive industries “create wealth” where it did not exist before is true, but irrelevant. Where wealth can be created profitably, it should be created, and most probably will. Where it cannot, money spent on making that wealth “creation” economic leads only to the black holes of Devco and Westray.

When structure snobbery comes from the other direction, it generally dismisses mineral production as an unworthy task for an advanced society — remember the “sunset industries” of the 1980s? A knowledge economy has no use for hewing wood, drawing water, or stoping orebodies; nor for shipbuilding, construction machinery, or electrical transformers. (Cars, as long as they’re upscale, are apparently OK.)

The knowledge economy does, however, apparently find uses for such costly pursuits as punting on e-commerce and giving out government handouts to favoured “innovative” sectors. Oh, they’re innovative, all right: at handouts.

Technology, of course, is perpetually making conventional mining obsolete, in much the same way as the Toronto Argonauts used to win the Grey Cup every June. Bar stool bores can be counted on to hold forth about how new technology will either displace basic materials (with matter presumably created from nothing) or make their extraction so easy and cheap that old-style mines will go out of business.

When one of the staff here was in his first year of university, he was assured by a number of people that geologists would be obsolete by the end of the decade; the ocean floor and its manganese nodules would shortly be providing all the metal humankind needed. A quarter-century later, the nodules are still there on the seabed.

Space romantics, for whom putting a corporal’s guard of astronauts in low-earth orbit to display Pizza Hut signs is well worth the billions of dollars it takes to do it, are forever prating about the future of space mining. We are inclined to agree it has a limitless future; we think it always will.

We also recall one prophecy-pedlar on a CBC Radio One phone-in show that told a caller that space mining was certain to come, and that out there “there may be an asteroid made of solid gold.” Indeed, it would be a celesto-chemical (one could hardly say geochemical) anomaly to end all anomalies. It might not rival Las Cristinas in size, but what a concentration ratio it would have. Such is the level of thinking about the future of mining and of the economy in general.

But that level of thinking is precisely the level at which a lot of political decisions are made. Government support for industries, whether through higher steel tariffs, tax breaks for favoured sectors, bailouts of failed enterprises, or plain old pork-barrel patronage, siphons money from where the market would put it. With extractive industries seemingly out of public favour, policy favouritism based on structure snobbery hits mining in its own pocketbook.

The economy is about providing for people’s wants and getting paid for it. Whether those wants are goods or services, sheet steel or clean sheets, fastballs or fast food is immaterial if value is added. Distorting that relationship by favouring some sectors over others is a foolish way of destroying that value.