Wednesday, December 6, 2006
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The gift that keeps on giving for protectionism
Ah, the Democratically-controlled Congress -- is there any step towards economic liberalization that they won't block?
Don Phillips, "U.S. Withdraws Plan on Foreign Investment in Airlines, Disrupting Open-Skies Treaty," New York Times, December 6, 2006:
The Bush administration withdrew a plan on Tuesday to give European airlines more freedom to invest in American airlines and to participate in management decisions, bowing to opposition expected to deepen in a Democratic-controlled Congress.I was curious about he substantive reasons why unions were opposing this particular agreement, seeing as the sweatshop argument did not seem credible.
You see some of the union arguments by clicking here and here. As near as I can determine, the primary reason for opposition is based on simple protectionism akin to the Dubai Ports World episode-- they simply do not want to see foreign ownership and control of U.S. carriers.
As for the benefits of an Open Skies arrangement? One union head argued that since the benefits are likely to be realized in the medium to long-term, there's no real cost to scuttling the arrangement.
Gonna be a long two years.....
The grounded open-skies deal was only half the prize sought by both sides. Ending most market-access restrictions would have triggered a second round of talks aimed at creating an Open Aviation Area (OAA), with more alignment of safety, security and competition policy and, perhaps, investment and ownership rules....ANOTHER UPDATE: The Los Angeles Times' Paul Thornton has more on the killing of this deal (hat tip: Virginia Postrel). He also addresses the national security concern -- as I suspected, it's about as well-placed as the Dubai Ports World fiasco:
A "homeland security risk"? All the DOT's proposal would have allowed is non-citizens to hold executive positions in airlines that oversee purely economic decisions (think fares, routes and aircraft purchases). The proposal explicitly -- I repeat, explicitly -- walled off non-citizen managers from having any say in an airline's security. In fact, the DOT proposal would have left the 25% foreign ownership cap completely intact; it even had the blessing of the Department of Defense....posted by Dan on 12.06.06 at 08:43 AM
I'm more sympathetic than you towards protectionist sentiments (e.g. my post below), but even I can spot this as a dumb move. That said, how does this have anything to do with a "Democratically controlled congress?"
"bowing to opposition expected to deepen in a Democratic-controlled Congress..."
Since when does this Administration bow to opposition? Did they do so during the Social Security debate, or that over the Federal Marriage Amendment? Both were lost causes, yet that did not dim their advocacy. Even in the truly stupid Dubai deal, they were bowing more to Republicans than to Democrats. We now have an oppostion party in Congress, but that did not stop the administration from rushing through the Gates nomination. You (and the text) are falsely attributing this blockage to a Democratic majority that doesn't even exist yet, and towards which the current admin. has shown no inclination to bow.posted by: foolishmortal on 12.06.06 at 08:43 AM [permalink]
Beyond security concerns (legitimate or not) the airline industry has been hammered with job losses and pay/benefit cuts for most of a decade.
Do you expect blue collar workers to just roll over and die? Can they all work at Wal-Mart?
Trade is going to progress but we need to do something to smooth over the damages, this being the richest country in the world and all that.
Bush could care less. Apparently the Dems care a little.posted by: save_the_rustbelt on 12.06.06 at 08:43 AM [permalink]
What "foolishmortal" said.
Dan, you could at least wait until the Dems leave some fingerprints on a protectionist outcome rather than helping the Republicans' with their "look what the Dems are making us do" whining.
The question is what about this foreign ownership agreement is supposed to be bad for the interests of union members?
The argument, as best I can tell, is that airlines have been increasingly outsourcing maintenance functions to foreign facilities. That's bad for the unions' members in a straightforward way. The union also believes that permitting increased foreign ownership will accelerate this trend. I don't, however, understand why they think this ... do they really think US executives feel they have some patriotic duty to avoid outsourcing that European executives will cast aside?posted by: Matthew Yglesias on 12.06.06 at 08:43 AM [permalink]
foolishmortal and withrow,
If Bush, who hates bowing to opposition, has decided to concede this issue before the official changeover, how much more intense will Democratic opposition be after the changeover?
And for the record, do you really like the President to be so antagonistic towards the opposition?posted by: kwo on 12.06.06 at 08:43 AM [permalink]
Ditto to foolish mortal. I'm also a bit curious about why Oberstar is against it. I don't know anything about him, other than that evidently he recently commended Ms. Peters.posted by: ptm on 12.06.06 at 08:43 AM [permalink]
Just curious - if we outsource maintenance who does the quality controls? FAA or not?posted by: save_the_rustbelt on 12.06.06 at 08:43 AM [permalink]
Do you expect blue collar workers to just roll over and die?
Given that Americans do not seem to be very good at running airlines (Gordon Bethune excepted) and that foreigners do, the answer would seem to be to allow foreigners to own airlines here and create more jobs in the airline industry.posted by: temoc94 on 12.06.06 at 08:43 AM [permalink]
As a Democrat, I am absolutely embarassed by this.posted by: DRR on 12.06.06 at 08:43 AM [permalink]
Remind me again who Drezner supported in the last election? Republicans or Democrats?posted by: A.S. on 12.06.06 at 08:43 AM [permalink]
"Even in the truly stupid Dubai deal, they were bowing more to
FM is right - it's a bit premature to be blaming this on Democrats. The real blame lies in Republicans who don't really believe in free trade. Ditto the Dubai deal - obviously that can't be even remotely blamed on the Dems, but on Republicans who caved into hysteria rather than properly riding out the storm and doing the right thing. This is a Republican leadership class that holds nothing dear, but was it really all that different under Reagan? I suspect not - what difference there was, was not in the elected officials per se but in the environment in which they existed (i.e., this was a party coming off the bottom, not one that had enjoyed power for a time). The other difference was
Given the rate of return of the US airline industry over the last 2 decades, I suspect we are doing Europe a favor by not letting them invest....
The decline of the free trade agenda has nothing to do with partisan factors and everything to do with economics. It seems to me that much of the welfare benefits from free trade in the last decade have accrued to investors as opposed to working folk.
Yes, I suppose it is great that you can go to Wal Mart and buy 6 pairs of socks for 3 bucks, but that is a pretty small consolation if your skilled manufacturing job is headed overseas.
Free trade has been pushed on people like a zealous religion with little thought to the disruptions it causes to people's lives. As someone who supports free trade, I think we need to be a little less ideological and lot more practical. We need to tie free trade agreements with efforts to improve skills and job opportunities for workers in disrupted industries here at home. We need to help ensure that our citizens have the tools they need to compete and win. Otherwise, the free trade agenda is going to be a victim to populist protectionism.
I suspect if fewer economists had tenure (the last bastion of socialism in America) they might be a bit more sensitive to the downsides of free trade.posted by: SteveinVT on 12.06.06 at 08:43 AM [permalink]
This hilarious. Denial is a beautiful thing. Just keep your heads in the sand and soon it will be all over. The statement that Gates was runshed through Congress says it all. Hey doumbass, the appointment was rushed through Congress by the Dems. Where the hell have you been? The ports deal would have passed with a just a little support from the Dems. Yes Virginia, this is the Dems fault. Start taking responsibility. Idiots!posted by: TomU on 12.06.06 at 08:43 AM [permalink]
So let me get this straight... The Republican-controlled Congress rejected the plan to allow foreign investors to exercise more than 25% of voting rights over American airlines back in 2003. In the subsequent three years, with Republicans controlling Congress and the Presidency, the policy stays stalled. Realizing that the plan wasn't going to pass the Republican Congress and that it probably wouldn't fare any better in the incoming marginally-Democratic Congress, the Administration abandons the proposal. And you blame the failure of the plan on Democratic protectionism?
C'mon, Dan, we've come to expect something better than that sort of knee-jerk parisanship out of your blog. I'm sure you'll have plenty of real Democratic protectionism to complain about over the next couple of years. But as a serious student of the American policy process, you should know better than to embrace an ideologically-comforting explanation without checking on the facts.
I hope that your haste to blame the failure of the Open Skies initiative on Democratic protectionism rather than Republican xenophobia doesn't lead you to overlook the ongoing Republican efforts to sabotage the incoming Democratic majority with legislative and fiscal time-bombs (e.g. http://online.wsj.com/public/article/SB116537033474441872-cPFTnuPnOq5O8ZJmEfdfVC8Fg4U_20071206.html?mod=blogs ). If you aren't paying attention to the legislative maneuvering going on now, how do you expect to correctly apportion blame for future policy failures?
"It gonna be a long two years"
We are not getting the senate back any time soon. So its going to be much longer than two years. Because Dole screwed up so horribly, it is probably going to be a 56-59 democratic sweep of the senate.posted by: ken on 12.06.06 at 08:43 AM [permalink]
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