A bad wind blowing

The ugly odor of protectionism is wafting through Washington, and President Obama should shut it off before it gets stronger.

The huge economic-stimulus bill he signed this week contains two provisions that seem, on the surface, to be saving American jobs. In fact, both clauses could be highly counterproductive, destroying far more jobs than they defend.

The first amendment, dubbed “Buy American,” requires construction projects financed under the bill to use only “iron, steel and manufactured goods ... produced in the United States.” Sounds good, particularly when the unemployment rate is 7.6 percent and headed higher. But what if other countries retaliate by imposing similar restrictions that cut off the flow of American exports?

Robert Zoellick, president of the World Bank, bluntly told The New York Times: “The ‘Buy American’ provision is very dangerous.”

The second clause restricts the ability of financial institutions receiving federal aid to hire foreigners holding H-1B visas, special permits for well-skilled and educated workers. These workers are absolutely essential for innovation and job creation. If we kick them out, other countries with a more enlightened view of the world economy will snap them up.

As economist Vivek Wadhwa of the Harvard Law School wrote recently in BusinessWeek: “We will scare away the world’s best and brightest who have always flocked to our shores. But the next Silicon Valley won’t be located in the U.S. It will likely be in Hyderabad or Shanghai.”



Fortunately, these provisions were watered down in the final version of the bill, but Obama has always been shaky on trade issues. During the campaign, he pandered openly to industrial unions that oppose free trade and even raised the possibility of renegotiating the North American Free Trade Agreement, a signature achievement of the last Democratic president, Bill Clinton.

Those were sleazy campaign tactics, designed to win votes in key states like Ohio and Michigan, but as political posturing they were not “very dangerous.” Now, as president, Obama has to look beyond short-term partisan benefit to long-term economic reality.

Here’s the problem: There’s a basic conflict between Obama’s core union supporters and that reality. By definition, labor leaders defend the status quo. They represent workers who have jobs now, even workers in aging industries using outmoded technologies.

Fair enough, that’s their role. But those leaders are incapable of adapting to “creative destruction,” a constantly changing economy that sheds nonproductive jobs while nurturing new ones. And they fail to reflect the interests of consumers who benefit from cheaper goods made in nonunion shops. Organized labor will always focus on the textile worker who loses her job in South Carolina, not the cash-strapped single mother who can afford a sweater made in South China.

There are signs that Obama gets this point, that he cannot allow his economic policies to be dictated by union backers. Just before his inauguration, he visited a plant in Bedford Heights, Ohio, that makes parts for wind turbines – a classic example of a new technology creating new job opportunities. And last week, he turned up at Caterpillar in Peoria, Ill., a company heavily dependent on exports that strongly opposed the “Buy American” amendment.

Jim Owens, Caterpillar’s CEO, traveled with Obama on Air Force One and later told the Chicago Sun-Times that he had delivered a dire warning to the new president: “The worst thing that could happen right now would be a turn toward protectionism.”

Obama needs to hear equally strong language on the subject of H-1B visas. Several new studies show conclusively that immigrant entrepreneurs contribute enormously to job creation. A report by Robert W. Fairlie for the Small Business Administration found that immigrants are 30 percent more likely to start a business than non-immigrants; they represent 16.7 percent of all business owners in the country and generate $67 billion in annual income.

William R. Kerr of Harvard Business School and William F. Lincoln of the University of Michigan discovered a fascinating trend: As H-1B visas increase, so do the number of patent applications; when visas decline, patents do as well. Vivek Wadhwa’s research reinforces the point. “More than half of Silicon Valley start-ups were founded by immigrants over the last decade,” he reports. In 2005, those new businesses employed 450,000 workers and had sales of $52 billion.

The evidence is clear. Protectionism holds out a false promise and premise. If Obama really wants to put Americans back to work, he should be opening markets, not closing them. Welcoming foreign entrepreneurs, not driving them away. We have nothing to fear from trade and talent, except fear itself.

Cokie Roberts’ latest book is “Ladies of Liberty: The Women Who Shaped Our Nation” (William Morrow, 2008). Steve and Cokie Roberts can be reached at stevecokie@gmail.com.

Copyright 2009, Steven and Cokie Roberts.

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