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Let free trade offset guest-worker limits

by Melvyn Krauss

PALO ALTO, Calif. — Negative public opinion in the United States was the key factor behind the defeat of the proposed deal to turn over management of six U.S. ports to an Arab company. But the rejection of Dubai Ports World has disturbed America’s trading partners and globalization advocates, who see it as a sign that America’s commitment to an open economy is waning.

Not so, according to the latest public opinion polls: Americans remain as committed to globalization as ever. But, after the terrorist attacks of September 2001, the U.S. commitment to an open economy must be redefined to include the public’s interest in “goods” like safety, in addition to more conventional goods like automobiles and television sets. Otherwise, the commitment loses its relevance.

Blocking the Dubai ports deal or putting restrictions on inflows of guest workers because of terrorist fears do not constitute protectionism in the usual meaning of the term, where private interests subvert the public good, as when farmers charge higher prices because competitive imports are restricted.

National security concerns are not foolish. While a nation has a clear interest in the benefits of an open economy, it also has a vital interest in its citizens’ safety. Balancing the two objectives — which can sometimes be in conflict — is the key to successful policy.

U.S. President George W. Bush, for example, is seeking balance on the immigrant issue by proposing to restrict, but not eliminate, guest-worker entry. His proposal — which lies somewhere between the extremes of building a wall on the U.S.-Mexican border and maintaining open borders — is the right approach when guest workers could be disguised terrorists. Naturally, the greater the terrorist threat on any border, the more restrictive the policy should be.

The expected diminution of guest workers on the global stage as a result of tighter border controls is likely to be compensated by an increase in outsourcing. Like guest workers, “outsourcing” is a way to import labor services, but the foreign workers stay in their own backyards. Either the desired service is performed from abroad — telemarketing, for example — or the work is sent abroad for processing and later imported to the home country (in Europe, more and more industrial work is being outsourced from West to East).

So, outsourcing represents an alternative and potentially more attractive way to import labor services when globalization is tainted by terrorism.

Free imports are essential for this process to work. They are terrorist-proof. Tariffs and quantitative restrictions on imports of goods increase the demand for guest workers, so they are a boon to the terrorists. So the threat of terrorism means that there will be more trade in goods, and fewer guest workers, in the future global economy.

Imports of managerial services are similar to guest workers in that they, too, carry with them a terrorist risk. The proposed Dubai Ports World deal is a case in point. The transfer of potentially strategic information about the ports to foreign and perhaps unfriendly hands clearly would have carried with it national security risks. Even the U.S. Coast Guard could not rule out that the company’s assets might have been used for terrorist operations.

Advocates of open economies should not be dismayed by U.S. citizens’ demand for safety. Rather than being protectionism in the usual sense, Americans’ “no” to Bush on the Dubai takeover reflected the desire to maximize the public interest more broadly and properly defined. This is the opposite of protectionism.