Protecting Sleeping Bags (2011 Jan)

by Barry A. Liebling

A business model that depends on government favors always courts trouble. If you prosper your success will be due at least partly to government coercive force. If the government, ever changeable and fickle, decides to withdraw its favors your business is likely to crash.

Recently the management of Exxel Outdoors Inc, the largest manufacturer of sleeping bags in the United States has complained that it will have to go out of business if the federal government does not impose a 9 percent tariff on sleeping bags made in Bangladesh. The company has competed successfully with sleeping bags from China because the tariff is in effect. But because there is a loophole in existing import regulations sleeping bags originating from Bangladesh are escaping the tariff and are being sold in the United States.

The chief executive of the company is quoted as saying that he wants the government to intervene and fix the playing field. At one point he remarks, “If the playing field should be tilted, it should be tilted in an American manufacturer’s favor.” He goes on to say, “I want the law to be interpreted the way it should be and the playing field leveled.”

Consider what tilting or leveling the playing field means. Companies importing sleeping bags from outside the United States have to pay a federal tariff that makes the sleeping bags more expensive to purchase. So if you want to buy a sleeping bag you will pay more for the foreign-manufactured product than you would if the tariff were not in place. This gives the American manufacturer an artificial government-imposed advantage. Of course, someone has to pay for this prize to the manufacturer. In this case the burden falls on consumers who purchase sleeping bags. They are prevented from buying what would be a less expensive product if there were no tariff.

Once the tariff is in place the domestic manufacturer does not have to worry so much about containing costs. His foreign competition is saddled with a 9 percent price disadvantage. But the world is ever changing. Suppose the foreign manufacturer gets very clever at producing efficiently and finds a way to sell sleeping bags less expensively even with the tariff in place. The domestic manufacturer has learned that the solution to foreign competition is to beg for a federal rescue. He will surely make a case that 9 percent is too small and he really needs a higher tariff to protect his company and “American workers.” If the tariff is increased the cost will again be passed on to consumers who purchase sleeping bags.

What has gone wrong and what should the American manufacturer do? If you want to make and sell sleeping bags you have to plan and take into account a business environment where you will get no government favors. You have to factor in the possibility that factories in Bangladesh and elsewhere may be very good at making sleeping bags inexpensively. You might invest in methods of containing costs and beat them at their own game. Alternatively, you might decide to forego cost competition and make extremely high quality sleeping bags with designer labels. If your sleeping bag business is unable to thrive in a free market you should look for something else to make. Your sleeping bag company might, for example, be converted into a specialty clothing manufacturer. The point is that of all the actions you can take as a manufacturer, begging the government to violate the rights of consumers is out of bounds.

Consumers are not the only victims of the company getting special favors from the government. The workers in the company have been railroaded into a terrible position. They had confidence that their employer – the management of the manufacturing company – would use sound judgement – which includes steering the business ethically without violating anyone’s rights. They are not responsible for the tainted alliance between the owners of their company and federal officials who have engineered fake prosperity – a company that survives only because a tariff thwarts consumers from getting a better deal in sleeping bags.

And the tainted alliance brings us full circle. Once a company is dependent on government favors for its survival it is difficult to escape and do business cleanly. Apparently there are government officials considering the plea made by Exxel Outdoors management. If the Bangladesh tariff goes into effect what does the company owe the government decision maker? What contributions will Exxel Outdoors management make to politicians and what other special advantages will government officials provide? How much is the business of Exxel Outdoors focused on designing, manufacturing, and marketing products? And how much is devoted to seeking political advantages?

A business that depends on government favors will always be problematic. It is kept alive by trampling individual rights and is risking extinction if the political winds shift.

*** See other entries at in “Monthly Columns.” ***

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