WASHINGTON – Wesley Jones, a Republican U.S. senator from Washington, 1909-1932, should be canonized as the patron saint of industrial policy. His contribution to such mischief, which is enjoying a rebirth of respectability, is in its second century of doing damage.
His advocacy of the Merchant Marine Act of 1920, a.k.a. the Jones Act, included the usual cant about serving national security and the public interest generally. The act began, however, as garden-variety political parochialism. It survives because it is defended by the “reliance interests” – industries tethered to government favoritism – that industrial policy, a.k.a. protectionism or crony capitalism, invariably produces.
Industrial policy involves government supplanting society’s myriad private collaborations – i.e., market transactions – to allocate resources and opportunities as government thinks best. Such policy empowers government, which is politics in every fiber of its being, to supplant markets in shaping the future, deciding which industries and products should prosper. Jones wanted Washington state’s shipping industry to prosper, with the help of the other Washington. He particularly wanted to protect his state’s shippers from foreign competition serving ports in Alaska – over Alaska’s strenuous objections.
The Jones Act today requires that cargo transported by water between U.S. ports must travel in ships that are U.S.-flagged and are at least 75 percent U.S.-owned and -crewed. The ships also must be assembled entirely in the United States, with all major components U.S.-fabricated. Passed immediately after one war, the act was rationalized by anticipation of another. Supposedly protecting the domestic shipping industry from foreign competition would stimulate merchant marine shipbuilding sufficient for military emergencies. Predictably, however, protecting the shipping industry from competition increased costs of shipped goods (costs passed along to U.S. consumers), decreased pressure for efficiencies and contributed to the shrinking of U.S. shipbuilding.
Colin Grabow and Scott Lincicome of the Cato Institute (see below) report that two years after the Jones Act was passed, a government report found that a U.S.-built ship cost 25 percent more than a comparable vessel built abroad. And after a century of the act? “A U.S.-built tanker costs 300 percent more than one built abroad while a U.S.-built containership has a price premium of 400 percent.” U.S. shipyards have collectively produced fewer than three a year since 2000.
The Jones Act’s strictures for “U.S.-built” ships include: “major components” of the hulls and superstructures, and at least 98.5 percent of the hull and superstructure components’ steel weight must be fabricated in the United States. People acquire expensive law degrees to have careers writing such stuff. The 0.5 tacked onto the 98 does, however, perhaps reveal a sly sense of humor.
This, however, is not amusing: The quality of the U.S. merchant fleet has national security implications. In Europe, a large, long war of aggression is raging, with the survival of the aggressed-against nation depending on U.S. weapons, munitions and other materials. A much larger war could erupt in Asia, especially if the aggressor doubts the U.S. ability to sustain a protracted conflict.
Jerry Hendrix, a retired Navy captain and senior fellow of the Sagamore Institute, an Indiana think tank, notes in the Atlantic: “In 1977, American shipbuilders produced more than 1 million gross tons of merchant ships. By 2005, that number had fallen to 300,000.” In 2022, it was less than 33,000. Norwegian and Dutch yards delivered about 147,000 and 118,000, respectively.
The number of oceangoing cargo ships of at least 1,000 gross tons and meeting Jones Act requirements has declined from “193 to 99 since 2000, and only 78 of those 99 can be deemed militarily useful,” wrote Grabow and fellow policy analysts Inu Manak and Daniel Ikenson in 2018. “Facing exorbitant replacement costs, ship owners are compelled to squeeze as much life as possible out of their existing vessels. … Excluding tankers, the ships in the Jones Act fleet currently average 30 years old, fully 11 years older than the average age of a ship in the world merchant fleet of other developed countries.”
The authors above were writing for the Cato Institute. The libertarian think tank located near Capitol Hill, where crony capitalism originates, disparages the Jones Act. As does the Mercatus Center, which incubates market-oriented ideas at George Mason University.
Cato obtained, through the Freedom of Information Act process, documents related to a 2020 meeting of a committee that advises, on behalf of the U.S. shipping industry, the U.S. Maritime Administration, which oversees the industry. The committee’s recommendations included: “Charge all past and present members of the Cato and Mercatus Institutes with treason.” Such brainstorming from industrial policy’s defenders indicates their assessment of their arguments’ persuasiveness.