Protectionist legislation aimed at foreign steel producers will make "millions of American workers and tens of millions of American consumers worse off so that the domestic steel industry can enjoy temporary benefits," a Cato Institute trade expert told members of the House Ways and Means Committee today. Dan Griswold, associate director of Cato's Center for Trade Policy Studies, told the panel's Subcommittee on Trade that "there is no reason why the steel industry should receive special treatment at the expense of its customers and American consumers, just because it is experiencing temporarily unfavorable conditions."

Domestic steel companies and unions have urged Congress and the White House to protect them from foreign "dumping," and legislation to do that has been introduced in Congress. Witnesses at today's hearings also included U.S. Trade Representative Charlene Barshefsky and Secretary of Commerce William M. Daley.

Griswold argued that, in terms of production, the "U.S. domestic steel industry had one of its best years ever in 1998." Domestic steel shipments were at their second highest level in the last 20 years, and the share of world steel output captured by U.S. producers actually increased to 12.6 percent, up from 12.3 percent in 1997. He also offered insight into other less-publicized realities of the steel "crisis," including:

· "Most of the layoffs in the steel industry in the last two decades have been caused not by imports, but by rising productivity within the industry. Employment has moved steadily downward whether imports have been rising or falling as a share of domestic supply." · "Rising import prices leave smaller metal-using companies and their workers especially vulnerable, and, because of their size, they will feel the pinch from both sides, buying on the spot market but unable to pass on the higher costs to clients. This will result in lower sales, declining profits, and fewer jobs created."

· "It is a misnomer to say that steel is being 'dumped' on the U.S. market. Virtually every ton of steel that enters the United States has been ordered by a willing American buyer, often months in advance of its actual delivery."

· "Production workers in manufacturing industries that use steel as a major input outnumber steelworkers by 20 to 1."

Griswold added that any legislation aimed at curbing steel imports is harmful, but the worst is quota-based legislation such as SISTA, because "quotas are one of the most damaging forms of trade restrictions. They redistribute wealth from consumers to domestic producers and to those foreign producers lucky enough to get quota rights." He concluded, "It is not the business of the U.S. government to intervene in the marketplace and favor one U.S. industry at the expense of other U.S. industries. Congress should reject calls for steel protection and reform the antidumping law to prevent future abuse."

Counting the Cost of Steel Production

Missile threat from "rogue states" requires development of U.S. defense system
Higher priority needed for collection of human intelligence to detect specific threats

"Disreputable regimes around the world have been steadily advancing their efforts to obtain the technical know-how and components to threaten their neighbors" and ultimately the United States with ballistic missiles, a new study from the Cato Institute declares. The United States should respond with development and deployment of a national missile defense system, which "should proceed at a measured pace," the authors recommend.

In "Ballistic Missile Proliferation: Does the Clinton Administration Understand the Threat?" Timothy M. Beard and Ivan Eland note that the five rogue states of Iran, Iraq, Libya, Syria and North Korea—all noted sponsors of international terrorism—"pose the greatest threat to the United States" in the post-Cold War world.

Beard and Eland offer a country-by-country review of the threats posed by the rogue states. They find that "each of those nations has made a diligent attempt to acquire ballistic missiles and some sort of WMD [weapons of mass destruction] capability either through an indigenous development program or by purchasing the technologies on the open market."

Syria, Iraq, Libya and Iran all have missiles that can strike at neighboring countries. North Korea, on the other hand, "poses the gravest threat to the security of the American homeland." Last August, North Korea tested a three-stage rocket for the first time, and "intelligence agencies tracked debris from the launch nearly 4,000 miles into the Pacific Ocean." The authors note that "North Korea may already have the capability to hit the periphery of American territory [Alaska and Hawaii], which is defenseless against a missile attack."

Although the authors recommend development and deployment of a limited national missile defense system, it should be done "at a pace that the technology can support and that test results will bear out. No matter what the threat is, rushing to develop a system that fails to work is not an attractive remedy." In addition, they suggest that "another prudent policy option would be to reallocate money spent on intelligence" from technical systems to human operations, since human operatives are "often more useful in tracking missile and NBC [nuclear, biological and chemical] proliferation."

Foreign Policy Briefing Paper no. 51

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February 11, 1999

Pioneer pension reformer describes real, successful working solutions to Congress
Architect of Chilean system details how private accounts can work in the United States

The architect of the world's first privatized social security system testified today before the full House Ways and Means Committee on the success of his country's conversion from a pay-as-you-go system to a fully funded, privately administered system. Such a change is among the policy options under consideration in Congress.

José Piñera, Chile's former minister of labor and social security and co-chairman of Cato's Project on Social Security Privatization, crafted the plan under which his country's retirement system was privatized almost two decades ago. His goals, "much better retirement benefits for all workers and control over their retirement benefits," have been achieved in spectacular fashion. Moreover, Piñera pointed out that the investment thus stimulated resulted in a doubling of the country's economic growth rate, a tripling of the Chilean savings rate and increased job creation.

Piñera, who was the committee's sole witness, said Chile's old pension system was "a one-size-fits-all scheme that exacted a price in human happiness." The new system, on the other hand, allows a worker "to determine his desired benefits and retirement age in the same way one can order a tailor-made suit."

Under the Chilean system, each employer deposits 10 percent of a worker's income in a private account that belongs to the worker. He or she then selects a private pension administration company to manage the money, and if the results are unsatisfactory, the worker can switch companies at any time. These companies are subject to government regulation in order to guarantee diversified, low-risk portfolios and also to prevent theft and fraud, but workers are not told which companies they must invest in. Workers were offered the choice of staying with the old system or switching to the new one and, in either case, were guaranteed the level of benefits established under the old system. Ultimately, 95 percent of Chileans opted for the personal accounts, which have provided an average rate of return of 11 percent-translating into benefits equal to 78 percent of workers' mean annual incomes over the previous 10 years of their working lives.

"The new social security system has made a significant contribution to the reduction of poverty by increasing the size and certainty of old age, survivors and disability benefits, and by the indirect but very powerful effect of promoting economic growth and employment," Piñera said. "Social security is no longer a political conflict. A person's retirement income will depend on his own work and on the success of the economy, not on the government or on the pressures brought by special interest groups."

José Piñera's testimony.

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February 9, 1998

Should three- and four-year-olds be required to attend public preschools?
Desire to "do something" should be tempered by the facts

"Across the country legislators are deciding whether to require public school districts to provide no-fee prekindergarten classes for all three- and four-year-olds," but they "should be careful to scrutinize the facts behind these programs," according to a new Cato Institute study released today. Preschool programs provide no lasting benefits to disadvantaged children, and middle-class children gain little if anything from preschool, the study finds.

In "Universal Preschool Is No Golden Ticket: Why Government Should Not Enter the Preschool Business," entitlements policy analyst Darcy Olsen presents an extensive review of research done on the subject over the past 35 years. She finds that, despite the assertions of advocates that early schooling of low-income children is an investment that pays off, "there is no empirical evidence that these programs will reduce the number of children who perform poorly in school, become teenage parents, commit criminal acts, or depend on welfare." In fact, studies show that any initial gains the children make disappear entirely within a few years of exiting the programs.

Olsen cites the Head Start program, which was launched more than 30 years ago as the child-centered component of Lyndon Johnson's War on Poverty, as the closest current counterpart to the proposed public preschools. The government's own investigative arm, the General Accounting Office, and the U.S. Department of Health and Human Services, which administers the program, both have found that Head Start has no lasting impact on the cognitive or socioemotional test scores of enrollees. Despite Head Start's lack of success, President Clinton's proposed fiscal year 2000 budget would increase spending on the program by $607 million. Clinton also proposes an additional $600 million "Early Learning Fund," for children from birth to age five.

"The desire to 'do something' for young children should be tempered by the facts," Olsen advises, noting that advocates of universal preschool often rely heavily on limited experiments, the methodology of which is flawed, or misinterpret the results of larger studies. "Given the facts-that preschool does not provide lasting benefits to disadvantaged or mainstream children-Congress and state legislators should resist calls to support or implement universal preschool for toddlers and young children," she concludes.

Policy Analysis no. 333

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February 8, 1999

Post-Cold War "peace dividend" long overdue, study of U.S. security threats says
Plans to increase military budget unnecessary because of benign threat environment

"Strategic realities have been altered dramatically by the end of the Cold War, but "U.S. foreign policy remains on autopilot," a new study from the Cato Institute observes, and "the time has come to reduce U.S. defense spending to match the benign threat environment in the world today." While both congressional leaders and the president have proposed higher military spending next year, the study recommends cuts instead.

In "Tilting at Windmills: Post-Cold War Military Threats to U.S. Security," Cato's director of defense policy studies, Ivan Eland, assesses purported threats to U.S. security. "Most of the Pentagon's military planning covers areas of the world that are not very critical to U.S. vital interests, which, contrary to conventional wisdom, indicates how few threats currently exist," he says.

Since the demise of the Soviet Union, no other superpower threatens American interests, and "the U.S. government tends to overstate regional threats (for example, Iraq and North Korea) because it still sees them through Cold War lenses." Saudi Arabia and its oil-rich neighbors "have combined economies that greatly exceed those of the weakened Iraq or Iran. Likewise, South Korea's economy surpasses that of North Korea. Those nations can afford to defend themselves and should be weaned from U.S. protection," Eland argues.

The "rogue's gallery of states hostile to the United States," North Korea, Iran, Iraq, Syria, Libya and Cuba together spend less than $15 billion a year on their military forces, compared with the U.S. total of $270 billion a year, Eland notes. Even if the military forces of the most capable rogue states (Iraq, Iran and North Korea) were more formidable, none is in "a valid strategic area of interest for the United States."

"Given the lack of a credible threat from any specific country, people who desperately search for enemies-that is, advocates of foreign intervention and a large defense budget-must settle on the vague notion of 'instability,'" Eland notes. But he adds that "instability in most parts of the world is rarely a threat to the United States," and the number of conflicts per year has actually declined by more than half since 1992. Most of those occurred within nations, not between them. Intervening anywhere and everywhere to battle instability when it doesn't adversely affect U.S. vital interests could merely motivate rogue states or terrorist groups to attack the American homeland with nuclear, biological or chemical weapons, he contends.

Policy Analysis no. 332

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