This week we talk about the Merchant Marine Act, trade routes, and incentives.

We also discuss Wesley Jones, foreign competition, and artificial monopolies.

Recommended Book: The Quantum Thief by Hannu Rajaniemi

Transcript

In 1920, the then-Senator for the state of Washington, Wesley Jones, who was also the chairman of the Senate Commerce Committee, introduced the Merchant Marine Act as a method by which the American merchant marine could be sustained and remain competitive in the face of external competition, and in the wake of the destruction of a bunch of ship during WWI.

The US Merchant Marine is all the commercial water-going vessels that are US flagged, and the crews of these vessels. During peacetime, these boats and ships conduct trade and other services along the United States’ coasts and throughout its internal waterways, its rivers and lakes. During wartime, these vessels and their crews are tapped to help move troops and weapons and supplies for offensive or defensive military efforts.

The theory of this proposed Act, then, was to ensure that the US Merchant Marine would remain well-funded and well-taken-care-of, because lacking some kind of government support, there was a good chance it would either slowly degrade, not having enough business to pay for itself, or—and this has been a persistent concern for similar pseudo-fleets of merchant vessels around the world for the past few hundred years—it would fall into disrepair because it would be outcompeted by vessels and crew coming in from elsewhere that would charge lower prices, creating unsustainable economics for the locals and thus slowly degrading this economic and military asset.

When this Act was proposed, in 1920, the preservation of this asset was on the mind of many US politicians, as the world had just emerged from World War I, and in that and previous conflicts, the US Merchant Marine had been pretty vital to ensuring the US eventually came out on the right side of things. It was also fundamental to the rebuilding of the US economy following difficult conflicts, because the moving of cargo from city to city along coastlines, and throughout long expanses of rivers—getting food from place to place, getting building supplies where they need to go—has always been important, especially following periods in which there isn’t a lot of building going on, and when supplies chains are reoriented toward other purposes, like fighting.

So in addition to all the language the helps regulate trade within US waters and between US ports, and which says how the crew of such vessels have to be treated, this Act was also meant to provide protected status to US Merchant Marine vessels and crew, giving them a pseudo-monopoly on certain types of trade activities in the US.

It was also—and this is important context—meant to give Senator Jones’ state of Washington a de facto monopoly on trade with Alaska. But it was sold to the rest of Congress and the country as a means of bolstering the funds flowing into the US Merchant Marine. Section 27 of this act, often called the Jones Act, requires that all goods transported between US ports be carried by US vessels built in the US, flying the US flag, owned by US citizens and with majority US citizen and permanent US resident crews.

What I’d like to talk about today are the other consequences of the Merchant Marine Act of 1920, and in particular the Jones Act component of it, and why there’s been renewed opposition to the Jones Act in recent months.

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The logic of the Jones Act, at least on the surface, is pretty straightforward.

If you’re worried about foreign competition coming in and taking all the shipping jobs, swooping in from areas where crews aren’t paid as much, and where ships can be built cheaper, so they can charge less than US-made and -manned ships, all you have to do is require all the ships and people on the ships are of US-origin, and you’re good to go. Those foreign competitors aren’t allowed to take the jobs, and that sets the standards in a different place, allowing US vessels and their crew and owners to charge whatever they need to charge to sustain themselves.

This, in theory at least, should also stimulate the US ship-building industry, as that monopoly means anyone who builds new ships stands a pretty good chance of making their money back. After all, there’s no dramatically cheaper competition out there, so you’ve got relatively little downward price pressure and seemingly plenty of customers, because there’s a lot of US coast, and a lot of internal waterways that have traditionally be used for trading purposes.

In practice, though—and this isn’t uncommon with protectionist measures; things that seem like they should work for the intended purpose actually leading to other, less ideal outcomes—the Jones Act is often blamed for increasing prices on pretty much everything, and for increasing prices dramatically in places like Hawaii, Alaska, Puerto Rico, and other US territories, like American Samoa and Guam, that are reliant on imports to survive.

If open competition isn’t allowed, prices don’t tend to go down, and in fact they can instead go up, especially if the number of entities providing these services drops over time.

That means places without other options, without the ability to ship food and electrical equipment and other such fundamentals using highways or regularly flying, large cargo planes, they are forced to pay increasingly high cargo ship prices, instead. And there’s no chance that a competitor will emerge, because there just aren’t enough ships available to haul all the stuff these places need at a regular, sustaining, cost-effective cadence.

These higher prices are kind of built into the monopoly model, but they’re made even worse by the state of the US shipbuilding industry, which for a while, from about the mid-1800s until the mid-20th century, was top of the line, producing more ships than any other country during WWII, and before that churning out some of the best and fastest ships in the world for trade purposes.

But after the two world wars, and a surge in shipbuilding infrastructure that was rapidly deployed in the first half of the 20th century, US government subsidies for the industry began to dry up, many of the ships built during the war were sold to foreign countries and private owners for a quick buck, and most of that infrastructure was mothballed, the more efficient processes it developed decommissioned in favor of less-efficient, more expensive approaches.

During WWI, the US churned out more then 5,000 ships at the over 100 shipyards it had operating at the time, and was able to produce more naval tonnage in three years than it had produced in the entire history of the nation’s existence, up till that point.

Post-WWI, though, the US was already less efficient than foreign competitors, especially European competition, and post-WWII, the emergence of overland infrastructure in the US, like the burgeoning national highway system, made shipping via trucks increasingly competitive with the previously dominant approach of shipping via internal waterways.

Airline shipping became a competitor, too, around that same time. So the technological developments and new overland infrastructure of the post-World War era meant that in the US, although coastal shipping in particular remained a solid option for many types of shipping, using trucks on the nation’s growing highway system usually ended up being cheaper and easier, and in some cases much faster, too, and eventually air cargo became even more competitive for some types of jobs and clientele.

The oil crises of the 1970s amplified this trend, collapsing the market for oil tanker ships and seriously damaging the overall shipbuilding industry, including in the US. Even with new US government subsidies meant to support the flailing industry, building ships in the US usually just didn’t make much economic sense, the cost of building on US soil costing nearly twice as much as it did in some foreign ports.

During the Reagan administration, even those 1930s-era subsidies were dropped, and that led to further collapse in the US shipbuilding industry. Before the end of these subsidies, the US was producing about 20 commercial ships per year, already a catastrophic drop from the World Wars era, but after the end of the subsidies, it produced five commercial vessels in the next eight years, combined.

Some new subsidies were introduced in the 90s, when the Cold War ended, but the industry was in such bad shape at that point, orders from the US military and from commercial traders often went unfulfilled, or went wildly over budget. Some ships were finished, but riddled with so many flaws that they were unusable.

US shipbuilders blamed foreign government subsidies, claiming they were really bad at their jobs because other countries were giving their shipbuilding entities more money to exist, and President Bill Clinton was able to secure an agreement with many of the US’s trading partners to temper these subsidies a bit, in response to those complaints. Though when US shipbuilders realized this agreement would also mean they would lose some of their subsidies, in the tradeoff, they switched to campaigning against it, and the US ultimately wasn’t involved in that agreement.

The US’s shipbuilding efforts improved a bit in the late-90s and early 2000s, but efforts elsewhere were better, and while the US produced about 3% of all commercial shipping tonnage, of all trade-related naval vessels, basically, in the early 1970s, by 1999, that was down to 0.25% of global tonnage.

At this point, following that aforementioned ag...