Who is protected by a tariff such as SB19?

Intentions are always good when legislators introduce bills that attempt to create jobs in their state.

Senate Bill 19 was a such a bill. Introduced by Sen. Tim Keller, D-Albuquerque and Rep. Larry Larranaga, R-Albuquerque, SB19 would have required a business to be established in New Mexico and paying state taxes for a few years before it could qualify for a preference law that gives local contractors a 5 percent advantage when bidding on public projects.

Evidently, SB19 has broad support – from the business community, legislators, and Gov. Susana Martinez. Yet Martinez vetoed the measure last week, because of a five-word phrase in the bill that became a concern.

The phrase that garnered her veto was the definition of a public body, which included the words “any entity on state-owned land.” She felt that the phrase leaves concerns that private businesses might be included under the definition.

SB19 is a protectionist tariff

Gov. Martinez has indicated she intends to look at the legislation again during the special session to be held later this year. My unsolicited advice to the governor between now and then is to read (or reread) Adam Smith’s “Wealth of Nations.”

In general, Smith rested his case for free markets on one fundamental proposition: “In every country it always is in the interest of the great body of the people to buy whatever they want from those who sell it cheapest.”

I ask, is giving “preferential treatment” to local construction businesses in the best interest of the great body of New Mexico? According to Rio Grande Foundation President Paul Gessing and Fox Business News reporter John Stossel, the answer is no.

Giving “preferential treatment” to local construction businesses is anti-free trade and does not necessarily serve the return-on-investment for the New Mexican taxpayer. According to Mr. Gessing’s position, in construction, there is a web of preferences (or, as Adam Smith would say, “barriers to free trade”) that has been erected in order to improve the prospects of supposedly New Mexico-based construction companies in receiving public construction projects in the state.

“In-state favoritism is bad policy,” Mr. Gessing says. I agree, and I think Adam Smith would have agreed as well.

After all, ultimately, it is taxpayers who lose out because of protectionist policies. If an out-of-state company can do the job better and/or cheaper (thus winning the firm the project), we’d be foolish not to hire it to do the job.

Senator Keller responded to Gov. Martinez’s veto of his bill with the following statement: “With an estimated 3,000 annual jobs at stake this bill is of urgent importance to the business community and job creation in our state.”

Of course job creation is of the utmost importance to our state, but are in-state protectionist policies good for the state overall?

The ‘seen’ and the ‘unseen’

It has been said that the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

The “3,000 jobs” Sen. Keller cites are the “seen.” (Although heavens knows promised jobs legislation has disappointed many times in the past.) The unseen is the placing into law what amounts to a protectionist tariff on the free trade of out-0f-state bids that may be in the best interest of the New Mexican taxpayer in the long run.

I think Gov. Martinez ought not ruminate too strenuously over those five words – “any entity on state-owned land” – over this summer and instead look at the bigger, unseen picture. SB19 is a tariff on out-of-state construction companies. Does this tariff benefit the great body of interest in New Mexico in the long run?

Molitor is a regular columnist for this site. You can reach him at tgmolitor@comcast.net.

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