Uncle Jone & Our Maritime Cabotage Law

Paradoxically, Adam Smith, the vociferous proponent of Free Market Economy advocated the idea of Cabotage Law - the law that severely restricted foreign ships to call British shores. That’s a humungous departure from his theory of free market. Jones Act of USA was more of a retribution to the British restrictions on US trading ships. Then it went viral and continues till date. Interestingly the most vocal hardliners of this restrictive trade practice, like US, UK, Australia, and India have lost heavily on this lucrative trade and display a poor market share in world shipping - even when you add their tonnage through FOC flags. And the liberal Scandinavian nations like Norway, the Netherlands, Greece and Germany have stamped their authority in the industry. The hardliners used the insecurity of the World War II to reinforce the idea and till today the idea is pushed vociferously in countries like India much to the detriment to their home economy and particularly their shipping industry. As to why Adam Smith had this aberration or exception is very clear from the history of that period of later part of 18th century. The Dutch beat the British hands down in trade and commerce. Since the excess grains could not be exported due to high export duty, the farmers were in a pitiable state. The general economy was in comparatively bad state. Adam Smith was a strong nationalist. He knew that the Dutch were great traders and prosperous. It was not possible to compete with them without restricting their ships to British shores and its colonies. However, after the World War II things changed. Colonies were freed. British, US, and other adherents to Cabotage Law suffered due to this restrictive Law. They had to shift to Panama, Liberia, and Isle of Mann etc. Their coastal shipping was monopolized by a few fat, incompetent, subsidized, and inward looking companies. The ship building industries in them had a similar fate and had to survive on expensive defense contracts. Where as the ship building yards in Germany, other Scandinavian countries, and Japan became global leaders. South Korea and China joined the party later. German, Dutch, Norwegian, Greek, and Japan became world leaders in the shipping industry. Later, Taiwan, South Korea, & Singapore joined the party. And the countries like US, UK, & Australia, etc stagnated or declined. They were forced to migrated their tonnage to FOC or off-shore locations. India being a developing nation with a sickly shipping industry, inherited from the colonial era, did not have the good fortune or capital to take the FOC route and still continues in its pitiable journey. Maritime Cabotage can best be explained this way. Permit a few domestic players on the coast. Tax them heavily on every possible way. Further cut their efficiency by red tapes, permits, and licenses etc. Set the Unions on them. Further escalate their costs by forcing them to pay bribes to government pain-points. Once in a while, dole out a few dollies so that they keep quiet. Then allow them to charge what they like to the home user. But competition will still be there from unexpected alternatives like roadways and the rails. Ultimately, the ROE will be lesser than their brethren in international waters with open flags. So, those already in the business have this false sense of protection from the government and shall keep themselves content with whatever ROE they manage. Sometimes, they would click a government deal and make a killing and go partying. But then that too is limited in scope and happens far too infrequently. They would lose all their appetite to scale up and compete. They would constantly look up to the government with folded hands for more dollies. They would sing the same song for the justification of Cabotage, as sung by Uncle Jones. After all, how can Uncle Jones be wrong? He is from the land of freedom and opportunity - the USA!