Protectionism – is it good for economy in the long term?

I have been having this question in my mind since a very long time and unfortunately could not find anything that would give me right answer.

After reading much about President Obama’s stimulus plans & his policy over outsourcing jobs, things do not look very promising for Indian companies. There is a good news article written on BusinessWeek.com that outlines how his policies would affect Indian IT & outsourcing companies in India.  In one of his policies, Obama outlines how he plans to prefer giving jobs to more native americans than immigrants.  Sort of protectionism !

I can obviously understand the rationale behind him doing so, i.e, to create more job opportunities for the americans and try to revive the economy.  Good enough reason !  On another note, he is not ‘forcing’ the companies to stop doing outsourcing to other countries, he has only stopped them from availing the tax benefits. If the company thinks they get good profit by moving work offshore (at lower labour & operating costs) they might as well continue to do so, but obviously need to pay more tax.

What impact this change in policy will have on US itself? Is it being more protectionist and changing its image of the most open economy in the world? Is it moving towards protectionism?

I have heard cries about how US is playing its foul play and being protectionist over its economy and assets and how they should not do it. In this context, when I think of India, I do not find much difference itself in what India have been doing in past.

Protectionism has been happening in democratic India since a very very long time. May be from the time of its independence from the British rule. The very form of protectionism in India is called “quote & reservations” in education, government jobs & quite a few other areas for few typical casts & religions. The original idea of cast reservations in education & jobs was to give the backward class sectors an opportunity to learn and upbring themselves on par with other (so called advanced) societies in India. However, over the years, this has become misused over and over again and has totally lost its original meaning.

Year on year, the governments in India have been unable to remove, or even reduce the reservations and unfortunately moving towards allocating it to more casts. Considering today’s world, I believe the concept of “reservations” is outdated for for a developing country like India. We need talented individuals to come forward and help build the nation.

What worries me, in long term that, if the countries such as US & those in Europe go further on the way of protectionism and impose policies that would stop (or significant impact on) immigration and inflow of talents from India and other developing countries, where would this talent pool go? The dearth of opportunities for higher education and government jobs in India for talented individuals is making them look for private sector or move out of country for seeking better opportunities and if the developed countries shut their doors, what will happen?

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