Local Procurement – or protectionism?

There were calls last week in  Scotland for public procurement to favour Scottish firms, as the Jimmy Reid Foundation published “Using Our Buying Power to Benefit Scotland”. I should say that this is a decent report, worth reading, and we may well come back to it in a later post.

But the report sparked the usual political knee-jerks around favouring local firms and so on. It’s not too different to Francis Maude and his “bias against UK firms” theories, where again the hint (as in this case) is that we should somehow tilt the playing field towards local or national bidders.

Let’s be clear what this means. This sort of appeal is always dressed  up as “supporting local business”, or “using public money to drive the national economy” and so on. But call it what you want, in economic and political terms it is Protectionism. It is restricting free trade to favour particular firms from a particular geography.

Now, if that’s what you want to do, let’s have a sensible, grown up, fact-based discussion about the merits or otherwise of such strategies. Because I suspect, as a theoretical example, that when IBM find they’re losing Scottish Government IT contracts to Tartan Technology plc (despite the fact Tartan are 20% more expensive), you might just see large import tariffs applied to Scotch Whiskey exports to the US.

That’s where all this ends.

Clearly, the firms in Scotland in some spend categories just aren’t good enough to win business from the public sector, or maybe they just don’t exist – let’s not get into the reasons why Scotland (or indeed many English regions) are not exactly hot-beds of innovation and entrepreneurship.

So to address that you need to promote enterprise in Scotland, or anywhere else, and there are many ways to do that. Grants, tax moves, training and development, innovation areas, education... But contaminating public procurement principles is not only a blunt instrument, it has wider implications that are not always considered properly.

Voices (8)

  1. Ronnie Morrison:

    Free trade is an option open to those Nations enjoying a favourable balance of payments. Countries which import more than they export because it’s cheaper fall into the hands of moneylenders (banker selling sovereign bonds) i.e. Greece and the other piigies. And make no mistake, the UK is in a constant adverse balance of payments scenario – we get away with it because the City of London plays host to the HQ of these moneylenders. But one day soon this whole house of cards will collapse because 1.3 quadrillion dollars of swaps and derivatives can only be financed with notional bank credit (i.e. not real money), and when the first domino falls – will it be Greece? – it will be the small countries like Norway & Denmark etc which will have their lifeboats swung out ready and have some notion of where they’re headed…..

  2. Plan Bee:

    IBM used to have a policy whereby in certain countries they tried to match their spend levels in the country to the revenue they received from that country. But thats not protectionism oh no….

    and the virtue of Free Trade is significantly distorted when the freedom of Trade is not erqual in each country. We clearly have this today, not necessarily in import duties but in far more subtle ways. An example of this is the perception of different countries applying in the EU competition rules with differing levels of rigour.

    Protectionism is a route to reduced worldwide propserity, but in some instances short term protectionism may benefit some countries.

    I think stretching the evils of protectionsim to inlude the rise of Hitler is stretching it somewhat

  3. Ian Makgill:

    When the crash struck at the end of 2008, I had the fortune to spend a few minutes talking with a senior economist in the World Bank. His diagnosis was that the downturn was going to be dramatic and far-reaching, but if we indulge in protectionism it will be much worse.

    His final sign off, was unequivocal, ‘protectionism meant it was possible for Hitler to seize power, and we all know what happened after that’.

    1. Dan:

      Have you ever heard of Godwin’s Law?

  4. Toni:

    Procuring local / buying local / employing local is always ends up as a strange thought.
    For my sins I am French and been living in Southampton for many many years. i work for a small company based in the city. Are they employing a local person in me? I lived here longer than some of the students from yorkshire coming for a course at the city’s university. Would they be more local than I am?

    An interesting debate in France about buying local french products. Is Renault a french car? most probably would say yes. Is the French government when buying Renault’s for their car fleet, actually buying local?
    In the background you need to know that Renault produced 646 300 cars and vans in France last year and close to 2.2 million cars and vans abroad (India, Russia, Romania, Spain, Slovenia, Turkey and now opening a new plant in Morocco).
    Buying a French name maybe but a local product is much more dubious…
    Loads of debate about what the French should do and buy French made products, ones that are manufactured in France. Sounds sensible as long as the supply chain has most of its feet in the country because if it is just for the final assembly then it might be missing the point slightly.

    In short buying local is a non sensical concept as such in a global economy + as one of the comments pointed buying local does not mean that it is necessarily cheaper / better / more sustainable / or actually local at all…

  5. Alis Sindbjerg Hemmingsen:

    So many people think that buying local saves the planet, from an environmental perspective. And a lot of governments these days rule from that belief and are not looking at the logic and facts behind.

    If you look at it from a household-consumer perspective you have to stop taking the car to the grocery shop and stop throwing food out. That will save the planet. I dont´remember the exact figures. But what I remember is, that it is amazing how far your food can “travel” by ship compared to taking the car to the grocery shop and stop throwing food out. If politicians just knew that, local procurement vs. global procurement would´nt be an issue!

    Let me know if i can support your articles on that subject angle.

  6. Rob:

    Interesting insight into the SME agenda….

    http://www.publicservice.co.uk/news_story.asp?id=18815

  7. eSourcingSensei:

    Hello Peter
    I think there is some miss conception with the idea behind favouring the use of SME’s within Government Procurement as it almost appears to be forced or dictated to by Francis Maude and others and the same applies when you want to favour “local” (however you want to define that, regionally, by country, by continent).
    I say that for one reason only:
    I agree with your comment about it being a potential restriction to free trade, and I am well aware that the idea behind it is to support British manufacturing and business.
    But we and all SME’s should not be fooled. The tenders offered by government tend to be very large and worth several millions of pounds. When you become a supplier to any mayor business whether private or public that comes with certain expectations and requirements. One of those would come under compensation requirments should anything go seriously wrong.
    Anyone would be happy with a supplier who maintains supply as required and performs well, no matter if they are major player or a SME. However tell me, if when things go wrong and there are losses in the millions that require compensation, do you or does anyone believe that the Government is going to turn around and say “that’s okay you are a SME and we will not pursue compensation in that same way as we would a much large corportaion”. I think not.
    I think SME’s will be required to compensate the same as any other larger business would when things go wrong. And whilst robust insurances may be a way to cover against some of those matters I do not think all avenues could be covered that way.
    And that for me is where the idea of favouring, apart from providing unfair competition, the SME with contract awards has the potential to fall flat on its face.
    There is a place for the SME, but contract awards need to be made as a result of an appropriate negotiation and tendering process and based on an accurate measure of the financial risks as well as benefits for all parties. Awarding to, and favouring, SMEs to fulfill a Governemnt guideline is not good sourcing practice.

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