Lehrer: Cruise ships navigate choppy public policy waters

As summer vacations begin millions of families board cruise ships in Florida New York Texas Boston Washington state and California to set sail for the Caribbean Europe or Alaska For countless it s a vacation with too much food lots of sunshine over-the-top entertainers and the luxury of needing to unpack only once Behind every beaming tourist is a quiet economic engine this industry supports middle-class livelihoods for tens of thousands of workers on board from places like India the Philippines and Ukraine about jobs in the United States and more in ports worldwide Modern cruise ships are floating cities They require people to run clean and maintain them as well as feed and care for guests on board Moreover they are the products of a vast ill-advised multi-continent industrial procedures strategy Like several industrial policies from solar panels to semiconductors the cruise provides a model of what is wrong with such policies Although U S politicians across the political spectrum have supported national policies to subsidize and protect key industries they are still a bad idea The cruise industry provides a vivid microcosm of how it works the policies cost billions of tax dollars benefit people they weren t intended to and harm the economies that impose them In the cruise industry Europe gets the worst deal It builds almost all the world s cruise ships Governments in Italy Germany and France own controlling shares of the major shipyards But cruise ship margins are razor-thin and all of the yards have required bailouts and subsidies The domain is tiny with only a handful of major buyers worldwide and all of them are massive sophisticated companies with leverage So Europe builds cruise ships at a loss for firms with tremendous bargaining power And the profits from operating the ships They mostly leave the European Union Of the four dominant cruise operators which control more than of the global field three Carnival Royal Caribbean and Norwegian are publicly traded in the United States put top executives in Florida and cater mainly to U S customers The fourth MSC is a Swiss company with countless cruise executives in Miami and is privately held Branding themes shows culinary design and much interior styling are produced by largely American and British teams primarily targeting U S or U K tastes The EU bolts together metal America and to a lesser extent the UK gets the money imagination and satisfaction There s more Even though the United States is a net beneficiary of the EU s industrial protocol American laws ruin the win Enter the Visitor Vessel Services Act PVSA enacted in That law requires that any cruise entirely within the United States take place on a ship owned staffed and built by Americans This is impossible because the United States doesn t build cruise ships and never has To comply with the PVSA any cruise ship that begins and ends in a U S port must first stop in a foreign country Worse unless the foreign stop is in a distant port not Canada Mexico the bulk of Central America or any nearby islands the ship must return to the same U S port where it began its cruise The costs are real Ships sailing from the West Coast to Alaska or Hawaii sometimes make unnecessary foreign stops where nobody can disembark More damagingly the PVSA outlaws entire business models You can t run a one-way family cruise from New York to Port Canaveral as a theme park vacation kickoff You can t offer foliage-season cruises from Baltimore to Portland Maine Even a closed-loop Miami Key West New Orleans-Miami trip is illegal Billions in prospective U S tourism revenues are lost annually There is no offsetting gain in protecting cruise-ship building jobs Throughout the post-World War II era the United States built one large guest vessel the ocean liner SS United States which was launched in Although it was different from a cruise ship small by modern standards it received important taxpayer funding based on its possible military use Why does the PVSA endure Likely due to the Jones Act a maritime law that protects a real if inefficient and economically destructive domestic cargo industry by imposing U S -built-owned-operated and crewed requirements The PVSA just hides under its lobbying umbrella Ultimately the cruise industry is a development examination of how industrial procedures functions Instead of creating strategic threshold or national prestige it subsidizes someone else s value creation fails to deliver the intended profit or innovation prevents productive economic activity and creates entrenched special interests If this is what happens with cruise ships why should we expect a different outcome with microchips automobiles or solar panels Industrial program is a bad idea Eli Lehrer is president and co-founder of the R Street Institute InsideSources