Cruise ships are amazing, and massive public policy

As summer break begins, millions of families board cruise ships in Florida, New York, Texas, Washington and California to the Caribbean, Europe or Alaska. For many, it’s a vacation with the luxury of having too much food, lots of sunshine, tough entertainers and only having to unpack once.

Behind all the smiling tourists is a quiet economic engine. The industry supports tens of thousands of workers in the middle class, from locations such as India, the Philippines and Ukraine, employ around 290,000 people in the US and at ports around the world.

Modern cruise ships are floating cities. They require people to run, clean and maintain, and feed and care for guests on board. Moreover, they are the products of vast and unwise multicontinental industrial policy strategies. Like many industrial policies, from solar panels to semiconductors, Cruise offers a model of what is bad about such policies.

While US politicians across the political spectrum have supported national policies to subsidize and protect “major” industries, they are still a bad idea. The cruise industry offers a clear microcosm of how it works. Policy spends billions of dollars in taxes, benefits people who didn’t intend them and harms the economy that imposes them.

Europe is making the worst deal in the cruise industry. Build almost every cruise ship in the world. The Italian, German and French governments own the controlling shares of major shipyards. However, the cruise ship’s margins are thinner than razors, and every yard needs relief and subsidies. The market is small, with only a few major buyers all over the world, all of which are large and sophisticated companies with leverage. As a result, Europe is losing its cruise ships because of businesses with incredible bargaining power.

And what are the benefits from running the ship? They mainly leave the European Union. Of the four dominant cruise operators who manage more than 80% of the global market, three (Carnival, Royal Caribbean, Norway) have been released in the US, with top management in Florida, serving primarily US customers. The fourth MSC is a Swiss company with many cruise executives in Miami and is private.

Branding, themes, shows, culinary designs, many interior styling are produced primarily by American and British teams and are primarily targeted at US or UK preferences. The EU bolts metal together. America and, to a lesser extent, the UK have money, imagination and joy.

There are more. The US is the net beneficiary of EU industrial policy, but American laws are ruining victory. Participate in the Passenger Ship Services Act (PVSA) enacted in 1886. The law requires that full cruises within the United States be made on ships owned, staffed and built by Americans. This is not possible because the US does not build and never have cruise ships. To comply with PVSA, cruise ships that begin and end at US ports must first be stopped abroad. Worse, unless the foreign stop is in a “far” port (Canada, Mexico, most or nearby islands in Central America), the ship must return to the same US port where it began its cruise.

The cost is real. Ships sailing from the West Coast to Alaska and Hawaii can create unnecessary foreign stops where no one can disembark. Additionally, PVSA bans the entire business model. You can’t run a one-way family cruise from New York to Port Canaveral as a theme park vacation kickoff. We cannot offer a seasonal leaf cruise from Baltimore to Portland, Maine. Closed Loop Miami – Key West – Even travelling to New Orleans Miami is illegal.

The potential billions of US tourism revenues are lost every year. There is no offsetting benefit to protecting the work of a cruise ship building. Throughout the post-World War II era, the US built one large passenger ship, the Ocean Liner SS US, launched in 1951. Although it was different to a small cruise ship by modern standards, it received significant taxpayer funds based on potential military use.

Why does PVSA stand it? Perhaps the Jones Act protects the actual (inefficient and economically destructive) domestic freight industry by imposing US-built operations and crew requirements. The PVSA is hidden under its lobbying umbrella.

Ultimately, the cruise industry is a case study of how industrial policy works. Instead of creating strategic capabilities and national fame, it can subsidize someone else’s value creation, prevent intended benefits or innovation, prevent productive economic activity, and generate entrenched special benefits. What happens on a cruise ship, why should we expect different results on a microchip, car, or solar panel? Industrial policy is a bad idea.

Eli Lehrer is president and co-founder of R Street Institute. He wrote this for Insidesources.com.