Sweden v England: Quarter Final - 2018 FIFA World Cup Russia

Import Substitution: From Cars to Soccer Stars

Photo by Etsuo Hara/Getty Images

Setting Goals

Every four years in June, soccer fans around the world come together to watch the world’s most popular sporting event: the World Cup. Hosting the World Cup this year will cost Russia over $14.2 billion, but merely watching the World Cup causes millions in lost productivity as workers gather midday to watch their favorite countries. InsideView estimated the 2010 World Cup might have cost the U.S. economy as much as $121.7 million, if 21 million Americans watched for just 10 work-minutes a day.

For fans of successful soccer teams, national happiness levels rise — Barcelona even experienced a baby-boom nine months after its team beat Madrid in 2010. But for fans of teams that disappoint, especially the countries with rich soccer traditions (Italy or Germany this year), World Cup disaster often leads to national therapy and a debate about how to improve. Perhaps the best example of this in the past few World Cups has been England. England’s team was eliminated early in 2010 and 2014, and each time the national association in charge of English soccer responded with official reviews into what went wrong.

The question for England: why the early exits by England’s national team when England’s professional soccer league, the Premier League, is so successful? Founded in 1992, the Premier League has become the most popular in the world. No other league has even half as many fans. Part of the global appeal is because players come from all over the world to join the Premier League. But when World Cup comes around, many of these players participate on their national teams. Among the 32 national teams at this summer’s World Cup, 15 percent of the players were drawn from Premier League clubs. Given this dynamic, when England’s World Cup team lost earlier than expected four years ago, some critics asked for a different set of goals: increase the number of English players in the Premier League to as much as 45 percent by 2022.

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Reproduced from Wikipedia

Is England’s Premier League English Enough?

Across Europe, no country’s domestic professional league employs as many foreign players as England’s. Last year, almost 70 percent of the Premier League’s players were from elsewhere (compared to 56 percent in Italy or 49 percent in Germany). Could this be causing a hollowing out of talent when the World Cup rolls around? Does the home country need to be more “protected” by setting aside more spots for local talent? If the Premier League guaranteed more spots for English players in its professional teams, the thinking goes, England would have more professional players to choose for the national team. Quotas on the number of foreign players might enable more hometown heroes to compete. Trade theorists would recognize this as import substitution.

Import Substitution: What Is It?

Import substitution is a policy that calls for a country to prevent imports of certain goods so that it can build up its own local industry. It has been used in countries around the world, perhaps most famously in postwar Latin America. Many Latin American leaders thought that imports from North America and Western Europe were harming local producers. As a response, they placed tariffs or quotas on imports of various goods, from cars to computers, and hoped that local producers would be able to make the products at home.

While the strategy has some supporters (Alexander Hamilton advocated for it for the United States), it generally doesn’t work. Trade theory — and more importantly, experience with import substitution — points to a few reasons: First, the lack of competition from imports allows local industries to charge higher prices for lower quality products. This hurts local consumers but also makes those expensive local products unsellable abroad. And second, if those products are components in other products, the entire cycle repeats itself in downstream industries.

How English Should England’s League Be, According to Trade Theory?

According to trade theory, import substitution would immediately lower the Premier League’s overall quality. It would also inflate the salaries of English players, who would have less competition from imported players. And these English players would have less incentive to improve their game. In other words, import substitution would make the local industry (of English soccer players) bigger, but worse. The national team would have a wider but less skilled pool of players to choose for World Cups.

Most trade economists would call for a “free trade” approach to improving England’s national squad. This would allow foreign players to sign with English professional teams and drive up the level of competition. Any English player good enough to play in a “free trade league” should be good enough to compete abroad. That competition ensures that the pool of English-citizen players who can be picked to play for England at the World Cup are better than they would be in a very protected industry. Indeed, that may be what the Premier League — with its 70 percent foreign workforce — has done.

How Did England Perform at The Current World Cup?

For the first time in years, England’s team exceeded expectations at this summer’s World Cup. England’s squad was the third youngest in the tournament and reached the semifinals for the first time since 1990. Perhaps the Premier League’s openness to imports is bearing fruit.

But while the English have done well this year, another national team will wonder what they can do differently. Who might that be? One possibility is four-time champions Italy, who failed even to qualify for the 2018 World Cup. How will Italy react? Will its fans be seduced by import substitution’s siren call? Sure enough, less than a half hour after Italy officially failed to qualify, the leader of Italy’s populist League party, Matteo Salvini, took to Twitter to call for fewer foreign players in Italy’s professional league.

North America is excited to host the World Cup in 2026. For millions of fans, let’s hope the quality of play stays as high as possible through “free trade” leagues.